<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
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. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
=================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shares, without par value.......................... $124,000,000 $ 37,576
=================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purposes of calculating the registration fee.
------------------
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 Common Shares of Stoneridge, Inc.
(which number includes 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 Common Shares of Stoneridge, Inc.
(which number includes Common Shares subject to the International
Underwriters' overallotment option). The prospectuses will be identical in all
respects except that each will contain different front and back cover pages and
the sections under the captions "Underwriting" will differ in certain respects.
This Registration Statement also covers the registration of and contains a
form of prospectus (the "Company Prospectus") relating to the offering of
Common Shares directly by the Company to certain directors, executive
officers and other management employees of the Company. 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 August 8, 1997
Shares
STONERIDGE, INC.
COMMON SHARES
------------------
All of the Common Shares offered hereby are being offered by the Company. Of
the Common Shares being offered, shares are being offered initially in
the United States and Canada by the U.S. Underwriters and 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. It is currently anticipated that the initial
public offering price per Common Share will be between $ and $ .
All such shares are being offered at the initial public offering price per
Common Share less underwriting discounts and commissions. See "Underwriters" for
a discussion of the factors to be considered in determining the initial public
offering price.
In addition to the Common Shares being offered hereby, up to 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."
------------------------
APPLICATION WILL BE MADE TO LIST THE COMMON SHARES ON THE NEW YORK STOCK
EXCHANGE UNDER THE PROPOSED SYMBOL "SRI."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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
$ .
(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
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 , 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
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>
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PAGE
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<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 9
The Company........................................................................... 13
Use of Proceeds....................................................................... 14
S Corporation Distribution and Management Reinvestment................................ 14
Dividend Policy....................................................................... 15
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.................................................................. 44
Description of Capital Shares......................................................... 46
Shares Eligible for Future Sale....................................................... 48
Certain United States Federal Tax Consequences for Non-U.S. Holders of Common
Shares.............................................................................. 50
Underwriters.......................................................................... 52
Experts............................................................................... 55
Legal Matters......................................................................... 55
Additional Information................................................................ 55
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."
3
<PAGE> 5
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 purchase of 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 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 1950), Ford
Motor Company (since 1919), Deere & Company (since 1965), and Navistar
International Corporation (since 1973). Approximately 72% of the Company's 1996
net sales were derived from the automotive market and approximately 27% were
derived from the medium and heavy duty truck and agricultural vehicle markets.
The Company's net sales were $363.7 million in the year ended December 31, 1996
and $108.1 million for the three-month period ended March 31, 1997.
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 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 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
4
<PAGE> 6
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. 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 and are sold principally to the automotive
market.
These four product categories accounted for 52%, 29%, 11% and 8% of the
Company's 1996 net sales, respectively, and 47%, 27%, 10% and 16% of first
quarter 1997 net sales, respectively.
The Company believes that it holds the number one or two market position in
products which include (i) power and signal distribution systems for the North
American agricultural vehicle market and (ii) driver instrumentation and
information display systems for the worldwide 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 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 A.B. ("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 the remaining 55% of the outstanding
stock of Berifors. As a result of this acquisition, the Company will be a
leading worldwide supplier of instrumentation displays for heavy duty trucks to
Mercedes Benz, Volvo and Scania. 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. See "Risk
Factors -- Reliance on Major Customers; Discontinuance of Certain Contract
Manufacturing Business" and "The Company."
The Company's principal executive offices are located at 9400 East Market
Street, Warren, Ohio 44484, and its telephone number is (330) 856-2443.
5
<PAGE> 7
THE OFFERING
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Common Shares offered......................... shares
U.S. offering............................... shares
International offering...................... shares
Company offering............................ shares(1)
Common Shares to be outstanding
after the Offering.......................... shares
Use of proceeds............................... Between approximately $81.0 million and $85.0
million to pay the S Corporation Distribution
and $ million to repay certain
indebtedness. See "Use of Proceeds."
Proposed New York Stock Exchange symbol....... SRI
</TABLE>
(1) The Company is offering Common Shares 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
(the "Company Offering"). Such shares will be sold directly by the Company
with no underwriting discounts or commissions payable thereon. As used
herein, the term "Combined Offering" includes both the Company Offering and
the underwritten initial public offering. See "S Corporation Distributions
and Management Reinvestment."
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 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, not less than $5.0 million of such distribution will be used by
Management Investors to purchase Common Shares directly from the Company in the
Company Offering (the "Management Reinvestment").
6
<PAGE> 8
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 three-month periods ended March
31, 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- ------------------
1992(1)(2) 1993(1)(2) 1994(2) 1995(3) 1996(3)( 1996 1997
---------- ---------- -------- -------- -------- ------- --------
UNAUDITED UNAUDITED
(IN THOUSANDS, EXCEPT 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 $83,455 $108,064
Gross profit.................. 44,190 47,480 60,557 66,331 75,606 18,528 25,939
Operating income.............. 15,958 15,610 28,015 28,822 28,912 6,601 13,714
Interest expense, net......... 2,686 2,221 2,344 2,014 4,317 1,061 913
Income before income taxes.... 13,272 13,389 25,671 26,808 24,595 5,540 14,534
Net income.................... 9,755 8,995 26,666 26,154 24,071 5,420 14,398
PRO FORMA DATA:
Income before income taxes.... $ 13,272 $ 13,389 $ 25,671 $ 26,808 $ 24,595 $ 5,540 $ 14,534
Provision for income
taxes(5).................... 5,548 5,597 10,730 11,206 10,295 2,332 6,034
-------- -------- -------- -------- -------- ------- --------
Pro forma net income.......... $ 7,724 $ 7,792 $ 14,941 $ 15,602 $ 14,300 $ 3,208 $ 8,500
======== ======== ======== ======== ======== ======= ========
Pro forma net income per
share.......................
Weighted average number of
shares outstanding..........
OTHER DATA:
Research and development
expense..................... $ 4,342 $ 5,096 $ 5,997 $ 6,664 $ 9,263 $ 2,198 $ 2,997
Capital expenditures.......... 12,369 5,669 9,046 14,767 14,083 3,633 2,656
Depreciation and
amortization................ 6,251 6,696 6,870 7,979 9,966 2,468 3,055
EBITDA(6)..................... 22,209 22,306 34,885 36,801 38,878 9,069 16,769
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 39,732 $(33,847)
Total assets..................................................... 182,744 187,165
Long-term debt, less current portion............................. 39,940 39,940
Shareholders' equity............................................. 93,951 14,141
</TABLE>
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(Footnotes on following page)
7
<PAGE> 9
(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. 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 or cash
provided by operating activities (both as determined in accordance with
generally accepted accounting principles), 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
$5.0 million Management Reinvestment pursuant to the Company Offering, and
the reinstatement of $4.4 million and $6.2 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."
8
<PAGE> 10
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. In 1996,
the Company's sales under this arrangement totaled approximately $105.6 million
and 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. 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 raise or maintain gross margins on product sales to
OEMs.
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
9
<PAGE> 11
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. 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 Support."
LABOR RELATIONS
As of June 30, 1997, the Company had about 3,800 employees, approximately
1,000 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."
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
10
<PAGE> 12
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. In addition, the future success of the Company
will depend, among other factors, on 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 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 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 15% 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.
CONTROL BY PRINCIPAL SHAREHOLDERS
Following the completion of the Combined Offering, D.M. Draime, Draime
family members and family trusts (collectively, the "Draime Family") are
expected to own approximately % of the outstanding Common Shares (or
approximately % 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 tangible book value per share of the Common Shares. Accordingly,
purchasers of the Common Shares offered hereby will incur
11
<PAGE> 13
immediate and substantial dilution in tangible book value per share of the
Common Shares of $ , assuming an initial public offering price of
$ per Common Share. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately upon consummation of the Combined Offering, the Company will
have outstanding Common Shares ( if the Underwriters exercise in
full their overallotment option). Of such Common Shares ( 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
Common Shares will be eligible for sale in the public market without
restriction. An additional Common Shares will be eligible for resale by
existing shareholders who are affiliates, subject 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 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
12
<PAGE> 14
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. Effective
upon the completion of the Offering, the Company expects to acquire the
remaining 55% of the outstanding stock of Berifors by issuing Common Shares to
the sellers. As a result of this acquisition, the Company will be a leading
worldwide supplier of instrumentation displays for heavy duty trucks to Mercedes
Benz, Volvo and Scania.
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 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 intends to
continue to pursue strategic acquisitions and alliances in both domestic and
international markets. See "Business -- Competitive Advantages -- International
Presence" and "Business -- Growth Strategy -- Expand Penetration of
International Markets" and "-- Pursue Strategic Acquisitions and Alliances."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the Combined Offering are estimated to
be approximately $ million (approximately $ million if the
Underwriters' overallotment option is exercised in full), assuming an initial
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company intends to use between approximately $81.0 million and $85.0
million of the net proceeds to fund the S Corporation Distribution and
approximately $ million to repay indebtedness under the Company's revolving
loan facility. The revolving loan facility matures on June 30, 2001 and requires
interest to be paid quarterly at the Company's option at either (i) prime rate
or (ii) LIBOR plus 1% to 1.5%, 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 Financial Statements.
After the Combined Offering, the Company will have approximately $
million available under its revolving loan facility. It is anticipated that the
Company will use amounts available under its bank credit facilities for working
capital and general corporate purposes, including possible acquisitions. See
"Risk Factors -- Acquisition Strategy," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "The Company -- Proposed
Acquisition."
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. As a result, estimated current
deferred tax assets of $4.6 million and noncurrent deferred tax liabilities of
$6.4 million will be recorded with an offsetting charge to net income. This
one-time net charge of $1.8 million is expected to reduce net income for the
third quarter of 1997. No 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 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 not less than $5.0 million of such distribution will be used by the
Management Investors to purchase Common Shares directly from the Company in the
Management Reinvestment pursuant to the Company Offering.
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.
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<PAGE> 16
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
existing revolving loan facility and the proposed new credit facility impose
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.
CAPITALIZATION
The following table sets forth as of March 31, 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, an
assumed $83.0 million S Corporation Distribution, an assumed $5.0 million
Management Reinvestment pursuant to the Company Offering, and the reinstatement
of approximately $1.8 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 $ per share (after
deduction of underwriting discounts and estimated expenses of the Combined
Offering) and the application of the estimated net proceeds therefrom. 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>
MARCH 31, 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....................... $ 122 $ 122 $
-------- --------- ---------
Total short-term debt.............................. $ 122 $ 122 $
======== ========= =========
Long-term debt:
Term loans.............................................. $ 3,442 $ 3,442 $
Revolving credit facility............................... 36,498 36,498
-------- --------- ---------
Total long-term debt............................... 39,940 39,940
-------- --------- ---------
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: shares pro forma and
shares pro forma as adjusted............... -- -- --
Additional paid-in capital.............................. 9,315 9,315
Retained earnings....................................... 84,636 4,826
-------- --------- ---------
Total shareholders' equity......................... 93,951 14,141
-------- --------- ---------
Total capitalization............................ $133,891 $ 54,081 $
======== ========= =========
</TABLE>
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<PAGE> 17
DILUTION
The aggregate net tangible book value of the Company as of March 31, 1997
was $63.5 million, or $
per Common Share.
Assuming the sale of the Common Shares in the Combined Offering at
an assumed initial public offering price of $ per share and the
application of the net proceeds therefrom to fund the S Corporation Distribution
and repay debt, and assuming the change in the Company's tax status, the pro
forma aggregate net tangible book value of the Company at March 31, 1997 would
have been $ million, or $ per Common Share. This represents an
immediate increase in net tangible book value of $ per Common Share to
existing shareholders and an immediate dilution of $ 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........................ $
Net tangible book value per share at March 31, 1997(1)............... $
Increase attributable to price paid by investors in the Combined
Offering..........................................................
Decrease attributable to S Corporation Distribution..................
Decrease attributable to change in tax status, net...................
--------
Pro forma net tangible book value per share after the Combined
Offering..........................................................
--------
Dilution in net tangible book value per share to new investors(2)...... $
========
Assuming the Underwriters' overallotment option is exercised in full, pro forma net
tangible book value upon completion of the Combined Offering would be $ per share,
the immediate increase in pro forma net tangible book value of shares owned by existing
stockholders would be $ per share, and the immediate dilution to new investors in the
Combined Offering would be $ 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 March 31, 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 the initial public offering price of $ per share).
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................... % $ % $
New investors........................... % %
------- --- -------- ---
Total................................. 100% $ 100% $
======= === ======== === =======
</TABLE>
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<PAGE> 18
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 three-month periods ended March 31, 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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------------------------------------------- -------------------
1992(1)(2) 1993(1)(2) 1994(2) 1995(3) 1996(4) 1996 1997
---------- ---------- --------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT 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 $ 83,455 $108,064
Cost of goods sold........................ 131,396 139,933 164,974 211,712 288,142 64,927 82,125
-------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 44,190 47,480 60,557 66,331 75,606 18,528 25,939
Selling, general and administrative
expenses................................ 28,232 31,870 32,542 37,509 46,694 11,927 12,225
-------- -------- -------- -------- -------- -------- --------
Operating income.......................... 15,958 15,610 28,015 28,822 28,912 6,601 13,714
Interest expense, net..................... 2,686 2,221 2,344 2,014 4,317 1,061 913
Gain on the sale of fixed assets.......... -- -- -- -- -- -- (1,733)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes................ 13,272 13,389 25,671 26,808 24,595 5,540 14,534
Provision (credit) for income taxes....... 3,517 4,394 (995) 654 524 120 136
-------- -------- -------- -------- -------- -------- --------
Net income................................ $ 9,755 $ 8,995 $ 26,666 $ 26,154 $ 24,071 $ 5,420 $ 14,398
======== ======== ======== ======== ======== ======== ========
PRO FORMA DATA:
Income before income taxes................ $ 13,272 $ 13,389 $ 25,671 $ 26,808 $ 24,595 $ 5,540 $ 14,534
Provision for income taxes(5)............. 5,548 5,597 10,730 11,206 10,295 2,332 6,034
-------- -------- -------- -------- -------- -------- --------
Pro forma net income...................... $ 7,724 $ 7,792 $ 14,941 $ 15,602 $ 14,300 $ 3,208 $ 8,500
======== ======== ======== ======== ======== ======== ========
Pro forma net income per share............
Weighted average number of shares
outstanding.............................
OTHER DATA:
Research and development expense.......... $ 4,342 $ 5,096 $ 5,997 $ 6,664 $ 9,263 $ 2,198 $ 2,997
Capital expenditures...................... 12,369 5,669 9,046 14,767 14,083 3,633 2,656
Depreciation and amortization............. 6,251 6,696 6,870 7,979 9,966 2,468 3,055
EBITDA(6)................................. 22,209 22,306 34,885 36,801 38,878 9,069 16,769
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------
DECEMBER 31, PRO FORMA
---------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(7) ADJUSTED(8)
-------- -------- -------- -------- -------- -------- ------------ -----------
(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 $ 39,732 $(33,847)
Total assets................... 122,447 130,162 119,915 172,298 178,487 182,744 187,165
Long-term debt, less current
portion...................... 35,459 29,784 28,845 47,999 51,156 39,940 39,940
Shareholders' equity........... 46,283 49,946 63,112 73,720 84,633 93,951 14,141
</TABLE>
- ---------------
(Footnotes on following page)
17
<PAGE> 19
(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. 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) 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 or cash
provided by operating activities (both as determined in accordance with
generally accepted accounting principles), 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
$5.0 million Management Reinvestment pursuant to the Company Offering, and
the reinstatement of $4.4 million and $6.2 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 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."
18
<PAGE> 20
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% of 1996 net
sales, respectively, and 47%, 27%, 10% and 16% of first quarter 1997 net sales,
respectively. Approximately 72% of the Company's 1996 net sales were derived
from the automotive market and approximately 27% were derived from the medium
and heavy duty truck and agricultural vehicle markets. The Company operates in
one business segment.
The Company has completed several acquisitions. 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
investment.
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
reimbursed by the customer, in which case they are capitalized and amortized
over the expected life of such
19
<PAGE> 21
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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------ ---------------
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 77.8 76.0
----- ----- ----- ----- -----
Gross profit..................................... 26.9 23.9 20.8 22.2 24.0
SG&A expenses.................................... 14.5 13.5 12.8 14.3 11.3
----- ----- ----- ----- -----
Operating income................................. 12.4 10.4 8.0 7.9 12.7
Interest expense, net............................ 1.0 0.7 1.2 1.3 0.9
Other expense (income)........................... 0.0 0.0 0.0 0.0 (1.6)
----- ----- ----- ----- -----
Income before income taxes....................... 11.4 9.7 6.8 6.6 13.4
Provision (credit) for income taxes.............. (0.4) 0.2 0.2 0.1 0.1
----- ----- ----- ----- -----
Net income....................................... 11.8% 9.5% 6.6% 6.5% 13.3%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales for the first three months of 1997 increased by $24.6
million, or 29.5%, to $108.1 million from $83.5 million for the same period in
1996. Sales of actuator products increased by $15.8 million to $17.6 million
from $1.8 million due to the launch of a new four-wheel-drive actuator product
and full production of doorlock actuator products. Full production of doorlock
actuators was not reached until approximately November 1996. Sales of power
distribution products increased by $4.7 million, or 10.1%, due to increased
market penetration in the medium and heavy duty truck market and higher net
sales to the agricultural vehicle market of $2.6 million and $2.1 million,
respectively. The increase was partially offset by a sales decrease of $1.0
million under contract manufacturing arrangements. Sales of switch products
increased by $2.6 million, or 9.8%, reflecting higher production levels in the
automotive market. Sales of instrumentation
20
<PAGE> 22
and information display products increased by $1.5 million, or 17.1%, due to the
introduction of new products for the medium and heavy duty truck market.
Cost of Goods Sold. Cost of goods sold for the first three months of 1997
increased by $17.2 million, or 26.5%, to $82.1 million from $64.9 million for
the same period in 1996. As a percentage of net sales, cost of goods sold
decreased to 76.0% in 1997 from 77.8% in 1996 while the corresponding gross
profit margin increased to 24.0% from 22.2% in 1996. The improvement in gross
profit margin resulted from increased efficiencies due to the consolidation of
two contract manufacturing/power distribution production facilities.
Selling, General and Administrative Expenses. SG&A expenses for the first
three months of 1997 increased by $0.3 million, or 2.5%, to $12.2 million from
$11.9 million for the same period in 1996. As a percentage of net sales, SG&A
expenses decreased to 11.3% for the first three months of 1997 from 14.3% for
the same period in 1996 reflecting the Company's ability to generate increased
net sales in this period without substantial additional administrative overhead.
An increase of $0.8 million in SG&A was due to the launch of the actuator
product line which included development, marketing and administration costs. In
addition, development and design costs of medium and heavy duty truck
instrumentation and information display products and power distribution systems
were responsible for a $0.8 million increase. These increases were partially
offset by a $1.4 million decrease in expenses due to the expiration of the
transition services agreement in October 1996.
Interest Expense. Interest expense decreased by $0.1 million, or 13.9%, to
$0.9 million for the first three months of 1997 from $1.1 million for the same
period in 1996. The decrease was due to a reduction in average debt outstanding
due to cash generated from operations.
Other Income. Other income of $1.7 million for the first three 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, which 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 $9.0 million for the first three months of 1997 to
$14.5 million from $5.5 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 $0.1 million for foreign
income and state franchise taxes for the first three months of both 1997 and
1996. 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
$6.0 million and $2.3 million for the first three months of 1997 and 1996,
respectively.
Net Income. As a result of the foregoing, net income increased by $9.0
million, or 165.6%, to $14.4 million of the first three months of 1997 from $5.4
million for the same period in 1996.
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 OEM customer. Net sales of power distribution products to
the agricultural vehicle market increased by $5.6 million.
21
<PAGE> 23
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 and $11.2 million in 1996 and 1995,
respectively.
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.
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
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
22
<PAGE> 24
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. Excluding the elimination of deferred
income taxes, 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 $11.2 million and $10.7 million in 1995 and 1994,
respectively.
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 quarter 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
23
<PAGE> 25
(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.
<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
-------- ------- -------- ------- -------- ------- -------- ------- --------
(IN MILLIONS)
<S> <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
Cost of goods sold........ 51.4 51.1 43.9 65.2 64.9 75.6 71.7 75.9 82.1
------ ----- ------ ----- ------ ----- ------ -----
Gross profit.............. 19.7 16.7 13.1 16.9 18.6 18.8 18.1 20.2 25.9
SG&A expenses............. 8.3 8.9 8.3 12.0 12.0 12.1 11.8 10.9 12.2
------ ----- ------ ----- ------ ----- ------ -----
Operating income.......... 11.4 7.8 4.8 4.9 6.6 6.7 6.3 9.3 13.7
Interest expense, net..... 0.5 0.5 0.5 0.5 1.1 0.8 1.0 1.4 0.9
Other expense (income).... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.7)
------ ----- ------ ----- ------ ----- ------ -----
Income before income
taxes................... 10.9 7.3 4.3 4.4 5.5 5.9 5.3 7.9 14.5
Provision for income
taxes................... 0.0 0.0 0.0 0.7 0.1 0.1 0.2 0.1 0.1
------ ----- ------ ----- ------ ----- ------ -----
Net income................ $ 10.9 $ 7.3 $ 4.3 $ 3.7 $ 5.4 $ 5.8 $ 5.1 $ 7.8 $ 14.4
====== ===== ====== ===== ====== ===== ====== =====
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%
Cost of goods sold........ 72.3 75.4 77.0 79.4 77.8 80.1 79.8 79.0 76.0
------ ----- ------ ----- ------ ----- ------ -----
Gross margin.............. 27.7 24.6 23.0 20.6 22.2 19.9 20.2 21.0 24.0
SG&A expenses............. 11.7 13.1 14.6 14.6 14.3 12.8 13.2 11.3 11.3
------ ----- ------ ----- ------ ----- ------ -----
Operating income.......... 16.0 11.5 8.4 6.0 7.9 7.1 7.0 9.7 12.7
Interest expense, net..... 0.7 0.7 0.9 0.6 1.3 0.9 1.1 1.5 0.9
Other expense (income).... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.6)
------ ----- ------ ----- ------ ----- ------ -----
Income before income
taxes................... 15.3 10.8 7.5 5.4 6.6 6.2 5.9 8.2 13.4
Provision for income
taxes................... 0.0 0.0 0.0 0.9 0.1 0.1 0.2 0.1 0.1
------ ----- ------ ----- ------ ----- ------ -----
Net income................ 15.3% 10.8% 7.5% 4.5% 6.5% 6.1% 5.7% 8.1% 13.3%
====== ===== ====== ===== ====== ===== ====== =====
</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.
24
<PAGE> 26
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.
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 $14.0 million
of capital expenditures in 1997. These capital expenditures will be used
primarily for the purchase of machinery and equipment to support new business
awards, as well as to finance continued cost reduction efforts through
automation.
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.
The Company has an $80.0 million revolving credit facility (of which $36.5
million was outstanding as of March 31, 1997), which matures on June 30, 2001.
Interest on the revolving credit facility is payable at the Company's option at
either prime or LIBOR plus 1.0% to 1.5%. The Company intends to use $
million of the net proceeds from the Combined Offering to repay debt outstanding
under the revolving credit facility. The revolving 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
25
<PAGE> 27
compliance with all covenants as of December 31, 1996 and March 31, 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 revolving credit facility for fixed rates. The
Company may elect to terminate the interest rate swap agreements in conjunction
with the repayment of the revolving credit facility. The Company does not
anticipate a significant charge to terminate the interest rate swap agreements.
Based on discussions with its principal lender, the Company intends to
enter into a new credit agreement and expects that the new credit agreement,
which would replace the revolving credit facility, will provide for borrowings
of up to $125 million and have scheduled maturity in 2002. The Company
anticipates its new credit agreement will generally contain less restrictive
covenants and more favorable pricing terms than the current revolving credit
facility. To date, no definitive agreements have been executed and no assurance
can be given that the new credit agreement will be executed on such terms or
entered into at all.
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, net deferred tax liabilities of $1.8 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> 28
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 1950), Ford (since 1919), Deere &
Company (since 1965) and Navistar International Corp. (since 1973).
Approximately 72% of the Company's 1996 net sales were derived from the
automotive market and approximately 27% were derived from the medium and heavy
duty truck and agricultural vehicle markets. The Company's net sales were $363.7
million in the year ended December 31, 1996 and $108.1 million for the
three-month period ended March 31, 1997.
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 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 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. 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 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% of the
Company's 1996 net sales, respectively, and 47%, 27%, 10% and 16% of first
quarter 1997 net sales, respectively.
The Company believes that it holds the number one or two market position in
products which include (i) power and signal distribution systems for the North
American agricultural market and (ii) driver instrumentation and information
display systems for the worldwide medium and heavy duty truck markets. In the
automotive market, where the Company focuses on component and module design and
manufacturing, the
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<PAGE> 29
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.
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 1995 and 1996 net sales, $39.1 million and $53.4 million,
respectively, were associated with the cost of these additional materials
purchased by the Company. 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 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.
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<PAGE> 30
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
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 awarded a
multiyear contract to provide instrument panel systems for Volvo in Europe, the
United States and Brazil. The Company believes that it would not have been
awarded this contract 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."
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
29
<PAGE> 31
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 research and 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 technology transfer and marketing agreement with the
switch division of Labinal, a leading European automotive supplier, and Berifors
has a technology agreement with Kansei Corporation, a leading Japanese
automotive instrumentation company. The Company also 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
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<PAGE> 32
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 three months ended March
31, 1996 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ------------------------------
(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% 29% 22% 20%
Other Power Distribution Systems....... 29 28 23 21 26 25 23
Switch Products.......................... 33 33 29 27 32 27 25
Instrumentation and Information Display
Products
North America and other.............. 21 16 11 10 11 10 9
Europe............................... -- -- -- 9 -- -- 8
Actuator Products........................ -- -- 8 7 2 16 15
--- --- ------ --------- --- --- ---------
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."
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.
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.
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<PAGE> 33
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 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 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
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
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<PAGE> 34
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 the past three years and pro forma for the year ended
1996, assuming Berifors was acquired by the Company on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
ACTUAL PRO FORMA
------------------------- ----------
CUSTOMER 1994 1995 1996 1996(1)
- -------------------------------------------------------- ----- ----- ----- ----------
<S> <C> <C> <C> <C>
General Motors (contract manufacturing)................. 16.6% 23.5% 28.9% 26.4%
General Motors.......................................... 13.4 12.1 10.2 9.3
Ford.................................................... 13.3 12.6 18.4 16.8
Deere................................................... 10.3 10.6 9.6 8.8
Navistar................................................ 8.7 7.5 5.4 4.9
Volvo................................................... 6.8 6.1 3.0 5.2
Chrysler................................................ 2.6 3.4 4.1 3.8
Bosch................................................... 1.6 1.6 2.6 2.4
Carrier................................................. 3.7 3.0 2.4 2.2
Freightliner............................................ 1.2 1.0 2.0 1.8
ITT Automotive.......................................... 1.9 2.6 1.6 1.4
Ericsson................................................ 0.0 0.0 0.0 3.0
Other................................................... 19.9 16.0 11.8 14.0
---- ---- ---- ----
Total................................................. 100.0% 100.0% 100.0% 100.0%
==== ==== ==== ====
</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."
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 develop collaborative relationships with its customers. As of
June 30, 1997, the Company (excluding Berifors) employed 57 persons in its sales
and marketing departments.
33
<PAGE> 35
The following table presents an overview of the major vehicle models for
which the Company (excluding Berifors) produced 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 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
34
<PAGE> 36
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.
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
2000 switch and 50 actuator end 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 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 capabilites facilitates just-in-time and in-line-sequences
delivery schedules for many of its
35
<PAGE> 37
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.
36
<PAGE> 38
PROPERTIES
The Company 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 Owned 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.
EMPLOYEES
As of June 30, 1997, the Company had about 3,800 employees, approximately
1,000 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 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
37
<PAGE> 39
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.
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> 40
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 and Managing Director of
Berifors(1)
Gerald V. Pisani 57 Vice President of the Company and President of Pollak
Engineered Products Division
David L. Thomas 48 Vice President of the Company and President of
Alphabet Division
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 acquisiton of Berifors as described under "The Company."
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 Division since 1985.
David L. Thomas has served as Vice President of the Company and President
of the Company's Alphabet Division 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> 41
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> 42
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 was approved by the Company's
shareholders on August , 1997. 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
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 Common Shares.
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> 43
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 Division 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 Division 1995 132,000 108,000 3,300 -- --
1994 132,000 100,000 3,300 -- --
Kevin P. Bagby, 1996 $120,000 $ 65,000 $ 945 250 --
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............................................... 250(1) 7.9% $ 798.00 (1)
</TABLE>
- ---------------
(1) On June 30, 1996, the Company granted an option (the "Option") to Kevin P.
Bagby to purchase 250 Class B Common Shares of the Company (the "Option
Shares") ( Common Shares after giving effect to the recapitalization
described under "Description of Capital Shares"). The Option, which had no
expiration date, gave Mr. Bagby the right to purchase the Option Shares at a
purchase price of $798.00 per share ($ per share after giving effect
to the recapitalization described under "Description of Capital Shares").
Mr. Bagby exercised the Option on August 7, 1997.
42
<PAGE> 44
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...................... 500(1) $90,065 -- -- -- --
Kevin P. Bagby....................... -- -- -- 250(1) -- $30,950
</TABLE>
- ---------------
(1) Before giving effect to the recapitalization described under "Description of
Capital Shares."
43
<PAGE> 45
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of August 8, 1997 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 OWNED SHARES BENEFICIALLY
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).......................................... 50,362 48.63%
Scott N. Draime(3)...................................... 14,130 13.64
Cloyd J. Abruzzo(4)..................................... 12,154 11.73
Jeffrey P. Draime(5).................................... 11,186 10.80
Rebecca M. Gang(6)...................................... 6,778 6.54
Avery S. Cohen(7)(8).................................... 1,145 1.10
Gerald V. Pisani........................................ 2,419 1.18
David L. Thomas......................................... 500 *
Kevin P. Bagby.......................................... 250 *
Richard E. Cheney....................................... 250 *
Sheldon J. Epstein(8)................................... 250 *
Earl L. Linehan......................................... 250 *
Sten Forseke............................................ -- --
All directors and executive officers of the Company as a
group (10 persons).................................... 67,580 65.28%
</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 prior to the Offering includes Class A and
Class B Common Shares before giving effect to the recapitalization described
under "Description of Capital Shares."
(2) Includes 9,803 Common Shares held by Mr. Draime as executor of the Estate of
Steven A. Draime and 40,559 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 5,883 Common Shares held in trust for the benefit of Scott N.
Draime of which Scott N. Draime is trustee, 895 Common Shares held in trust
for the benefit of Scott N. Draime, of which Avery S. Cohen and Sheldon J.
Epstein are co-trustees, and 7,352 Common Shares held in trusts for the
benefit of Jeffrey P. Draime's children. The address of Scott N. Draime is
1209 Cerrito Grande, El Paso, Texas 79912.
(4) Includes 2,154 Common Shares held in trust for the benefit of Cloyd J.
Abruzzo of which Mr. Abruzzo is trustee and an aggregate of 10,000 Common
Shares held in trusts for the benefit of D.M. Draime's children and
grandchildren of which Mr. Abruzzo is trustee. The address of Mr. Abruzzo is
9400 East Market Street, Warren, Ohio 44484.
(5) Includes 6,371 Common Shares held in trust for the benefit of Jeffrey P.
Draime of which Jeffrey P. Draime is trustee, 895 Common Shares held in
trust for the benefit of Jeffrey P. Draime, of which Avery S. Cohen and
Sheldon J. Epstein are co-trustees, and 3,920 Common Shares held in trusts
for the benefit of Scott N. Draime's children. The address of Jeffrey P.
Draime is 8836 Singing Hills Drive, Warren, Ohio 44484.
(6) Includes 895 Common Shares held in trust for the benefit of Ms. Gang of
which Avery S. Cohen and Sheldon J. Epstein are co-trustees. The address of
Rebecca M. Gang is 333 Rainbows End, Aurora, Ohio 44202.
(7) Includes 895 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) Does not include 2,685 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 (which shares are listed in the table above
as being beneficially owned by Scott N. Draime, Jeffrey P. Draime and
Rebecca M. Gang).
(9) Includes 1,200 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.
44
<PAGE> 46
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, and the Company
guaranteed the repayment of the loan. On June 30, 1997 the outstanding principal
amount of the loan was approximately $2.1 million. The Company is 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 August 5, 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 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.
45
<PAGE> 47
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 June 30, 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 84,937 shares,
respectively, were issued and outstanding. 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 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 Common Shares outstanding
( Common Shares if the Underwriters' overallotment option is exercised in
full), and Common Shares reserved for issuance pursuant to the Plan and no
preferred shares outstanding. The following description of the Company's capital
shares and related matters is qualified in its entirety by reference to the
Articles of Incorporation and the Company's Amended and Restated Code of
Regulations, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
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.
46
<PAGE> 48
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
47
<PAGE> 49
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
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Combined Offering, the Company will have
outstanding 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 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 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
48
<PAGE> 50
completion of the Combined Offering, 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 beginning in August 1998,
shares will be eligible for sale under Rule 144, subject to the limitations
described above.
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.
49
<PAGE> 51
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.
50
<PAGE> 52
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.
51
<PAGE> 53
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................................................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited..............................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
---------
Subtotal................................................................
---------
Total................................................................
=========
</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
52
<PAGE> 54
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.
53
<PAGE> 55
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.
Application will be made to list the Common Shares on the New York Stock
Exchange under the proposed 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 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
54
<PAGE> 56
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 holder of Common
Shares, is a partner in Baker & Hostetler LLP. 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, 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.
55
<PAGE> 57
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 March 31, 1997..... F-3
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and
1996 and for the Three Months Ended March 31, 1996 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Three Months Ended March 31, 1997................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and for the Three Months Ended March 31, 1996 and 1997................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Schedule II -- Valuation and Qualifying Accounts.................................... F-17
</TABLE>
F-1
<PAGE> 58
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 11 and 14
as to which the date is August 8, 1997).
F-2
<PAGE> 59
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH PRO FORMA
-------------------- 31, MARCH 31, 1997
1995 1996 1997 (NOTE 12)
-------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 282 $ 357 $ -- $ --
Accounts receivable, less allowance for
doubtful accounts of $453, $265, and $265... 49,477 46,783 53,184 53,184
Inventories.................................... 26,428 30,158 29,594 29,594
Deferred income taxes.......................... -- -- -- 4,421
Prepaid expenses and other..................... 9,243 5,357 5,807 5,807
-------- -------- -------- --------
Total current assets........................ 85,430 82,655 88,585 93,006
-------- -------- -------- --------
Property, Plant and Equipment, net............... 54,767 55,200 54,565 54,565
Other Assets:
Goodwill and other intangibles, net............ 31,860 30,769 30,481 30,481
Investments and other.......................... 241 9,863 9,113 9,113
-------- -------- -------- --------
Total Assets..................................... $172,298 $178,487 $182,744 $187,165
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............. $ 311 $ 3,001 $ 122 $ 122
Accounts payable............................... 34,219 21,365 23,945 23,945
Accrued expenses and other..................... 16,049 17,232 19,586 19,586
Accrued shareholder distributions.............. -- 1,100 5,200 83,200
-------- -------- -------- --------
Total current liabilities................... 50,579 42,698 48,853 126,853
-------- -------- -------- --------
Long-Term Debt, net of current portion........... 47,999 51,156 39,940 39,940
Deferred Income Taxes............................ -- -- -- 6,231
-------- -------- -------- --------
Total long term liabilities................. 47,999 51,156 39,940 46,171
-------- -------- -------- --------
Shareholders' Equity:
Class A Common Shares(voting), 32,724 shares
authorized, 15,465 shares issued and
outstanding, stated at...................... -- -- -- --
Class B Common Shares(nonvoting), 87,276 shares
authorized, 84,535 shares issued and
outstanding at December 31, 1995 and 84,937
shares issued and outstanding at December
31, 1996 and March 31, 1997, stated at...... -- -- -- --
Additional paid-in capital..................... 7,958 9,195 9,315 9,315
Retained earnings.............................. 65,762 75,438 84,636 4,826
-------- -------- -------- --------
73,720 84,633 93,951 14,141
-------- -------- -------- --------
Total Liabilities and Shareholders' Equity $172,298 $178,487 $182,744 $187,165
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
F-3
<PAGE> 60
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except for per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $225,531 $278,043 $363,748 $ 83,455 $108,064
Costs and Expenses:
Cost of goods sold................... 164,974 211,712 288,142 64,927 82,125
Selling, general and administrative
expenses.......................... 32,542 37,509 46,694 11,927 12,225
-------- -------- -------- -------- --------
Operating income................ 28,015 28,822 28,912 6,601 13,714
Gain on sale of fixed assets......... -- -- -- -- (1,733)
Interest expense, net................ 2,344 2,014 4,317 1,061 913
-------- -------- -------- -------- --------
Income Before Income Taxes............. 25,671 26,808 24,595 5,540 14,534
-------- -------- -------- -------- --------
Provision for Income Taxes:
State and local income taxes......... 460 654 524 120 136
Income tax benefit from the
elimination of deferred federal
income taxes...................... (1,455) -- -- -- --
-------- -------- -------- -------- --------
(995) 654 524 120 136
-------- -------- -------- -------- --------
Net Income............................. $ 26,666 $ 26,154 $ 24,071 $ 5,420 $ 14,398
======== ======== ======== ======== ========
PRO FORMA INCOME DATA (NOTE 12)
(UNAUDITED):
Income before federal taxes............ $ 24,595 $ 14,534
Pro forma adjustment -- Income taxes... 10,295 6,034
-------- --------
Pro forma net income................... $ 14,300 $ 8,500
-------- --------
Pro forma net income per share.........
======== ========
Pro forma weighted average shares
outstanding..........................
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE> 61
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).................................... -- 14,398 14,398
Compensation expense from stock option plans
(unaudited)............................................ 120 -- 120
Distributions declared (unaudited)........................ -- (5,200) (5,200)
------ -------- --------
BALANCE, MARCH 31, 1997 (UNAUDITED)......................... $9,315 $ 84,636 $ 93,951
====== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE> 62
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................. $26,666 $26,154 $24,071 $ 5,420 $14,398
Adjustments to reconcile net income to net
cash from operating activities --
Depreciation and amortization........... 6,870 7,979 9,966 2,468 3,055
Gain on sale of fixed assets............ -- -- -- -- (1,733)
Compensation expense for stock option
plans................................. -- -- 450 -- 120
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 12,910 (6,401)
Inventories........................... (6,442) (4,495) (3,730) (5,584) 564
Prepaid expenses and other assets..... 1,796 (4,609) 4,599 199 (1,368)
Other assets, net..................... (145) 23 (1,014) 885 1,505
Accounts payable...................... 1,650 19,560 (12,854) (13,214) 2,580
Accrued expenses and other
liabilities........................ 1,450 3,262 1,089 1,551 6,454
------- ------- ------- ------- -------
Net cash from operating
activities....................... 25,492 29,370 25,271 4,635 19,174
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Equity investment.......................... -- -- (8,834) -- --
Capital expenditures....................... (9,046) (14,767) (14,083) (3,633) (2,656)
Proceeds from sale of property, plant and
equipment............................... 2,600 -- 4,850 -- 2,300
Assets purchased through acquisition....... -- (18,800) -- -- --
------- ------- ------- ------- -------
Net cash from investing
activities....................... (6,446) (33,567) (18,067) (3,633) (356)
------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Cash distributions paid.................... (13,610) (15,546) (13,201) (1,055) (5,080)
Proceeds from long-term debt............... 25,368 -- 3,512 -- --
Repayments of long-term debt............... (20,984) (247) (410) (75) (2,648)
Net borrowings (repayments) under revolving
credit facility......................... (9,000) 19,200 2,745 -- (11,447)
Stock options exercised, net............... -- -- 225 -- --
------- ------- ------- ------- -------
Net cash from financing
activities....................... (18,226) 3,407 (7,129) (1,130) (19,175)
------- ------- ------- ------- -------
NET CHANGE IN CASH........................... 820 (790) 75 (128) (357)
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 $ 154 $ --
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE> 63
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 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 subsidiaries (collectively, the Company). All
significant intercompany balances have been eliminated in consolidation.
The accompanying consolidated balance sheet as of March 31, 1997, and the
consolidated statements of operations, shareholders' equity and cash flows for
the three month periods ended March 31, 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 three
month period ended March 31, 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> 64
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 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,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Raw materials............... $17,738 $17,983 $19,433
Work in progress............ 4,107 6,063 6,414
Finished goods.............. 6,684 8,224 6,038
Less-LIFO reserve........... (2,101) (2,112) (2,291)
------- ------- -------
Total..................... $26,428 $30,158 $29,594
======= ======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Land and land improvements.......................... $ 4,876 $ 3,724 $ 3,724
Buildings and improvements.......................... 32,058 27,718 28,318
Machinery and equipment............................. 29,987 32,947 34,936
Office furniture and fixtures....................... 6,717 8,270 7,100
Tooling............................................. 11,123 13,630 14,049
Vehicles............................................ 3,109 3,911 3,949
Leasehold improvements.............................. 743 1,416 1,016
------- ------- -------
88,613 91,616 93,092
Less-Accumulated depreciation and amortization...... 33,846 36,416 38,527
------- ------- -------
$54,767 $55,200 $54,565
======= ======= =======
</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 three months ended March 31, 1996 and 1997, $2,232 and $2,724,
respectively. Depreciable lives within each property classification are as
follows:
F-8
<PAGE> 65
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<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>
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 $236 and $286 for the three-month
periods ended March 31, 1996 and 1997, respectively. Accumulated amortization as
of December 31, 1995 and 1996 was $4,294 and $5,474, respectively, and $5,760 as
of March 31, 1997.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Compensation related obligations............ $ 8,339 $ 9,402 $ 8,950
Insurance related obligations............... 1,785 2,329 2,365
Other....................................... 5,925 5,501 8,271
------- ------- -------
$16,049 $17,232 $19,586
======= ======= =======
</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 $195 and $171 for the three month periods
ended March 31, 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
F-9
<PAGE> 66
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
pro forma basis as of March 31, 1997, upon conversion to a C Corporation,
deferred income tax assets and deferred income tax liabilities of approximately
$4,421 and $6,231, respectively, will be recorded with an 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 March 31, 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.
RESEARCH AND 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 $2,198 and $2,997 for the
three month periods ended March 31, 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.
F-10
<PAGE> 67
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
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 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 1, 1995 through October 31,
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 a
foreign company which designs and manufactures electronic components for the
transportation industry 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 $45
for the three months ended March 31, 1997.
5. LONG-TERM DEBT:
The Company has an $80 million revolving credit facility with a bank group.
The revolving credit facility is payable in full on June 30, 2001 and requires a
commitment fee of 1/4% on the unused balance. Interest is payable quarterly at
the Company's option of either (i) prime rate or (ii) LIBOR plus a margin of 1%
to 1.5%, depending upon the Company's fixed charge coverage ratio, as defined.
The Company has entered into a $25 million 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
F-11
<PAGE> 68
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
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
million through maturity. Additionally, the Company has entered into a separate
$20 million 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 million
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 revolving 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, MARCH
------------------- 31,
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Borrowings under revolving credit facility........... $45,200 $47,945 $36,498
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 3,374
Other................................................ 329 217 190
------- ------- -------
48,310 54,157 40,062
Less-Current maturities.............................. 311 3,001 122
------- ------- -------
$47,999 $51,156 $39,940
======= ======= =======
</TABLE>
The revolving 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 March 31, 1997.
F-12
<PAGE> 69
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 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.............................................. 48,066
Thereafter........................................ 2,370
-------
$ 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 $869 and $913 for the
periods ending March 31, 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 $420 and $564 for the three months
ended March 31, 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
$120 for the three months
F-13
<PAGE> 70
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
ended March 31, 1997, in the accompanying consolidated financial statements
relative to these options. As of March 31, 1997, all 3,150 stock options were
outstanding.
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 three months ended March 31,
1996 and 1997, contributions amounted to $351 and $334, 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 three month periods
ended March 31, 1996 and 1997, amounted to $301 and $290, 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. The Company is
the guarantor of a $2,200 loan to this affiliated entity which was used to fund
the building purchase.
The Company is 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 March 31, 1997.
The Company provides management services to a related company in the amount
of $300 annually and also pays the salary of certain key personnel, amounting to
$178, $182 and $180 in 1994, 1995 and 1996, respectively. Beginning in August
1997, the salary payments will be paid by the related company and the management
fee will be reduced to $60 annually.
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
F-14
<PAGE> 71
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
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,
------------------ MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Notional Amount.................... $25,000 $45,000 $45,000
Fair Value......................... (26) (257) 169
</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 for the partial
repayment of debt and the payment to the pre-offering shareholders of
approximately $81 million to $85 million as an S Corporation distribution (S
Corporation Distribution). 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. Certain officers and employees
will reinvest at least $5 million of their distribution (Management
Reinvestment)
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 a number of Common Shares to be determined. All
applicable share and per share data have been adjusted accordingly.
Acquisition: Effective upon the completion of the Offering, the Company
expects to acquire the remaining 55% of the outstanding stock of Berifors by
issuing Common Shares to the sellers.
Tax Indemnification: The Company and its principal shareholders have
entered into a tax indemnification agreement relating to their respective tax
liabilities. The agreement provides, among other things, for (i) the
indemnification by the Company of the principal shareholders against all losses,
liabilities, interest, penalties, and attorneys' and accountants' fees resulting
from any additional federal or state income taxes imposed upon the principal
shareholders as a result of the change in S Corporation income of the Company
for any period in
F-15
<PAGE> 72
STONERIDGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
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 principal 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 will reserve 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 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.
12. UNAUDITED PRO FORMA INFORMATION:
The unaudited pro forma balance sheet data presented assumes on March 31,
1997, (i) an $83.0 million S Corporation Distribution, (ii) a $5.0 million
Management Reinvestment, and (iii) termination of its S Corporation status, and
in connection therewith, reinstated $6,231 of deferred income tax liabilities,
and $4,421 of deferred income tax assets.
The unaudited pro forma net income for the year ended December 31, 1996 and
for the three months ended March 31, 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
( ) and the number of Common Shares ( ) to be issued in connection with
the Offering.
13. COMMITMENT 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 EVENT:
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.
F-16
<PAGE> 73
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-17
<PAGE> 74
[LOGO]
<PAGE> 75
PROSPECTUS (Subject to Completion)
Issued August 8, 1997
Shares
STONERIDGE, INC.
COMMON SHARES
------------------
OFFERING TO THE 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. All
proceeds from this offering will be payable to the Company and will be used for
general corporate purposes. 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 9 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> 76
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......................................................... *
Accounting fees and expenses............................................ *
Legal fees and expenses................................................. *
Blue Sky fees and expenses (including counsel fees)..................... *
Printing and engraving expenses......................................... *
Transfer agent's and registrar's fees and expenses...................... *
Miscellaneous expenses.................................................. *
-------
TOTAL......................................................... $ *
=======
</TABLE>
- ---------------
* To be completed by amendment
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 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> 77
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 250 $199,500
Michael Bagby...................... August 7, 1997 100 79,800
Thomas Beaver...................... August 7, 1997 250 199,500
Richard Cheney..................... August 7, 1997 250 199,500
Alberto Chretin.................... August 7, 1997 250 199,500
Avery Cohen........................ August 7, 1997 250 199,500
Chia Day........................... August 7, 1997 250 199,500
Richard Emerine.................... August 7, 1997 100 79,800
Sheldon Epstein.................... August 7, 1997 250 199,500
David Gargas....................... August 7, 1997 100 79,800
Howard Goldberg.................... August 7, 1997 250 199,500
William Haushalter................. August 7, 1997 250 199,500
William Hull....................... August 7, 1997 100 79,500
Earl Linehan....................... August 7, 1997 250 199,500
Mark Oakes......................... August 7, 1997 250 199,500
Edward F. Mosel.................... June 30, 1996 151 101,321
David Thomas....................... June 30, 1996 500 335,500
</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 Form of 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
23.1 Consent of Baker & Hostetler LLP (to be 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 three-months ended March 31, 1997.
27.2 Financial Data Schedule for three-months ended March 31, 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>
- ---------------
* To be filed by Amendment
II-2
<PAGE> 78
(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> 79
SIGNATURES
Pursuant to the requirements of the Securities act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Warren, State of Ohio, on
the 5th day of August, 1997.
STONERIDGE, INC.
By: /s/ CLOYD J. ABRUZZO
------------------------------------
Cloyd J. Abruzzo,
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears,
below hereby constitutes and appoints D.M. Draime, Cloyd J. Abruzzo and Avery S.
Cohen, or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
the Registration Statement, including post-effective amendments, and
registration statements filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and does
hereby grant unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE> 80
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 5th day of August, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------
<S> <C>
/s/ 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)
/s/ D.M. DRAIME Director
- ---------------------------------------------
D.M. Draime
/s/ AVERY S. COHEN Director
- ---------------------------------------------
Avery S. Cohen
/s/ RICHARD E. CHENEY Director
- ---------------------------------------------
Richard E. Cheney
/s/ SHELDON J. EPSTEIN Director
- ---------------------------------------------
Sheldon J. Epstein
/s/ EARL L. LINEHAN Director
- ---------------------------------------------
Earl L. Linehan
</TABLE>
II-5
<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 _____ Common Shares, with any fractional Common Share to
which a holder would otherwise be entitled being rounded down to the
nearest whole share.
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<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
Exhibit 3.2
AMENDED AND RESTATED CODE OF REGULATIONS
OF
STONERIDGE, INC.
ARTICLE I
---------
Meetings of Shareholders
------------------------
Section 1. ANNUAL MEETINGS. The annual meeting of shareholders
shall be held at such time and on such date as may be fixed by the Board of
Directors and stated in the notice of the meeting, for the election of
directors, the consideration of reports to be laid before such meeting and the
transaction of such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders shall be called upon the written request of the president, the
directors by action at a meeting, a majority of the directors acting without a
meeting, or of the holders of shares entitling them to exercise fifty percent
(50%) of the voting power of the Corporation entitled to vote thereat. Special
meetings may not be called by any other person. Calls for such meetings shall
specify the purposes thereof. No business other than that specified in the call
shall be considered at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each shareholder of
record entitled to vote at or entitled to notice of the meeting, not more than
sixty (60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the shareholder at his address as the same
appears upon the records of the Corporation and shall be deemed to have been
given at the time when it was mailed. Any shareholder, either before or after
any meeting, may waive any notice required to be given by law or under these
Regulations.
Section 4. PLACE OF MEETINGS. Meetings of shareholders shall
be held at the principal office of the Corporation unless the Board of Directors
determines that a meeting shall be held at some other place within or without
the State of Ohio and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling them to
exercise a majority of the voting power of the Corporation entitled to vote at
any meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business to be considered at such meeting; provided, however,
that no action required by law or by the Second
<PAGE> 2
Amended and Restated Articles of Incorporation (as they may be amended from time
to time, the "Articles of Incorporation") or these Regulations to be authorized
or taken by the holders of a designated proportion of the shares of any
particular class or of each class may be authorized or taken by a lesser
proportion. The holders of a majority of the voting shares represented at a
meeting, whether or not a quorum is present, may adjourn such meeting from time
to time until a quorum shall be present.
Section 6. RECORD DATE. The Board of Directors may fix a
record date for any lawful purpose, including, without limiting the generality
of the foregoing, the determination of shareholders entitled to (i) receive
notice of or to vote at any meeting, (ii) receive payment of any dividend or
distribution, (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to any
contract right with respect thereto, or (iv) participate in the execution of
written consents, waivers or releases. Said record date shall not be more than
sixty (60) days preceding the date of such meeting, the date fixed for the
payment of any dividend or distribution or the date fixed for the receipt or the
exercise of rights, as the case may be.
If a record date shall not be fixed, the record date for the
determination of shareholders who are entitled to notice of, or who are entitled
to vote at, a meeting of shareholders shall be the close of business on the date
next preceding the day on which notice is given, or the close of business on the
date next preceding the day on which the meeting is held, as the case may be.
Section 7. PROXIES. A person who is entitled to attend a
shareholders' meeting, to vote thereat, or to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person.
Section 8. CONDUCT OF MEETING. Unless otherwise determined by
the Board of Directors prior to the meeting, the chairman of any meeting of the
shareholders shall determine the order of business and shall have the authority
in his discretion to regulate the conduct of such meeting, including, without
limitation, by imposing restrictions on the persons (other than shareholders of
the Corporation or their duly appointed proxies) who may attend any such meeting
of shareholders, whether any shareholder or his proxy may be excluded from any
shareholders' meeting based upon any determination by the chairman, in his sole
discretion, that any such person has unduly disrupted or is likely to disrupt
the proceedings thereat, and the circumstances under which any person may make a
statement or ask questions at any meeting of shareholders.
ARTICLE II
----------
Directors
---------
Section 1. NUMBER OF DIRECTORS. Until changed in accordance
with the provisions of this section (or as otherwise provided in the
Corporation's Articles of Incorporation), the number of directors of the
Corporation, none of whom need be
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<PAGE> 3
shareholders, shall be six (6). The number of directors may be increased or
decreased by action of the Board of Directors upon the vote of the majority of
the board or by the vote of the shareholders that are present in person or by
proxy at a meeting to elect directors at which a quorum is present and that are
holders of a majority of the shares represented at the meeting and entitled to
vote on the proposal; provided, however, that in no case shall the number be
fewer than five (5) or more than twelve (12); and provided, further, that no
decrease in the number of directors shall have the effect of removing any
director prior to the expiration of his term of office. Notwithstanding the
foregoing, the aggregate number of members of the Board of Directors shall
automatically increase by the number of directors elected pursuant to Article
Fourth, Division A, subsection 5(b) of the Articles of Incorporation of the
Company, such directors to be elected and hold office in accordance with such
provisions of the Articles of Incorporation of the Company, notwithstanding any
other provision of this Code of Regulations.
Section 2. ELECTION OF DIRECTORS. (a) Directors shall be
elected at the annual meeting of shareholders, but when the annual meeting is
not held or directors are not elected thereat, they may be elected at a special
meeting called and held for that purpose. Such election shall be by ballot
whenever requested by any shareholder entitled to vote at such election; but,
unless such request is made, the election may be conducted in any manner
approved at such meeting.
At each meeting of shareholders for the election of directors,
the candidates receiving the greatest number of votes entitled to be cast shall
be elected as directors.
Section 3. NOMINATIONS.
(a) QUALIFICATIONS. Directors of the Corporation need not be
shareholders or residents of the State of Ohio. No person shall be appointed or
elected a director of the Corporation unless:
(i) such person is elected to fill a vacancy in the
Board of Directors pursuant to section 6 of this Article II; or
(ii) such person is nominated for election as a
director of the Corporation in accordance with this section.
Nominations of candidates for election as directors at any
meeting of shareholders called for election of directors (an "Election Meeting")
may be made by the Board of Directors or a committee thereof or any shareholder
of record providing written notification to the Secretary of the Company of such
nomination(s). At the request of the Secretary, each proposed nominee shall
provide the Corporation with such information concerning himself as is required
under the rules and regulations of the Securities and Exchange Commission (the
"Commission") to be included in the Corporation's proxy statement soliciting
proxies for the election of such nominee as a director.
(b) SUBSTITUTION OF NOMINEES. In the event that a person is
validly designated as a nominee in accordance with this Code of Regulations and
shall thereafter become unable
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<PAGE> 4
or unwilling to stand for election to the Board of Directors, the Board of
Directors or a committee thereof may designate a substitute nominee upon
delivery, not fewer than five (5) days prior to the date of an Election Meeting,
of a written notice of the Secretary setting forth such information regarding
such substitute nominee as would have been required to be delivered to the
Secretary pursuant to this Code of Regulations had such substitute nominee been
initially proposed as a nominee.
Section 4. TERM OF OFFICE. Each director shall hold office
until the annual meeting next succeeding his election and until his successor is
elected and qualified, or until his earlier resignation, removal from office or
death.
Section 5. REMOVAL. All the directors or any individual
director may be removed from office, without assigning any cause, by the vote of
the holders of a majority of the voting power entitling them to elect directors
in place of those to be removed. In case of any such removal, a new director may
be elected at the same meeting for the unexpired term of each director removed.
Section 6. VACANCIES. Vacancies in the Board of Directors may
be filled by a majority vote of the remaining directors until an election to
fill such vacancies is had. A vacancy or vacancies in the Board of Directors
shall be deemed to exist if the number of directors is increased by the Board of
Directors. Shareholders entitled to elect directors shall have the right to fill
any vacancy in the board (whether the same has been temporarily filled by the
remaining directors or not) at any meeting of the shareholders called for that
purpose, and any directors elected at any such meeting of shareholders shall
serve until the next annual election of directors and until their successors are
elected and qualified.
Section 7. QUORUM AND TRANSACTION OF BUSINESS. A majority of
the whole authorized number of directors shall constitute a quorum for the
transaction of business, except that a majority of the directors in office shall
constitute a quorum for filling a vacancy on the board. Whenever less than a
quorum is present at the time and place appointed for any meeting of the board,
a majority of those present may adjourn the meeting from time to time until a
quorum shall be present. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the board.
Section 8. ANNUAL MEETING. Annual meetings of the Board of
Directors shall be held immediately following annual meetings of the
shareholders, or as soon thereafter as is practicable. If no annual meeting of
the shareholders is held, or if directors are not elected thereat, then the
annual meeting of the Board of Directors shall be held immediately following any
special meeting of the shareholders at which directors are elected, or as soon
thereafter as is practicable. If such annual meeting of directors is held
immediately following a meeting of the shareholders, it shall be held at the
same place at which such shareholders' meeting was held.
Section 9. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places, within or without the State of
Ohio, as the Board of Directors may, by resolution or by-law, from time to time
determine. The secretary shall
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<PAGE> 5
give notice of each such resolution or by-law to any director who was not
present at the time the same was adopted, but no further notice of such regular
meeting need be given.
Section 10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman of the board, the president, any vice
president, or a majority of the Board of Directors, and shall be held at such
times and places, within or without the State of Ohio, as may be specified in
such call.
Section 11. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of
the time and place of each annual or special meeting shall be given to each
director by the secretary or by the person or persons calling such meeting. Such
notice need not specify the purpose or purposes of the meeting and may be given
in any manner or method and at such time so that the director receiving it may
have reasonable opportunity to participate in the meeting. Such notice shall, in
all events, be deemed to have been properly and duly given if mailed at least
forty-eight (48) hours prior to the meeting and directed to the residence of
each director as shown upon the secretary's records and, in the event of a
meeting to be held through the use of communications equipment, if the notice
sets forth the telephone number at which each director may be reached for
purposes of participation in the meeting as shown upon the secretary's records
and states that the secretary must be notified if a director desires to be
reached at a different telephone number. The giving of notice shall be deemed to
have been waived by any director who shall participate in such meeting and may
be waived, in a writing, by any director either before or after such meeting.
Section 12. TELEPHONIC MEETINGS. To the extent permitted by
law, members of the Board of Directors or any committee thereof may participate
in a meeting of such body through the use of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participants in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
Section 13. COMPENSATION. The directors, as such, shall be
entitled to receive such reasonable compensation for their services as may be
fixed from time to time by resolution of the board, and expenses of attendance,
if any, may be allowed for attendance at each annual, regular or special meeting
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of the executive committee, if any, or
of any standing or special committee may by resolution of the board be allowed
such compensation for their services as the Board of Directors may deem
reasonable, and additional compensation may be allowed to directors for special
services rendered.
Section 14. BY-LAWS. For the government of its actions, the
Board of Directors may adopt by-laws consistent with the Articles of
Incorporation of the Corporation and this Code of Regulations.
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ARTICLE III
-----------
Committees
----------
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may
from time to time, by resolution passed by a majority of the whole board, create
an executive committee of three or more directors, the members of which shall be
elected by the Board of Directors to serve at the pleasure of the board. If the
Board of Directors does not designate a chairman of the executive committee, the
executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the Board of
Directors, possess and may exercise all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors. The executive committee shall keep full records and accounts of its
proceedings and transactions. All action by the executive committee shall be
reported to the Board of Directors at its meeting next succeeding such action
and shall be subject to control, revision and alteration by the Board of
Directors, provided that no rights of third persons shall be prejudicially
affected thereby. Vacancies in the executive committee shall be filled by the
directors, and the directors may appoint one or more directors as alternate
members of the committee who may take the place of any absent member or members
at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the
provisions of this Code of Regulations, the executive committee shall fix its
own rules of procedure and shall meet as provided by such rules or by
resolutions of the Board of Directors, and it shall also meet at the call of the
president, the chairman of the executive committee or any two members of the
committee. Unless otherwise provided by such rules or by such resolutions, the
provisions of Section 10 of Article II relating to the notice required to be
given of meetings of the Board of Directors shall also apply to meetings of the
executive committee. A majority of the executive committee shall be necessary to
constitute a quorum. The executive committee may act in a writing, or by
telephone with written confirmation, without a meeting, but no action by writing
of the executive committee shall be effective unless concurred in by all members
of the committee.
Section 3. OTHER COMMITTEES. The Board of Directors may by
resolution provide for such other standing or special committees as it deems
desirable, and discontinue the same at pleasure. Each such committee shall have
such powers and perform such duties, not inconsistent with law, as may be
delegated to it by the Board of Directors. The provisions of Section 1 and
Section 2 of this Article shall govern the appointment and action of such
committees so far as the same are consistent with such appointment and unless
otherwise provided by the Board of Directors. Vacancies in such committees shall
be filled by the Board of Directors or as the Board of Directors may provide.
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<PAGE> 7
ARTICLE IV
----------
Officers
--------
Section 1. GENERAL PROVISIONS. The Board of Directors shall
elect a president, such number of vice presidents as the board may from time to
time determine, a secretary and a treasurer and, in its discretion, a chairman
of the Board of Directors. The Board of Directors may from time to time create
such offices and appoint such other officers, subordinate officers and assistant
officers as it may determine. The president, any vice president who succeeds to
the office of the president, and the chairman of the board shall be, but the
other officers need not be, chosen from among the members of the Board of
Directors. Any two of such offices, other than that of president and vice
president, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors, and, unless sooner
removed by the Board of Directors, until the annual meeting of the Board of
Directors following the date of their election and until their successors are
chosen and qualified. The Board of Directors may remove any officer at any time,
with or without cause. A vacancy in any office, however created, shall be filled
by the Board of Directors.
ARTICLE V
---------
Duties of Officers
------------------
Section 1. CHAIRMAN OF THE BOARD. The chairman of the board,
if one be elected, shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may be prescribed by the Board of
Directors.
Section 2. PRESIDENT. The president shall be the chief
executive officer of the Corporation and shall exercise supervision over the
business of the Corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall preside at all meetings of
shareholders, and, in the absence of the chairman of the board, or if a chairman
of the board shall not have been elected, shall also preside at meetings of the
Board of Directors. He shall have authority to sign all certificates for shares
and all deeds, mortgages, bonds, agreements, notes, and other instruments
requiring his signature; and shall have all the powers and duties prescribed by
Chapter 1701 of the Revised Code of Ohio and such others as the Board of
Directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall have
such powers and duties as may from time to time be assigned to them by the Board
of Directors or the president. At the request of the president, or in the case
of his absence or disability, the vice president designated by the president (or
in the absence of such designation, the vice president designated by the board)
shall perform all the duties of the president and, when so acting, shall have
all the powers of the president. The authority of vice presidents to sign in
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<PAGE> 8
the name of the Corporation certificates for shares and deeds, mortgages, bonds,
agreements, notes and other instruments shall be coordinate with like authority
of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all
the proceedings of the shareholders and Board of Directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of shareholders and directors; shall produce on request at each
meeting of shareholders a certified list of shareholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or by the Board of Directors; and, in general, shall perform all duties incident
to the office of secretary and such other duties as may from time to time be
assigned to him by the Board of Directors or the president.
Section 5. TREASURER. The treasurer shall have general
supervision of all finances; he shall receive and have in charge all money,
bills, notes, deeds, leases, mortgages and similar property belonging to the
Corporation, and shall do with the same as may from time to time be required by
the Board of Directors. He shall cause to be kept adequate and correct accounts
of the business transactions of the Corporation, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, stated capital and
shares, together with such other accounts as may be required, and upon the
expiration of his term of office shall turn over to his successor or to the
Board of Directors all property, books, papers and money of the Corporation in
his hands; and shall have such other powers and duties as may from time to time
be assigned to him by the Board of Directors or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. The Board of
Directors may appoint such assistant and subordinate officers as it may deem
desirable. Each such officer shall hold office during the pleasure of the Board
of Directors, and perform such duties as the Board of Directors or the president
may prescribe.
The Board of Directors may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their authority
and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence
of any officer of the Corporation, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
being, the powers or duties, or any of them, of such officer to any other
officer or to any director.
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<PAGE> 9
ARTICLE VI
----------
Indemnification and Insurance
-----------------------------
Section 1. INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, other
than an action by or in the right of the Corporation, by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party, or is threatened
to be made a party to any threatened, pending, or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of (a) any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless, and only to the extent that the Court of
Common Pleas, or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the Court of Common Pleas or such
court shall deem proper, or (b) any action or suit in which the only liability
asserted against a director is pursuant to Section 1701.95 of the Ohio Revised
Code.
Section 3. INDEMNIFICATION AS MATTER OF RIGHT. To the extent
that a director, trustee, officer, employee, or agent has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred to in
Section 1 or 2 of this Article VI, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection therewith.
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Section 4. DETERMINATION OF CONDUCT. Any indemnification under
Sections 1 and 2 of this Article VI, unless ordered by a court, shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, trustee, officer, employee, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 and 2 of this Article VI. Such determination
shall be made (a) by a majority vote of a quorum consisting of directors of the
Corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel, other than an attorney or a firm having
associated with it an attorney who has been retained by or who has performed
services for the Corporation or any person to be indemnified within the past
five years, or (c) by the shareholders or (d) by the Court of Common Pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under Section 4(a) or by
independent legal counsel under Section 4(b) of this Article VI shall be
promptly communicated to the person who threatened or brought the action or
suit, by or in the right of the Corporation under Section 2 of this Article VI,
and within ten days after receipt of such notification, such person shall have
the right to petition the Court of Common Pleas or the court in which such
action or suit was brought to review the reasonableness of such determination.
Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses, including
attorneys' fees, incurred in defending any action, suit, or proceeding referred
to in Sections 1 or 2 of this Article VI, shall be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding as
authorized by the directors in the specific case upon receipt of an undertaking
by or on behalf of the director, trustee, officer, employee, or agent to repay
such amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article VI.
Section 6. NONEXCLUSIVITY. The indemnification provided by
this Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Articles of Incorporation or
the Amended and Restated Code of Regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such office
and shall continue as to a person who has ceased to be a director, trustee,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Section 7. LIABILITY INSURANCE. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VI or
of Chapter 1701 of the Ohio Revised Code.
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<PAGE> 11
ARTICLE VII
-----------
Certificates for Shares
-----------------------
Section 1. FORM AND EXECUTION. Certificates for shares,
certifying the number of fully paid shares owned, shall be issued to each
shareholder in such form as shall be approved by the Board of Directors. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary or the treasurer or an assistant treasurer;
provided, however, that if such certificates are countersigned by a transfer
agent and/or registrar, the signatures of any of said officers and the seal of
the Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers, who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of a transfer agent or
registrar, shall nevertheless be conclusively deemed to have been adopted by the
Corporation by the use and delivery thereof and shall be as effective in all
respects as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. TRANSFER AND REGISTRATION OF CERTIFICATES. The
Board of Directors shall have authority to make such rules and regulations, not
inconsistent with law, the Second Amended and Restated Articles of Incorporation
or this Amended and Restated Code of Regulations, as it deems expedient
concerning the issuance, transfer and registration of certificates for shares
and the shares represented thereby.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (a) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of that fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (b) the furnishing to the Corporation of indemnity and other
assurances satisfactory to the Corporation and to all transfer agents and
registrars of the class of shares represented by the certificate against any and
all losses, damages, costs, expenses or liabilities to which they or any of them
may be subjected by reason of the issue and delivery of such new certificate or
certificates or in respect of the original certificate.
Section 4. REGISTERED SHAREHOLDERS. A person in whose name
shares are of record on the books of the Corporation shall conclusively be
deemed the unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor any
transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person,
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<PAGE> 12
whether disclosed upon such certificate or otherwise, nor shall they be obliged
to see to the execution of any trust or obligation.
ARTICLE VIII
------------
Fiscal Year
-----------
The fiscal year of the Corporation shall end on December 31 of
each year, or on such other date as may be fixed from time to time by the Board
of Directors.
ARTICLE IX
----------
Seal
----
The Board of Directors may provide a suitable seal containing
the name of the Corporation. If deemed advisable by the Board of Directors,
duplicate seals may be provided and kept for the purposes of the Corporation.
ARTICLE X
---------
Amendments
----------
This Amended and Restated Code of Regulations may be amended,
or new regulations may be adopted, at any meeting of shareholders called for
such purpose by the affirmative vote of, or without a meeting by the written
consent of, the holders of shares entitling them to exercise a majority of the
voting power of the Corporation on such proposal.
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<PAGE> 1
Exhibit 5.1
____________ __, 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, as amended (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 Common Shares, without par value (the "Shares"), of the
Company.
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, 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, will be legally
issued, fully paid and nonassessable.
<PAGE> 2
Stoneridge, Inc.
_________ __, 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,
<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
____________. 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.
-7-
<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
-9-
<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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<PAGE> 11
(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
-16-
<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 August ___, 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 10.2
L E A S E
- - - - -
BETWEEN
D. M. Draime
AND
ALPHABET, INC.
(Greenwood)
DATE: 10/1/93
--------
<PAGE> 2
L E A S E
- - - - -
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEMISED PREMISES .......................... 1
ARTICLE II TERM OF LEASE ............................. 1
ARTICLE III RENT ...................................... 2
ARTICLE IV RENT TO BE NET TO LANDLORD ................ 2
ARTICLE V TAXES AND UTILITY EXPENSES ................ 2
ARTICLE VI USE OF PREMISES ........................... 4
ARTICLE VII ALTERATIONS ............................... 5
ARTICLE VIII MAINTENANCE OF DEMISED PREMISES ........... 6
ARTICLE IX REQUIREMENTS OF PUBLIC AUTHORITY .......... 6
ARTICLE X TENANT'S TAXES ............................ 7
ARTICLE XI MECHANIC'S LEAN ........................... 7
ARTICLE XII DESTRUCTION OF DEMISED PREMISES ........... 8
ARTICLE XIII TRADE FIXTURES IN DEMISED PREMISES ........ 9
ARTICLE XIV ACCESS TO DEMISED PREMISES ................10
ARTICLE XV SURRENDER OF DEMISED PREMISES .............11
ARTICLE XVI INDEMNITY AND INSURANCE BY TENANT .........11
ARTICLE XVII ASSIGNMENT AND SUBLETTING .................14
ARTICLE XVIII EMINENT DOMAIN ............................14
ARTICLE XIX DEFAULT BY TENANT .........................15
ARTICLE XX WAIVER OF TENANT'S DEFAULT ................17
ARTICLE XXI DEFAULT BY LANDLORD .......................18
ARTICLE XXII SUBORDINATION .............................18
ARTICLE XXIII ESTOPPEL CERTIFICATE BY TENANT ............19
ARTICLE XXIV OPTION TO PURCHASE ........................19
i
<PAGE> 3
ARTICLE XXV TERM "LANDLORD" .......................... 20
ARTICLE XXVI HOLDING OVER ............................. 20
ARTICLE XXVII QUIET ENJOYMENT .......................... 21
ARTICLE XXVIII WAIVER OF SUBROGATION .................... 21
ARTICLE XXIX TITLES OF ARTICLES ....................... 22
ARTICLE XXX NOTICES .................................. 22
ARTICLE XXXI DEFINITION OF TERMS ...................... 22
ARTICLE XXII INVALIDITY OF PARTICULAR PROVISIONS ...... 22
ARTICLE XXXIII PROVISIONS BINDING ....................... 23
ARTICLE XXXIV RELATIONSHIP OF PARTIES .................. 23
ARTICLE XXXV SHORT-FORM LEASE ......................... 23
ARTICLE XXXVI COMPLETE AGREEMENT ....................... 23
ii
<PAGE> 4
L E A S E
- - - - -
THIS LEASE ("Lease", made at , 9400 E. Market St., Warren, Ohio, this
1st day of October, 1993, by and between D.M. Draime, having an office at 9400
East Market Street, Warren, Ohio 44484, hereinafter referred to as "Landlord",
and Alphabet, Inc., an Ohio corporation, having an office at 8700 E. Market
Street, Warren, Ohio 44484, Attention: President, hereinafter referred to as
"Tenant".
W I T N E S S E T H:
- - - - - - - - - -
ARTICLE I
---------
DEMISED PREMISES
----------------
Landlord, for and in consideration of the payment of the rent and the
performance by Tenant of the covenants and agreements as hereinafter set forth,
does hereby demise, let and lease unto Tenant and Tenant does hereby accept from
Landlord the property located at 104 Stoneridge Court, in the City of Greenwood,
County of Greenwood, State of South Carolina and outlined in "red" on the site
plan marked EXHIBIT "A" attached hereto and made a part hereof and described on
EXHIBIT "B" attached hereto and made a part hereof together with the buildings
and improvements constructed thereon (collectively, the "Demised Premises") .
The building (the "Building") which is part of the Demised Premises contains
approximately Fifty-Six Thousand (56,006) square feet of space.
ARTICLE II
----------
TERM OF LEASE
-------------
To have and to hold the Demised Premises unto Tenant for a term of
eleven (11) years commencing on October 1, 1993 ("Commencement Date"), and
ending on September 30, 2004. The term "Lease Year" as used herein shall mean
each twelve (12) month period beginning on the Commencement Date and each
anniversary thereof.
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<PAGE> 5
ARTICLE III
-----------
RENT
----
Tenant covenants and agrees to pay Landlord rent for the Demised
Premises, without deduction or set-off and without demand from the Commencement
Date through the one hundred thirty second (132nd) month of the term of this
Lease, the annual amount of One Hundred Fifty Seven Thousand Two Hundred Dollars
($157,200) payable in equal monthly installments of Thirteen Thousand One
Hundred Dollars ($13,100) each on the first (1st) day of every month in advance.
ARTICLE IV
----------
RENT TO BE NET TO LANDLORD
--------------------------
It is the intention of the parties that the rent payable hereunder shall
be net to Landlord so that this Lease shall yield to Landlord the net annual
rent specified herein during the term of this Lease, and that all costs,
expenses and obligations of every kind and nature whatsoever relating to the
Demised Premises shall be paid by Tenant.
ARTICLE V
---------
TAXES AND UTILITY EXPENSES
--------------------------
1. Tenant shall, during the term of this Lease, as additional rent, pay
and discharge punctually, as and when the same shall become due and payable, all
taxes, special and general assessments, water, rents, rates, and charges, sewer
rents and other governmental impositions and charges of every kind and nature
whatsoever, extraordinary as well as ordinary ("Taxes") , and each and every
installment thereof which shall or may during the term of this Lease by charged,
levied, laid, assessed, imposed, become due and payable, or liens upon or for or
with respect to the Demised Premises or any part thereof, or any buildings,
appurtenances or equipment owned by Tenant thereon or therein or any part
thereof, together with all interest and penalties thereon, under or by virtue of
all present or future laws, ordinances, requirements, orders, directives, rules
or regulations of the Federal, State, County, Town and City Governments and of
all other governmental authorities whatsoever and all sewer rents and charges
for water, steam, heat, gas, hot water, electricity, light and power, and other
service or services, furnished to the Demised Premises or the occupants thereof
during the term of this Lease ("Utility Expenses").
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<PAGE> 6
2. In the event the Demised Premises are part of a larger tax parcel and
are not a separate tax parcel, Tenant shall pay to Landlord, as additional rent,
its proportionate share of all real estate taxes and assessments which become
due and payable during the term of this Lease prorated on a daily basis for any
partial year. Such payment shall be made by Tenant delivering to Landlord ,
contemporaneously with the monthly installments of rent payable by Tenant, an
amount equal to one-twelfth (1/12th) of Tenant's proportionate share of the real
estate taxes and assessments as shown on the most recent tax duplicate. If, upon
the determination of the amount of the real estate taxes and assessments, the
total amount of funds deposited by Tenant are not sufficient to pay Tenant's
proportionate share of the real estate taxes and assessments then due, then
Tenant agrees to remit to Landlord the shortage promptly upon receipt of a
statement therefor from Landlord. In the event Tenant has deposited funds from
Landlord for the payment of the real estate taxes and assessments for such year
in excess of the amount required, then the overage shall be credited to the next
month's deposit to be made by Tenant hereunder. Tenant's proportionate share
shall be determined on an equitable basis taking into consideration, without
limitation, the square footage of the Demised Premises, including the Building,
and the square footage of the total tax parcel and all buildings thereon.
3. Tenant shall be deemed to have complied with the covenants of this
Article if payment of such Taxes shall have been made either within any period
allowed by law or by the governmental authority imposing the same during which
payment is permitted without penalty or interest or before the same shall become
a lien upon the Demised Premises, and Tenant shall produce and exhibit to
Landlord satisfactory evidence of such payment, if Landlord shall demand the
same in writing.
4. Tenant or its designees shall have the right to contest or review all
such Taxes by legal proceedings, or in such other manner as it may deem suitable
(which, if instituted, Tenant or its designees shall conduct promptly as its own
cost and expense, and free of any expense to Landlord, and, if necessary, in the
name of and with the cooperation of Landlord and Landlord shall execute all
documents necessary to accomplish the foregoing) . Notwithstanding the
foregoing, Tenant shall promptly pay all such Taxes if at any time the Demised
Premises or any part thereof shall then be immediately subject to forfeiture, or
if Landlord shall be subject to any criminal liability, arising out of the
nonpayment thereof.
5. The legal proceedings referred to in the preceding paragraph 4 shall
include appropriate certiorari proceedings and appeals from orders therein and
appeals from any judgments, decrees or order. In the event of any reduction,
cancellation or discharge, Tenant shall pay the amount finally levied or
assessed against the Demised Premises or adjudicated to be due and payable on
any such contested Taxes.
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<PAGE> 7
6. Landlord covenants and agrees that if there shall be any refunds or
rebates on account of the Taxes paid by Tenant under the provisions of this
Lease, such refund or rebate shall belong to Tenant. Any such refunds received
by Landlord shall be deemed trust funds and as such are to be received by
Landlord in trust and paid to Tenant forthwith. Landlord will, upon the request
of Tenant, sign any receipts which may be necessary to secure the payment of any
such refund or rebate, and will pay over to Tenant such refund or rebate as
received by Landlord. Landlord further covenants and agrees on request of Tenant
at any time, and from time to time, but without cost Landlord, to make
application individually (if legally required) for separate tax assessments for
such portions of the Demised Premises as Tenant shall at any time, and from time
to time, designate. Landlord hereby agrees upon request of Tenant to execute
such instruments and to give Tenant such assistance in connection with such
applications as shall be required by Tenant.
7. Nothing herein or in this Lease otherwise contained shall require or
be construed to require Tenant to pay any inheritance, estate, succession,
transfer, gift, franchise, income or profit taxes, that are or may be imposed
upon Landlord, its successors or assigns.
ARTICLE VI
----------
USE OF PREMISES
---------------
1. Tenant covenants and agrees that the Demised Premises during the term
hereof shall be occupied and used for manufacturing, assembly and related
operations and for no other purpose whatsoever without the written consent of
Landlord.
2. Tenant covenants and agrees to use, maintain and occupy the Demised
Premises in a careful, safe and proper manner and will not permit waste therein,
nor shall Tenant vacate or abandon the Demised Premises during the term of this
Lease, and shall not permit the Demised Premises to remain unoccupied, except
during any period of reconstruction or repairs or during any period required to
make alternations as provided by the terms of this Lease. Tenant will keep the
Demised Premises and appurtenances and the adjoining areas and sidewalks in a
clean, safe and healthy condition and further agrees to clean the snow and ice
from driveways and parking lots on the Demised Premises and from the sidewalks
contiguous to the Demised Premises. Tenant will not permit the Demised Premises
to be used in any way which will injure the reputation of the same.
3. Tenant covenants and agrees not to use or occupy or suffer or permit
the Demised Premises or any part thereof to be used or occupied for any purpose
contrary to law or to the rules or regulations of any public authority. If
Tenant shall install any electrical equipment that overloads the lines in the
Demised Premises,
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<PAGE> 8
Tenant shall, at its own expense, make whatever changes are necessary to comply
with the requirements of the insurance underwriters and governmental authorities
having jurisdiction thereof.
4. Tenant agrees to indemnify Landlord for all costs and expenses
including attorneys' fees, due, in whole or in part, to Tenant's activities
involving the use, shipment, storage, or discharge of hazardous wastes,
hazardous substances, solid wastes, wastewater, or process water, that may
result in any requirements, liabilities or claims to remedy or clean-up such
wastes, whether based upon a statue, regulation, order of a governmental agency,
or a private claim. These requirements, liabilities or claims include, but are
not limited to, those arising out of the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Toxic Substances Control Act, the
Safe Drinking Water Act, and the state counterparts of such statutes. This
indemnification applies to, but is not limited to, claims or liabilities
regarding air pollution, water pollution, land pollution, groundwater pollution,
solid and hazardous waster management, and toxic or hazardous substances
control.
ARTICLE VII
-----------
ALTERATIONS
-----------
1. Tenant covenants and agrees not to make or permit to be made any
alterations, improvements and additions to the Demised Premises or any part
thereof except by and with the written consent of Landlord first had. If the
reasonably estimated cost of such alterations exceeds Ten Thousand Dollars
($10,000.00), Tenant shall have prepared a set of plans and specifications which
shall be submitted to Landlord for approval, and Landlord agrees that approval
of said alterations as shown on said plans and specifications shall not be
unreasonably withheld.
2. All alterations, improvements and additions to the Demised Premises
permitted to be made by Tenant shall be made in accordance with all applicable
laws and, except for removable trade fixtures, shall at once when made or
installed be deemed to have attached to the freehold and to have become the
property of Landlord and shall remain for the benefit of Landlord at the end of
the term or other expiration of this Lease in as good order and condition as
they were when installed, reasonable wear and tear excepted; provided, however,
if prior to the termination of this Lease, or within fifteen (15) days
thereafter Landlord so directs by written notice to Tenant, Tenant shall
promptly remove the additions, improvements, fixtures and installations which
were placed on the Demised Premises by Tenant and which are designated in said
notice and repair any damage occasioned by such removal and in default thereof
Landlord may effect said removals and repairs at Tenant's expense.
5
<PAGE> 9
3. In the event of the making of such alterations, improvements and
additions as herein provided Tenant further agrees to indemnify and save
harmless Landlord from all costs, expenses, liens, claims or damages arising out
of, or resulting from the undertaking or making of said alterations, additions
or improvements.
ARTICLE VIII
------------
MAINTENANCE OF DEMISED PREMISES
-------------------------------
1. Landlord shall not be liable for any repairs or replacements of any
kind or nature whatsoever with respect to the Demised premises or to any
appurtenances thereof, such non-liability to extend, but not by way of
limitation, to the structural portion of the exterior or interior of any
building comprised in the Demised Premises, the roofs thereon, the fixtures,
pipes and appliances thereof, the parking and landscaped area surrounding said
buildings and the driveways and all utility lines serving the Demised Premises.
2. Tenant covenants and agrees to keep and maintain the Demised Premises
in good order, condition and repair, and to promptly make all repairs or
replacements becoming necessary during the term of this Lease including, but
without limitation, repairs or replacements of roof, structural portions of any
buildings on the Demised Premises, windows, doors, glass (which shall be
replaced with glass of the same size and quality) , electrical, plumbing and
sewage lines and fixtures within the Demised Premises, and all heating, air
conditioning and ventilating equipment and ducts and vents attached thereto,
including any of such equipment which may, with Landlord's consent, be mounted
on the roof of the Demised Premises, interior walls, floor covering and ceilings
and all elevators, docks, conveyors, fire extinguishers and building appliances
of each kind, driveways, sidewalks, parking and landscaped areas.
3. On default of Tenant in making any repairs or replacements required
to be made by Tenant hereunder or in maintaining the Demised Premises, Landlord
may, but shall not be required to make such repairs or replacements or to
maintain the Demised Premises for Tenant's account, and the expense thereof
shall constitute and be collectible as additional rent, payable by Tenant on
demand, or, at Landlord's election, together with the next installment of rent
due hereunder.
ARTICLE IX
----------
REQUIREMENTS OF PUBLIC AUTHORITY
--------------------------------
1. During the term of this Lease, Tenant shall, at its own cost and
expense, promptly observe and comply with all present and future laws,
ordinances, requirements, orders, directives, rules and regulations of the
Federal, State, County, Town, Village and City
6
<PAGE> 10
Governments and of all other governmental authorities affecting the Demised
Premises or appurtenances thereto or any part thereof whether the same are in
force at the commencement of the term of this Lease or may in the future be
passed, enacted or directed, and Tenant shall pay all costs, expenses,
liabilities, losses, damages, fines, penalties, claims and demands that may in
any manner arise out of or be imposed because of the failure of Tenant to comply
with the covenants of this Article IX.
2. Tenant shall have the right to contest by appropriate legal
proceedings diligently conducted in good faith, in the name of the Tenant, or
Landlord (if legally required), or both (if legally required) , without cost or
expense to Landlord, the validity or application of any law, ordinance, rule,
regulation or requirement of the nature referred to in paragraph 1 of this
Article and, if by the terms of any such law, ordinance, order, rule, regulation
or requirement, compliance therewith may legally be delayed pending the
prosecution of any such proceeding, Tenant may delay compliance therewith until
the final determination of such proceedings.
3. Landlord agrees to execute and deliver any appropriate papers or
other instruments which may be necessary or proper to permit Tenant so to
contest the validity or application of any such law, ordinance, order, rule,
regulation or requirement and to fully cooperate with Tenant in such contest.
Article X
---------
TENANT'S TAXES
--------------
Tenant covenants and agrees to pay promptly when due all taxes assessed
against Tenant's fixtures, furnishings, equipment and stock- in-trade placed in
or on the Demised Premises during the term of this Lease.
ARTICLE XI
----------
MECHANICS' LIEN
---------------
1. If, because of any act or omission of Tenant, any mechanic's lien or
other lien, charge or order for the payment of money shall be filed against any
portion of the Demised Premises, Tenant shall, at its own cost and expense,
cause the same to be discharged of record or bonded within ninety (90) days
after written notice from Landlord to Tenant of the filing thereof unless Tenant
shall contest the validity of such lien by appropriate legal proceedings
diligently conducted in good faith and without expense to Landlord; and Tenant
shall indemnify and save harmless Landlord against and from all cost,
liabilities, suits, penalties, claims and demands on account thereof.
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<PAGE> 11
2. If Tenant shall fail to cause such liens to be discharged of record
or bonded within the aforesaid ninety (90) day period or satisfy such liens
within sixty (60) days after any judgment in favor of such lien holders from
which no further appeal might be taken, then Landlord shall have the right to
cause the same to be discharged. All amounts paid by Landlord to cause such
liens to be discharged shall constitute additional base rent payable by Tenant
to Landlord.
ARTICLE XII
-----------
DESTRUCTION OF DEMISED PREMISES
-------------------------------
1. In the event of damage to or destruction of the Demised Premises from
any cause whatsoever, Tenant shall immediately proceed with the reconstruction,
repair or rehabilitation of the damaged portion of the Demised Premises and
shall complete the repair, rehabilitation or reconstruction thereof so that the
Demised Premises is an architecturally whole unit, the same as nearly as
possible to its condition immediately prior to such damage and destruction. Such
repair, rehabilitation or reconstruction shall be made in accordance with the
terms hereof within a reasonable time thereafter, it being specifically
understood that there shall be no abatement of rent during any period of time
while the Demised Premises or a portion thereof are not usable by Tenant.
2. If during the last year of the term of this Lease, sixty percent
(60%) or more of the Demised Premises, exclusive of excavations and foundations,
are destroyed by fire or other casualty insured against, Tenant shall have the
right and option to terminate this Lease in lieu of rebuilding;
provided,however, that Tenant exercises this option within sixty (60) days after
the occurrence of the fire or other casualty insured against; in such an event
Tenant shall assign to Landlord all its rights to the proceeds from any and all
insurance covering the Demised Premises and relating to such fire or other
casualty insured against; and in addition thereto shall pay to Landlord any
deficiency by reason of Tenant's failure to insure the Demised Premises as
required by Article XVI herein. During the period in which Tenant shall have the
option to terminate this Lease in lieu of rebuilding as above provided, Tenant
shall carry all insurance required to be carried under the terms of Article XVI
with carriers approved by Landlord, which approval shall not be unreasonably
withheld. Tenant will give notice to the Landlord the amount, carrier and type
of insurance, and in the event that Landlord determines that the amount is
insufficient, Landlord shall so notify Tenant within ninety (90) days after
notice has been received as aforesaid; in such event this dispute shall be
promptly arbitrated by a member of the American Institute of Real Estate
Appraisers (MAI) appointed by the then acting Secretary of the Greenwood Real
Estate Board of Realtors of similar entity.
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<PAGE> 12
3. Landlord at any time during the term of this Lease shall have the
right at Landlord's option to carry for its own account and at its expense
"Replacement Insurance," "Depreciation Insurance," or "Additional Coverage
Insurance" over and above the fire and extended coverage insurance required to
be carried by Tenant hereunder, provided that Landlord shall first advise Tenant
of the same, and the proceeds from any such insurance carried by Landlord shall
at all times be and become the property of Landlord. Tenant shall fully
cooperate with Landlord so that landlord will be able to carry such "Replacement
Insurance," "Depreciation Insurance" or "Additional Coverage Insurance."
ARTICLE XIII
------------
TRADE FIXTURES IN DEMAND PREMISES
---------------------------------
1. Removable trade fixtures shall not be deemed to become a part of the
Demised Premises unless so affixed to the realty as to damage the same in
removal. Tenant may, at the expiration of the term hereof, remove all of its
trade fixtures which can be moved without costly injury to, or undue defacement
of the Demised Premises, provided all rents stipulated herein are paid in full
and Tenant is not otherwise in default hereunder, and provided further that any
and all damage to the Demised Premises resulting from or caused by such removal,
shall be promptly repaired at Tenant's expense.
2. It is specifically understood and agreed that the following items now
located in and about the Demised Premises and any replacements thereof to be
made during the term of this Lease are a part of the Demised Premises and are
not the trade fixtures or equipment of the Tenant:
(a) All light and electrical fixtures and wiring of every nature
whatsoever, all conduit, light switches, fuse boxes, electrical receptacles
of every nature, all bus ducts and all fittings and plug-in devices used in
connection therewith.
(b) All heating and ventilating and air conditioning
equipment of every nature.
(c) All plumbing and sewer fixtures whether regular or special.
(d) All fences and gates of every nature whatsoever.
(e) All partitions whether temporary or permanent.
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<PAGE> 13
3. All personal property belonging to Tenant or to any other person,
located in or about any building of the Demised Premises , shall be there at the
sole risk of Tenant or such other person, and neither Landlord nor Landlord's
agents shall be liable for the theft or misappropriation thereof, nor for any
damage or injury thereto, or for damage or injury to Tenant or said other
persons or to other property, caused by water, snow, frost, steam, heat or cold,
dampness, falling plaster, sewers or sewage, gas, odors, noise, the bursting or
leaking of pipes, plumbing, electrical wiring and equipment and fixtures of all
kinds, or for any act, neglect or omission of any occupant of any building on
the Demised Premises or of any other person or caused in any other manner
whatsoever. Tenant agrees to protect, indemnify and save harmless Landlord from
all losses, costs or damages sustained by reason of any act or other occurrence
causing injury to any person or property whomsoever or whatsoever due to the use
of the Demised Premises or any part thereof by Tenant.
ARTICLE XIV
-----------
ACCESS TO DEMISED PREMISES
--------------------------
1. Tenant covenants and agrees to permit Landlord and
Landlord's agents to inspect and examine the Demised Premises at any reasonable
time to permit Landlord to make such repairs, decorations, alterations,
improvements or additions in and to the Demised Premises, that Landlord may deem
desirable or necessary for the preservation of the Demised Premises or which
Tenant has failed so to do, and for other reasonable purpose without the same
being construed as an eviction of Tenant in whole or in part, and the rent shall
in no wise abate while such decorations, repairs, alterations, improvements or
additions are being made by reason of loss or interruption of the business of
Tenant because of the prosecution of such work.
2. Landlord and its agents shall also have the right to enter upon the
Demised Premises for a period commencing three hundred sixty (360) days prior to
the termination of this Lease for the purpose of exhibiting the same to
prospective tenants or purchasers. During said period Landlord may place signs
in our upon the Demised Premises to indicate the same are for rent or sale,
which signs shall not be removed, obliterated or hidden by Tenant.
3. If, during the last month of the term of this Lease, Tenant shall
have removed all or substantially all of Tenant's property therefrom, Landlord
may immediately enter and alter, renovate or redecorate the Demised Premises
without elimination or abatement of rent or other compensation and such action
shall have no effect on this Lease. Nothing herein contained, however, shall be
deemed or construed to impose upon Landlord any obligation, responsibility or
liability whatsoever for the care, supervision or repair of the Demised Premises
except in this Lease otherwise provided.
10
<PAGE> 14
ARTICLE XV
----------
SURRENDER OF DEMISED PREMISES
-----------------------------
1. Tenant covenants and agrees to deliver up and surrender to Landlord
possession of the Demised Premises upon expiration of this Lease, or its earlier
termination as herein provided, broom clean and in as good condition and repair
as the same shall be at the commencement of the term of this Lease, or may have
been put by Landlord during the continuance thereof, ordinary wear and tear and
damage by fire or the elements not caused by the negligence or act of Tenant or
its agents, employees or invitees excepted, it being understood and agreed that
acceptance of delivery of the Demised Premises shall be deemed conclusive
evidence that the Demised Premises were in good order and condition at the
commencement of the term of this Lease.
2. Prior to Tenant's vacating or delivery up the Demised Premises to
Landlord, Tenant shall, at Tenant's cost and expense, remove all property of
Tenant and all alterations, additions and improvements as to which Landlord
shall have made the election provided for in Article VII hereof, and shall
repair any damage to the Demised Premises caused by such removal and restore the
Demised Premises to the condition in which they were prior to the installation
of the articles so removed. Any property not so removed and as to which Landlord
shall have not made said election, shall be deemed to have been abandoned by
Tenant and may be retained or disposed of by Landlord, as Landlord shall desire.
Tenant's obligation to observe or perform this covenant shall survive the
expiration of termination of the term of this Lease.
ARTICLE XVI
-----------
INDEMNITY AND INSURANCE BY TENANT
---------------------------------
1. Tenant covenants and agrees it will protect and save harmless and
keep Landlord forever harmless and indemnified against and from any penalty,
damages, charges or costs imposed or resulting from any violation of any law,
order of governmental agency or ordinance, whether occasioned by the neglect of
Tenant or those holding under Tenant, and that Tenant will at all times protect,
indemnify and save and keep harmless Landlord against and from all claims,
losses, costs, damages or expenses arising out of or from any accident or other
occurrence on or about the Demised Premises causing injury to any person or
property whomsoever or whatsoever, and will protect, indemnify, save and keep
harmless Landlord against and from any and all claims and against and from any
and all losses, costs, damages or expenses arising out of any failure of Tenant
in any respect to comply with or perform all the requirements and provisions of
this Lease.
11
<PAGE> 15
2. Tenant agrees that, at its own cost and expense, it will procure and
continue in force, in the names of Landlord, Landlord's mortgagee(s) and Tenant
as their interests may appear, general liability insurance coverage against
injuries to persons occurring in, upon or about the Demised Premises, including
all damage from signs, glass, awnings, fixtures or other appurtenances now or
hereafter erected on the Demised Premises during the term of this Lease, such
insurance at all times to be in an amount of not less that One Million Dollars
($1,000,000) each occurrence and Two Million Dollars ($2,000,000) general
aggregate. Such insurance shall be written with a company or companies
authorized to engage in the business of general liability insurance in the State
of South Carolina, and there shall be delivered to Landlord customary insurance
certification evidencing such paid-up insurance and copies of the policies. Such
insurance shall further provide that the same may not be canceled, terminated or
modified unless the insurer gives Landlord and Landlord's mortgagee(s) at least
thirty (30) days's prior written notice thereof.
3. Tenant shall carry and pay for, for the account of Landlord
during the entire term of this Lease, the following types of
insurance:
(a) Insurance in an amount not less than eighty percent (80%) of
the replacement value of the buildings and other improvements now or at any
time hereafter situated on the Demised Premises (with carriers approved by
Landlord, which approval shall not be unreasonably withheld) , against loss
or damage by fire, lightning, such perils as are now or hereafter may be
comprehended within the term "extended coverage" and -vandalism and
malicious mischief, or if any building is equipped with automatic
sprinklers and plumbing eligible for "Superior Fdrm" of policy as issued by
the Sprinklered Risk Associations, against loss or damage by fire and such
other perils as are included in such "Superior Form", together with a "Riot
and Vandalism" endorsement and together with the "Agreed Amount Clause" and
"Replacement Cost Endorsement," if the same are then available. Said
replacement value shall be determined at the instance of Landlord not more
frequently than at annual intervals by an architect, contractor, appraiser,
appraisal company, one of the insurers selected by Landlord, or by
agreement of the parties; provided the method is approved by the insurers,
and shall exclude such values as are not insured by the standard fire
insurance policy, viz, excavation, underground foundations and piping and
architects' fees, and the amount of the insurance shall be adjusted
accordingly.
(b) Rent insurance (unless the risks covered by such insurance
is included in Tenant's business interruption insurance satisfactory to
Landlord) , to the extent obtainable from insurers of recognized
responsibility, against loss or damage resulting from the same risks as are
covered by the insurance mentioned in paragraph 3(a) of this Article in an
amount equal to one (1)
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<PAGE> 16
year's requirement of the basic rent, the estimated amounts payable by
Tenant for Taxes and Utility Expenses as provided in Article V, and
insurance premiums as provided in this paragraph and paragraph 2 of this
Article.
(c) All such policies of insurance shall be in the name of Landlord and
Tenant with a loss payable clause in favor of any holder of any mortgage on
the Demised Premises. It shall be the duty of Tenant to insure in its own
name all improvements and betterments as shall be installed at Tenant's
expense which remain the property of Tenant.
(d) All insurance proceeds shall be paid to and held by Landlord, as
Trustee, and shall be disbursed by such Trustee to Tenant from time to time
as work progresses for Tenant's use in rehabilitating or reconstructing or
repairing any destroyed portion of the Demised Premises, provided Tenant is
not in default in the payment of rent and there exists no other uncured
default or defaults on the part of Tenant; that plans, specifications,
names of contractors, copies of contracts, necessary permits and
indemnifications against liens, costs, damages and expenses of all kinds
are submitted to and approved by both Landlord and such Trustee, which
approval shall not be unreasonably withheld, and it is thereupon evident
that the destroyed portion of the Demised Premises can be rehabilitated or
reconstructed or repaired for the amount of the insurance moneys collected
or to be collected from the insurance companies insuring against the
casualty involved in such a manner as to place the Demised Premises in at
least as good condition as the property was before the occurrence of the
casualty. In the event that such insurance moneys are inadequate for the
purposes aforesaid, then Tenant shall deposit or shall cause to be
deposited with the Trustee sufficient funds to make up the difference
between the insurance moneys available or to be available and the actual
cost of rehabilitation, repair or reconstruction, plus any amount required
to cure any default in the Lease. Landlord and Tenant shall cooperate fully
in order that there shall be no unreasonable delays in commencement of any
of such work. In the event that Tenant is in default in the payment of rent
or in the performance or observance of any other terms, conditions or
covenants contained in this Lease, Landlord, at its option, may immediately
apply any such insurance moneys to correct such defaults and Tenant hereby
waives any rights that it may have to said insurance moneys for the
purposes hereinabove set forth. If the rehabilitation, reconstruction or
repair of the Demised Premises is completed in accordance with the terms
hereof for an amount of money less than the insurance moneys available and
provided that Tenant is not in default hereunder, Tenant shall have the
right to receive the excess of any such insurance moneys. Any fees charged
by the said Trustee pursuant to the provisions of this paragraph 3 of this
Article shall be borne solely by Tenant.
13
<PAGE> 17
4. All insurance certifications referred to in this Section XVI are to
be provided by Tenant, and shall be for a period of not less than one (1) year,
it being understood and agreed that thirty (30) days prior to the expiration of
any policy of insurance Tenant will deliver to Landlord a renewal or new policy
to take the place of the policy expiring, with the further agreement that,
should Tenant fail to furnish policies as is provided in this Lease, and at the
times herein provided, Landlord may obtain such insurance and the premiums on
such insurance shall be deemed additional rent to be paid by Tenant unto
Landlord upon demand.
ARTICLE XVII
------------
ASSIGNMENT AND SUBLETTING
-------------------------
1. Tenant covenants and agrees not to assign this Lease or to sublet the
whole or any part of the Demised Premises, or to permit any other persons to
occupy same without the written consent of Landlord first had, reference
elsewhere herein to assignees notwithstanding. No consent of Landlord to a
particular assignment or subletting shall be deemed a consent to further
assignments or subletting. Any assignment or subletting, even with the consent
of Landlord, shall not relieve Tenant from liability for payment of rent or
other sums herein provided or from the obligation to keep and be bound by the
terms, conditions and covenants of this Lease. The acceptance of rent from any
other person shall not be deemed to be a waiver of any of the provisions of this
Lease and shall not constitute consent to the assignment of this Lease or
subletting of the Demised Premises.
2. If Tenant is a corporation, then any transfer of this Lease from
Tenant by merger, consolidation or liquidation, or any change in ownership or
power to vote of a majority of Tenant's outstanding voting stock shall
constitute an assignment for the purpose of this Lease and shall require the
written consent of Landlord first having been obtained.
3. An assignment for the benefit of creditor or by operation of law
shall not be effective to transfer any rights to any assignee, without the
written consent of Landlord first having been obtained.
ARTICLE XVIII
-------------
EMINENT DOMAIN
--------------
1. In the event the Demised Premises or any part thereof shall be taken
or condemned either permanently or temporarily for any public or quasi public
use or purpose by any competent authority in appropriation proceedings or by any
right of eminent domain, the entire compensation award therefor, both leasehold
and reversion, shall belong to Landlord without any deduction therefrom for any
14
<PAGE> 18
present or future estate of Tenant and Tenant hereby assigns to Landlord all its
right, title and interest to any such award. Tenant shall, however, be entitled
to claim, prove and receive in such condemnation proceedings such award as may
be allowed for fixtures and other equipment installed by it, but only if such
award shall be in addition to the award for the land and the building (or
portion thereof) containing the Demised Premises.
2. If the entire Demised Premises shall be taken as aforesaid, then this
Lease shall terminate and shall become null and void from the time possession
thereof is required for public use and from that date the parties hereto shall
be release from further obligation hereunder; but in the event a portion only of
the Demised Premises shall be so taken or condemned, then Landlord, at its own
expense, shall repair or restore, to the extent reasonably possible, the portion
not affected by the taking and thereafter the rental to be paid by Tenant shall
be equitably and proportionately adjusted.
3. Any such appropriation or condemnation proceedings shall not
operate as or be deemed an eviction of Tenant or a breach of Landlord's
covenant for quiet enjoyment.
ARTICLE XIX
-----------
DEFAULT BY TENANT
-----------------
1. All rights and remedies of Landlord herein enumerated shall be
cumulative, and none shall exclude any other right or remedies allowed by law.
Tenant covenants and agrees that if:
(a) Tenant shall fail, neglect or refuse to pay any installment
of rent at the time and in the amount as herein provided, or to pay any
other monies agreed by it to be paid promptly when and as the same shall
become due and payable under the terms hereof, and if any such default
shall continue for a period of more than fifteen (15) days; or
(b) Any voluntary or involuntary petition or similar pleading
under any section or sections of any bankruptcy act shall be filed by or
against Tenant, or any voluntary or involuntary proceeding in any court or
tribunal shall be instituted to declare Tenant insolvent or unable to pay
Tenant's debts, and the same shall not be dismissed or discharged within
thirty (30) days thereafter; or
(c) Tenant makes any assignments of its property for the benefit
of creditors or should the Demised Premises be taken under a levy of
execution or attachment in any action against Tenant and such levy,
attachment or assignment is not dismissed or discharged within thirty (30)
days; or
15
<PAGE> 19
(d) Tenant shall abandon or vacate the Demised Premises or shall
fail, neglect or refuse to keep and perform any of the other covenants,
conditions, stipulations or agreements herein contained, covenanted and
agreed to be kept and performed by it, and in the event any such default
shall continue for a period of more than fifteen (15) days after notice
thereof given in writing to Tenant by Landlord; provided, however, that if
the cause for giving such notice involves the making of repairs or other
matters reasonably requiring a longer period of time than the period of
such notice, Tenant shall be deemed to have complied with such notice so
long as it has commenced to comply with said notice or has taken and
continues to diligently pursue all proper steps or proceeding under the
circumstances to prevent the seizure, destruction, alteration or other
interference with the Demised Premises by reason of non-compliance with the
requirements of any law or ordinance or with the rules, regulations, or
direction of any governmental authority as the case may be;
then Tenant does hereby authorize and fully empower Landlord or Landlord's agent
to cancel or annul this Lease at once and to re-enter and take possession of the
Demised Premises immediately, and by force if necessary, without any previous
notice of intention to re-enter , and to remove all persons and their property
therefrom, and to use such force and assists in effecting and perfecting such
removal of Tenant as may be necessary and advisable to recover at once first and
exclusive possession of the Demised Premises whether in possession of Tenant or
of third persons or otherwise, without being deemed guilty of any manner of
trespass and without prejudice to any remedies which might otherwise be used by
Landlord, in which event this Lease shall terminate and Tenant shall indemnify
Landlord against all loss of rent which LAndlord may incur by reason of such
termination during the residue of the term therein specified.
2. Any and all property which may be removed from the Demised Premises
by Landlord in accordance with the terms of this Lease may be handled, removed,
stored or otherwise disposed of by Landlord at the risk and expense of Tenant;
Landlord in no event shall be responsible for the preservation or safekeeping
thereof, except for its own negligence. Tenant shall pay to Landlord, upon
demand in writing, any and all expenses incurred with such removal, and all
storage charges against such property so long as the same shall be in Landlord's
possession or under the Landlord's control. If any property shall remain in the
Demised Premises or in the possession of Landlord and shall not be retaken by
Tenant within a period of thirty (30) days from and after the time when the
Demised Premises are either abandoned by Tenant or repossessed by Landlord under
the terms of this Lease, said property shall conclusively be deemed to have been
forever abandoned by Tenant, and Landlord, after giving Tenant fifteen (15)
days' written notice (all other notices required by statute or otherwise being
hereby expressly waived) , shall have the right to sell
16
<PAGE> 20
any and all of said property at public or private sale and to apply the proceeds
of said sale first to the payment of all costs and expenses of conducting the
sale or caring for or storing said property, secondly toward the payment of any
indebtedness which may be or may become due from Tenant to Landlord, and thirdly
to pay to Tenant on demand in writing, any surplus remaining after all
indebtedness of Tenant to Landlord has been fully paid.
3. Landlord may, however, at its option, at any time after such default
or violation of condition or covenant, re-enter and take possession of the
Demised Premises without such re-entry working as a forfeiture of the rents to
be paid and the covenants, agreements and conditions to be kept and performed by
Tenant for the full term of this Lease. In such event, Landlord shall have the
right, but not the obligation, to divide or subdivide the Demised Premises in
any manner Landlord may determine and to lease or let the same or portions
thereof for such periods of time and at such rentals and for such use and upon
such covenants and conditions as Landlord may elect, applying the net rentals
from such letting first to the payment of Landlord's expenses (including
attorney's fees) incurred in dispossessing Tenant and reletting the Demised
Premises and the cost and expense of making such improvements in the Demised
Premises as may be necessary in order to enable Landlord to relet the same, and
to the payment of any brokerage commissions or other necessary expenses of
Landlord in connection with such reletting. The balance, if any, shall be
applied by Landlord from time to time on account of the payments due or payable
by Tenant hereunder, with the right reserved to Landlord to bring such action or
proceedings from the recovery of any deficits remaining unpaid as Landlord may
deem favorable from time to time, without being obligated to await the end of
the term hereof for the final determination of Tenant's account. Any balance
remaining, however, after full payment and liquidation of Landlord's account as
aforesaid shall be paid to Tenant with the right reserved to Landlord at any
time to give notice in writing to Tenant of Landlord's election to cancel and
terminate this Lease and the giving of such notice and the simultaneous payment
by Landlord to Tenant of any credit balance in Tenant's favor that may at the
time be owing to Tenant shall constitute a final and effective cancellation and
termination of this Lease and the obligations hereunder on the part of either
party to the other.
ARTICLE XX
----------
WAIVER OF TENANTS DEFAULT
-------------------------
No waiver of any covenant or any condition or of any breach of any
covenant or condition of this Lease shall be taken to constitute a waiver of any
subsequent breach of such covenant or condition nor to justify or authorize the
nonobservance of any other occasion of the same or of any other covenant or
condition hereof, nor shall the
17
<PAGE> 21
acceptance of rent by Landlord at any time when Tenant is in default under any
covenant or condition hereof be construed as a waiver of such default or of
Landlord's right to terminate this Lease on account of such default, nor shall
any waiver or indulgence granted by Landlord to Tenant be taken as an estoppel
against Landlord, it being expressly understood that if at any time Tenant shall
be in default in any of its covenants or conditions hereunder an acceptance by
Landlord of rental during the continuance of such default or the failure on the
part of Landlord promptly to avail itself of such rights or remedies as Landlord
may have, shall not be construed as a waiver or such default, but Landlord may
at any time thereafter, if such default continues, terminate this Lease or
assert any other rights or remedies available to it on account of such default
in the manner hereinbefore provided.
ARTICLE XXI
-----------
DEFAULT BY LANDLORD
-------------------
Notwithstanding anything herein stated to the contrary, if Landlord
shall fail to perform any covenant, term or condition of this Lease upon
Landlord's part to be performed and, as a consequence of such default Tenant or
any person claiming through Tenant suffers any loss, injury or damage, it is
specifically understood and agreed that Landlord (its successors, assigns and
partner, if any) shall not have any personal liability therefor, Tenant hereby
agreeing to look solely to the equity of Landlord (its successors, assigns and
partners, if any) in the Demised Premises for the satisfaction of each and every
remedy of Tenant or any person claiming through Tenant in the event of such
failure by Landlord.
ARTICLE XXII
------------
SUBORDINATION
-------------
Landlord reserves the right and privilege to subject and subordinate
this Lease to all ground or underlying leases and all mortgages, which may now
or hereafter affect the Demised Premises, and to any and all advanced to be made
thereunder and all renewals, modifications, consolidations, replacements and
extensions thereof. Tenant covenants and agrees to execute promptly any
certificate that Landlord may request in confirmation of such subordination and
Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to
execute any such certificate for or on behalf of Tenant.
18
<PAGE> 22
ARTICLE XXIII
-------------
ESTOPPEL CERTIFICATE BY TENANT
------------------------------
Tenant agrees at any time and from time to time, upon not less
than ten (10) days' prior written request by Landlord, to execute and
acknowledge and deliver to Landlord a written statement certifying that this
Lease is unmodified and in full force and effect (or, if there had been
modifications, that the same is in full force and effect as modified and stating
the modifications) , and the dates to which the rent and other charges have been
paid in advance, if any, it being intended that any such statement delivered
pursuant to this Article may be relied upon by any prospective purchaser of the
fee' or mortgagee or assignee of any mortgage upon the fee of the Demised
Premises.
ARTICLE XXIV
------------
OPTION TO PURCHASE
------------------
Landlord hereby grants Tenant the right, privilege and option
("Option") to purchase the Demised Premises, on the terms and conditions
hereinafter set forth.
(a) The Option shall be exercisable by written notice from
Tenant to Landlord at least six (6) months prior to the expiration of the
term of this Lease. The Option shall be deemed to have been timely
exercised if the notice thereof is postmarked no later than midnight of the
last day on which the Option is exercisable.
(b) The purchase price for the Demised Premises shall be the
greater of (i) the fair market value of the Demised Premises or (ii) the
original purchase price expended by Landlord for the Demised Premises which
is One Million Forty Five Thousand Dollars ($1,045,000). The fair market
value shall be as determined by an appraisal of the Demised Premises
prepared by an MAI appraiser mutually agreeable to Landlord and Tenant. If
the parties cannot agree on an appraiser, each party shall select and MAI
appraiser and those two appraiser shall select a third MAI appraiser. The
average of the appraisal amounts determined by each of the appraisers shall
be the fair market value for the Demised Premises. The fees of the
appraisers shall be shared equally between the parties.
(c) The purchase price shall be paid in cash upon closing or
upon such other terms and conditions as may be agreed upon by Landlord and
Tenant.
19
<PAGE> 23
(d) If the Option is exercised, closing of the transaction shall
take place as near as practicable to the expiration date of this Lease on a
date specified in writing by Tenant to Landlord at least fifteen (15) days
prior to the closing. The term "closing" shall mean the date upon which the
funds shall be disbursed to Landlord and the deed to the property being
purchased shall be recorded.
(e) In the event of sale hereunder, transfer shall be in fee
simple by warranty deed conveying the Demised Premises to Tenant, free and
clear of all liens and encumbrances whatsoever, except easements,
conditions, reservations of record, in any; zoning ordinances, if any;
liens or conditions created by or through Tenant; and real estate taxes and
assessments, both general and special, not yet due and payable. All costs
and expenses relating to the transfer of the Demised Premises, including,
without limitation, transfer and conveyance fees, title evidence and
recording fees, shall be borne by Tenant.
ARTICLE XXV
-----------
TERM "LANDLORD"
---------------
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner (or ground lessor, as the case may be) for the time being
of the Demised Premises. If the Demised Premises or underlying lease, if any, be
sold or transferred, the seller thereof shall be automatically and entirely
released of all covenants and obligations under this Lease from and after the
date of such conveyance or transfer, provided that purchaser at such sale has
assumed and agreed to carry out all covenants and obligations contained in this
Lease to be performed on the part of Landlord hereunder, it being agreed that
the covenants and obligations contained in this Lease shall be binding upon
Landlord, its successor and assigns, only during their respective successive
periods of ownership.
ARTICLE XXVI
------------
HOLDING OVER
------------
If Tenant shall remain in possession of all or any part of the Demised
Premises after the expiration of the term of this Lease or any renewal thereof,
with the consent of Landlord, then Tenant shall be deemed a tenant of the
Premises from month-to-month at one and one-half times the most recent payable
by Tenant hereunder and subject to all of the terms and provisions hereof,
except only as to the term of this Lease.
20
<PAGE> 24
ARTICLE XXVII
-------------
QUIET ENJOYMENT
---------------
Landlord covenants and agrees that if Tenant pays the rental and other
charges herein provided and shall perform all of the covenants and agreements
herein stipulated to be performed on Tenant's part, Tenant shall, at all times
during said term, have the peaceable and quiet enjoyment and possession of the
Demised Premises without any manner of hindrance from Landlord or any persons
lawfully claiming through Landlord, except as to such portion of the Demised
Premises as shall be taken under the power of eminent domain or condemnation.
ARTICLE XXVIII
--------------
WAIVER OF SUBROGATION
---------------------
Neither party nor its representatives, agents or employees shall be
liable to the other party or to anyone claiming through the other party or to
any insurance company (by way of subrogation or otherwise) insuring the other
party for any business interruption or for any loss or damage to any building,
structure or other tangible property, or injury to or death of person occurring
on or about the Demised Premises, or in any manner growing out of or connected
with Tenant's use or occupation of the Demised Premises, or the use or
occupation of the Demised Premises by Tenant's licenses, concessionaires or
tenants, even though such business interruption, loss, damage, injury or death
might have been occasioned by the negligence of such party, its agents or
employees; provided, however, that (i) such business interruption, loss, damage,
injury or death is or could be covered by a fire and extended coverage insurance
policy (with vandalism and malicious mischief endorsement attached) , by a
contents insurance policy or by a sprinkler leakage or water damage policy in
South Carolina regardless of whether such insurance policies are actually
carried, or (ii) to the extent of recovery under any other insurance carried
covering such business interruption, loss, damage, injury or death. Each
insurance policy carried by the parties hereto shall contain a clause to the
effect that the foregoing waiver shall not effect the right of the insured party
to recover under such policy. However, if by reason of the foregoing waiver
either party shall be unable to obtain any such insurance, such waiver shall be
deemed not to have been made by such party. If by reason of the foregoing
waiver, either party shall be unable to obtain any such insurance without the
payment of an additional premium therefor, then, unless the party claiming the
benefit of such waiver shall agree to pay such party for the cost of such
additional premium within thirty (30) days after notice setting forth such
requirement and the amount of the additional premium, such waiver shall be of no
force and effect as between such party and such claiming party.
21
<PAGE> 25
ARTICLE XXIX
------------
TITLES OF ARTICLES
------------------
The titles of the Articles throughout this Lease are for convenience and
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify, or aid in the interpretation, construction or meaning
of the provisions of this instrument.
ARTICLE XXX
-----------
NOTICES
-------
Any bill, statement, notice, communication or payment which Landlord or
Tenant may desire, or be required to give to the other party shall be in writing
and shall be sent to the other party by registered or certified mail to the
address specified on page 1 hereof as to Landlord and to the Demised Premises as
to Tenant, or to such other address as either party shall have designated to the
other by like notice, and the time of the rendition of such shall be when same
is deposited in an official United States Post Office, postage prepaid.
ARTICLE XXXI
------------
DEFINITION OF TERMS
-------------------
As used in this Lease and when required by the context, each number
(singular or plural) shall include all numbers, and each gender shall include
all genders; and unless the context otherwise requires, the word "person" shall
include individuals, corporations, firms, associations, partnerships and any
other type of entity.
ARTICLE XXXII
-------------
INVALIDITY OF PARTICULAR PROVISIONS
-----------------------------------
If any term or provision of this Lease or the application thereof to any
person or circumstance shall to any extend be invalid or unenforceable, the
other terms of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affect thereby, and each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
22
<PAGE> 26
ARTICLE XXXIII
--------------
PROVISIONS BINDING
------------------
Except as herein otherwise expressly provided, the terms and provisions
hereof shall be binding upon and shall inure to the benefit of the heirs,
executors, administrators, successors, and permitted assigns, respectively, of
Landlord and Tenant. Each term and provision of this Lease to be performed by
Tenant shall be construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to constitute a
consent to assignment by Tenant, but has reference only to those instances in
which Landlord may have given written consent to a particular assignment as
required by Article XVII hereof.
ARTICLE XXXIV
-------------
RELATIONSHIP OF PARTIES
-----------------------
Nothing contained in this Lease shall be deemed or construed by the
parties hereto or by any third party to create the relationship of principal and
agent or of partnership or of joint venture or of any association whatsoever
between Landlord and Tenant, it being expressly understood and agreed that
neither the computation of rent and other charges nor any other provisions
contained in this Lease nor any act or acts of the parties hereto shall be
deemed to create any relationship between Landlord and Tenant other than the
relationship of landlord and tenant.
ARTICLE XXXV
------------
SHORT-FORM LEASE
----------------
The parties will, at any time, at the request of either one, promptly
execute duplicate originals of an instrument, in recordable form, which will
constitute a short form of lease, setting forth a description of the Demised
Premises, the term of the Lease, and any other portions thereof, excepting the
rental provisions, as either party may request.
ARTICLE XXXVI
-------------
COMPLETE AGREEMENT
------------------
This writing contains the entire agreement between the parties hereto,
and no agent, representative, salesman or officer of Landlord hereto has
authority to make or has made any statement, agreement or representation oral or
written, in connection herewith, modifying, adding or changing the terms and
conditions herein set forth. No dealings between the parties or custom shall be
permitted to contradict various additions to or modify the terms hereof. No
modification of this Lease shall be binding unless such modification shall be in
writing and signed by the parties hereto.
23
<PAGE> 27
IN TESTIMONY WHEREOF, Landlord and Tenant have caused this Lease
to be signed upon the day and year first above written.
SIGNED IN THE PRESENCE OF: LANDLORD
D.M. DRAIME
/s/ Kelly J. Perez
- ------------------------------ By: /s/ D.M. Draime
/s/ Joy Judge --------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
TENANT:
ALPHABET, INC.
/s/ Kelly J. Perez By: /s/ ? ?
- ------------------------------- --------------------------------
/s/ Joy Judge Its: Vice Chairman
- ------------------------------- ----------------------------
/s/ Kelly J. Perez
- ------------------------------- And: /s/ ? ?
/s/ Joy Judge ------------------------------
- ------------------------------- Its: Vice President
---------------------------
24
<PAGE> 28
STATE OF OHIO )
) SS:
COUNTY OF TRUMBULL )
Personally appeared before me, a Notary Public in and for said
County and State, by D. M. Draime, who acknowledged that he did sign
and seal the foregoing instrument; that the same is his free act and
deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal at November, this 29th day of 1993.
/s/ Jan I. Hoff
-------------------------------
Notary Public
My commission expires: __________
JAN I. HOFF PUBLIC
State of Ohio
My Commission April 3, 1995
<PAGE> 29
STATE OF OHIO )
) SS:
COUNTY OF TRUMBULL)
Personally appeared before me a Notary Public in and for said County and
State, Alphabet, Inc. C. J. Abruzzo and William T. Hull, its Vice
Chairman and Vice President, respectively, who acknowledged that they did sign
and seal the foregoing instrument for and on behalf of the Corporation, being
thereunto duly authorized by its Board of Directors; that the same is their free
act and deed individually and as such officers and the free act and deed of the
Corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at November,
this 29 day of 1993.
/s/ Jan I. Hoff
-------------------------------
Notary Public
My commission expires: __________
JAN I. HOFF PUBLIC
State of Ohio
My Commission April 3, 1995
26
<PAGE> 1
INDUSTRIAL DEVELOPMENT ASSOCIATES
LEASE SUMMARY FORM
Date: June 11, 1985
TENANT: MCR, INC.
-------------------------------------------------------------------------
UNIT LEASED: Building I 1400 Dogwood, Square Feet: 50,998
----------------------------- --------------------------
LEASE DATE: October 28, 1978
------------------------------
EFFECTIVE DATE: March 31, 1979 ADJUSTMENT DATE: October 28, 2003
------------------------- -----------------------
SECURITY DEPOSIT: $7,863.00
-----------------------
TENANT IMPROVEMENTS BY LANDLORD: COST:
--------------- ------------------------
ORIGINAL TERM: 25 years RENEWALS: 3 addl. terms at 5 years each
----------------------- --------------------------------
<TABLE>
<S> <C> <C> <C>
BASIC RENT: 1st Yr. 1983=$11,360/month 2nd Yr. 1984= $11,701/month 3rd Yr. 1985=$12,500/month
--------------------------------- ----------------- ---------------------
4th Yr. 3% CPI (far utilities) 5th Yr. 3% CPI
------------------------------------ ---------------------
</TABLE>
RENEWAL RENT BASE: 1st: , 2nd:
-----------------------
ADDITIONAL RENT:
UTILITIES: Landlord pays utilities
--------------------------------------
OPERATING PASS THRU: Insurance and taxes
----------------------------------
C.P.I.: 3% annual
-----------------------------------------
OTHER: Pro rata share of common area
------------------------------------------
PARKING: Included
-----------------------------------------------
FIRST RIGHT OF REFUSAL:
---------------------------------
OTHER: Renewal notice 180 days prior to term. (10/28/03
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
COMMENTS: Original Rent $7,863.00 $1.85 sq.ft.
----------------------------------------------------------------------
1985 approx. $2.85 sq.ft./Landlord pays utilities
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RENEWAL DATE: October 28, 2003 EXERCISED:
------------------- -------------------------
LEASE EXPIRATION DATE: October 28, 2028
-----------------------------------------
(Including renewals)
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
Premises and Construction
-------------------------
Section 1.1. Premises .................................................. 1
Section 1.2. Construction of Improvements .............................. 1
Section 1.3. Work to Be Performed by
Landlord for Tenant at
Tenant's Expense .......................................... 2
ARTICLE II
Lease Term
----------
Section 2.1. Term ...................................................... 3
Section 2.2. Renewal Option ............................................ 4
ARTICLE III
Rent
----
Section 3.1. Annual Rent ............................................... 5
Section 3.2. Impositions ............................................... 5
Section 3.3. Utilities ................................................. 6
Section 3.4. Expenses .................................................. 6
Section 3.5. Security Deposit .......................................... 7
ARTICLE IV
Occupancy
---------
Section 4.1. Quiet Enjoyment ........................................... 7
Section 4.2. Use of Premises ........................................... 8
Section 4.3. Compliance with Law ....................................... 8
Section 4.4. Covenants ................................................. 8
-i-
<PAGE> 3
Page
ARTICLE V
Transfers
---------
Section 5.1. Subletting ................................................. 9
ARTICLE VI
Parking
-------
Section 6.1. Parking .................................................... 9
ARTICLE VII
Maintenance, Alterations
------------------------
and Additional Space
---------------------
Section 7.1. Maintenance and Repair .................................... 10
Section 7.2. Common Area Maintenance. . . ............................. 11
Section 7.3. Alterations by Tenant ..................................... 11
ARTICLE VIII
Surrender of Leased Premises
----------------------------
Section 8.1. Surrender ................................................. 12
Section 8.2. Tenant Equipment Excepted ................................. 12
ARTICLE IX
Mechanic's Liens
----------------
Section 9.1. Mechanic's Liens .......................................... 13
ARTICLE X
Insurance and Indemnity
-----------------------
Section 10.1. Casualty Insurance ........................................ 13
Section 10.2. Indemnity ................................................. 14
Section 10.3. Public Liability Insurance ................................ 15
Section 10.4. Revision of Insurance
Coverage .................................................. 15
-ii-
<PAGE> 4
Page
ARTICLE XI
Eminent Domain
--------------
Section 11.1. Total Taking ............................................ 16
Section 11.2. Partial Taking .......................................... 16
Section 11.3. Damages ................................................. 17
Section 11.4. Rent .................................................... 17
ARTICLE XII
Damage and Destruction
----------------------
Section 12.1. Restoration of Damaged
or Destroyed Leased
Premises ................................................ 17
Section 12.2. No Abatement ............................................ 18
ARTICLE XIII
Default by Tenant
-----------------
Section 13.1. Tenant's Default ........................................ 18
Section 13.2. Remedies Not Exclusive;
No Waiver ............................................... 21
Section 13.3. Cure by Landlord ........................................ 22
ARTICLE XIV
Bankruptcy
----------
Section 14.1. Effect of Bankruptcy or
Other Proceedings ....................................... 22
-iii-
<PAGE> 5
Page
ARTICLE XV
Miscellaneous
-------------
Section 15.1. Recording .................................................. 23
Section 15.2. Estoppel Certificates ...................................... 23
Section 15.3. Right to Enter ............................................. 24
Section 15.4. Conditions and Termination ................................. 24
Section 15.5. Laws of North Carolina ..................................... 25
Section 15.6. Severability ............................................... 25
Section 15.7. Headings ................................................... 25
Section 15.8. Notices .................................................... 25
Section 15.9. Force Majeure .............................................. 25
Section 15.10. Successors ................................................. 26
Section 15.11. Subordination .............................................. 26
Section 15.12. Assignment of Landlord's
Interest ................................................... 26
Section 15.13. Transfer by Landlord ....................................... 26
Section 15.14. Time of Essence ............................................ 27
-iv-
<PAGE> 6
CAROLINA CENTRAL INDUSTRIAL CENTER
LEASE
THIS AGREEMENT OF LEASE is made as of this 24th day of October, 1978,
by and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited
partnership, having a place of business c/o MSC Corporation at 21 West Road,
Towson, Maryland 21204 ("Landlord"), as landlord, and ALPHABET, INC.
, a Ohio corporation having a place of business
at P. O. Box 308, Orwell, Ohio 44076 ("Tenant"), as
tenant.
Article I
---------
Premises and Construction
-------------------------
1.1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the premises described in Exhibit A to this Lease
consisting of approximately 50,998 square feet of space (the "Leased Premises")
in the building constructed or to be constructed (the "Building") on the
property described in Exhibit B to this Lease (the "Property") located at the
Carolina Central Industrial Center, Mebane, Alamance County, North Carolina,
together with necessary access, parking and utility easements to serve the
Leased Premises, upon the terms and conditions stated in this Lease.
1.2. CONSTRUCTION OF IMPROVEMENTS. Landlord intends to construct or has
constructed on the Property the Building described in the plans and
specifications referred to in Exhibit C to this Lease (the "Landlord's Plans").
Landlord expects to complete construction of the Building and the Leased
Premises on or before March 31, 1979 in a manner ready for Tenant to install
Tenant's own improvements.
<PAGE> 7
1.3. WORK TO BE PERFORMED BY LANDLORD FOR TENANT AT TENANT'S EXPENSE.
Landlord, at Tenant's cost and expense shall perform and complete such work on
the interior of the Leased Premises as set forth in the plans and specifications
for Tenant's improvements ("Tenant's Plans") attached as Exhibit D to this
Lease. Tenant's Plans shall include, but shall not be limited to, all necessary
partitions, interior walls, interior doors, acoustical ceilings, lights,
switches, wiring, exterior and interior wall finishes, finished floors, sinks,
toilets, and installation of all fixtures and equipment necessary for the
completion of first-class office and manufacturing facilities suitable for
Tenant's needs. Upon submission of a bill therefor from Landlord, Tenant shall
pay Landlord the costs of all work performed by Landlord pursuant to this
Section 1.3.
During the period Landlord is performing work on the Leased Premises
pursuant to Section 1.2 and this Section 1.3, Tenant shall have the right to
enter upon the Leased Premises to install its fixtures, equipment, and other
property so long as Tenant does not interfere with Landlord in the performance
of Landlord's work.
Upon completion of construction as set forth in Section 1.2 and in this
Section 1.3, Landlord shall deliver to Tenant (a) a certificate of completion by
the architect who supervised the construction, which shall state that all work
performed by Landlord has been completed in accordance with Landlord's Plans and
Tenant's Plans and (b) a certificate of occupancy or any equivalent permit or
certificate which may be required by any governmental authority prior to the
commencement of business on the Leased Premises.
-2-
<PAGE> 8
Landlord shall notify Tenant in writing as soon as the Leased Premises
are substantially completed in accordance with Landlord's Plans and Tenant's
Plans and ready for Tenant to take occupancy. Taking of possession by Tenant
shall be deemed to establish that the Building on the Property is completed in
accordance with Landlord's Plans and Tenant's Plans and that the Leased Premises
are in good and satisfactory condition as of and when possession is taken,
except for punch list items for the Leased Premises specified by the parties at
the time Tenant takes possession and for faulty materials or workmanship
warranted by Landlord. Landlord hereby warrants the materials and workmanship
for the work performed by Landlord for a period of one year commencing on the
date Tenant takes possession of the Leased Premises to install Tenant's
improvements, provided that Tenant gives Landlord written notice of any defect
promptly as it appears and within such one-year period.
ARTICLE II
----------
Lease Term
----------
2.1. TERM. The term of this Lease shall begin on the Commencement Date
and shall end on the last day of the month in which the twenty-fifth (25th)
annual anniversary of the Commencement Date shall occur, unless sooner
terminated as provided in this Lease (such term as it may be extended pursuant
to this Lease is called the "Term"). "Commencement Date" shall be the date that
Landlord gives notice to Tenant pursuant to Section 1.3 that Tenant may take
possession of the Leased Premises.
If the Commencement Date falls on the first day of a calendar month,
the twenty five year Term shall begin to run (25) from that date. If that date
falls on other than the first
-3-
<PAGE> 9
day of a month, the Term shall commence on the first day of the month next
following. Upon the request of Landlord, Tenant shall execute a written
agreement, in recordable form if requested, acknowledging the Commencement Date
of the Term.
2.2. RENEWAL OPTION. Provided that this Lease shall be in good standing
and in full force and effect and shall not theretofore have been terminated and
that Tenant shall not be in default under any of the terms or conditions of this
Lease, Tenant shall have the option to renew this Lease for three (3) additional
terms of five (5) years each by notifying Landlord of Tenant's election not less
than one hundred eighty (180) days before the expiration of the initial twenty-
five (25) year term of this Lease or the immediately preceding renewal term, as
the case may be. Each such renewal shall be on the same terms and conditions set
forth in this Lease, except (a) that the annual rent payable during the first
renewal term of this Lease shall be the sum of Ninety-four thousand three
hundred forty-six Dollars ($94,346.00 ) multiplied by a fraction the numerator
of which shall be the 1978 Revised Consumer Price Index for Urban Wage Earners
and Clerical Workers (1967=100) issued by the Bureau of Labor Statistics of the
United States Department of Labor (or the most nearly comparable successor
index) (the "Index") as of the last day of the initial twenty-five (25)
year term and the denominator of which shall be the Index as of the date of this
Lease, and (b) that the annual rent payable during the second renewal term of
this Lease shall be the amount of annual rent calculated in subsection 2.2(a)
multiplied by a fraction the numerator of which shall be the Index as of the
last day of the first renewal term and the denominator of which shall be the
Index as of the first day of the first renewal term. Rent shall be payable in
monthly
-4-
<PAGE> 10
installments of one-twelfth (1/12th) of the annual rent, in
advance, on the first day of each and every month during such
extended Term. The annual rent shall not be adjusted, however,
below Ninety-four thousand three hundred forty-six -- Dollars
($94,346.00) for either renewal period.
ARTICLE III
-----------
Rent
----
3.1. ANNUAL RENT. Beginning on the Commencement Date, or on the first
day of the month next following if the Commencement Date falls on other than the
first day of a month, Tenant shall pay to Landlord annual rent of Ninety-four
thousand three hundred forty-six - Dollars ($94,346.00), payable to Landlord in
equal monthly installments at the rate of Seven thousand eight hundred
sixty-three Dollars ($7,663.00), without demand or set-off, in legal tender,
and in advance on the first day of each and every month in each year during the
Term. If the Commencement Date shall fall on a day other than the first day of a
calendar month, then Tenant shall pay to Landlord for the month in which the
Commencement Date shall occur an additional rental of an amount calculated by
prorating the monthly rent payment. Tenant shall make all rental payments to
Landlord c/o , attention: Richard Bechtold or at such other address
designated by Landlord.
3.2. IMPOSITIONS. If the annual real estate or other taxes and special
assessments imposed on or with respect to the land and improvements on the
assessed unit of which the Leased Premises are a part (including, without
limitation, front foot or benefit assessments for sewerage, water, or paving and
any rent or occupancy tax which may be imposed) (collectively the "Impositions")
for any tax year
-5-
<PAGE> 11
during the term of this Lease shall exceed the amount of such taxes and
assessments for the first full tax assessment year commencing after the sixth
(6th) calendar month after the Commencement Date, then Tenant shall pay
Landlord, upon receipt of a bill therefor from Landlord, as part of additional
rent for the Leased Premises, the amount of such excess. Tenant shall not be
obligated to pay any installment of any special assessment levied or assessed
during the Term but not due until after termination of this Lease. Impositions
shall be based on a square foot proportional basis as to any assessed unit of
which the Leased Premises are a part.
Unless otherwise required by Landlord, Tenant shall pay its share of
Impositions directly to the Landlord. Upon the request of Tenant, the Landlord
shall deliver copies of Imposition bills and notices to Tenant following their
receipt by Landlord.
3.3. UTILITIES. Beginning on the date Landlord gives notice to Tenant
that Tenant may take possession of the Leased Premises, Tenant shall pay when
due, as part of additional rent, all charges for gas, electricity, water,
sewer, telephone, and all other utilities used or consumed at the Leased
Premises. Landlord shall provide that gas, electricity, and water be separately
metered for the Leased Premises. Tenant shall pay all such bills directly to
the billing entity, and, upon request of Landlord, shall forward to Landlord a
receipt or other appropriate evidence that all such bills are paid.
3.4. EXPENSES. Unless expressly otherwise provided in this Lease,
Tenant shall pay all costs, expenses and obligations of every kind relating to
the Leased Premises which may arise during the Term except (a) municipal, state
or federal
-6-
<PAGE> 12
income taxes or estate, succession, inheritance or gift taxes, or corporation
franchise taxes assessed against Landlord, (b) costs, expenses, and obligations
incurred by Landlord in connection with the sale or mortgaging of the Leased
Premises, and (c) costs of maintenance and repairs for which Landlord is
responsible under the terms of this Lease.
3.5. SECURITY DEPOSIT. Tenant shall pay to Landlord upon the
execution of this Lease the amount of Seven thousand eight hundred sixty-three
Dollars ($7,863.00) as a security deposit for the faithful performance by
Tenant of all the terms and covenants of this Lease. If any amount owed by
Tenant to Landlord as rent, additional rent or otherwise shall be in arrears,
Landlord may apply the security deposit toward such obligation and Tenant agrees
to re-establish the full amount of security deposit by paying such additional
amount along with the next monthly installment of rent. Provided Tenant shall
not be in default under this Lease, Landlord shall return the security deposit
to Tenant upon the termination of this Lease, less all costs incurred by
Landlord in correcting or satisfying any default by Tenant under this Lease or
in returning the Leased Premises to the same condition as existed at the time
Tenant took possession of the Leased Premises, reasonable wear and tear
excepted. No right or remedy available to Landlord under this Section 3.5 shall
be deemed to preclude any other right or remedy to which Landlord might
otherwise be entitled by this Lease or law.
ARTICLE IV
----------
Occupancy
---------
4.1. QUIET ENJOYMENT. Upon payment of the rent as required under this
Lease and performance by Tenant of all of the covenants and provisions of this
Lease to be performed by
-7-
<PAGE> 13
Tenant, Tenant shall have during the Lease Term peaceful and quiet use and
possession of the Leased Premises without hindrance on the part of Landlord.
4.2. USE OF PREMISES. Tenant may use the Leased Premises only for the
purpose of
4.3. COMPLIANCE WITH LAW. Tenant shall at all times during the Term, at
its own expense, conform to and comply with all laws, regulations, orders and
other governmental requirements, or requirements of the Board of Fire
Underwriters, now or hereafter in force, affecting the use or occupancy of all
or any part of the Leased Premises. At all times during the Term and for any
period that Tenant enters the Leased Premises prior to the Commencement Date to
make its installations, Tenant indemnifies Landlord against and agrees to save
Landlord harmless from all expenses, liability, and penalty, imposed or incurred
for or because of any violation of any law, regulation, order or other
governmental requirement occasioned by the neglect or omission, or willful act
of Tenant, its customers, employees, visitors, or invitees, independent
contractors, or any person on the Leased Premises by permission or holding under
Tenant unless such violation results solely from an act or omission on the part
of Landlord or an agent or employee of Landlord. Following notice to Landlord,
Tenant, by appropriate proceedings conducted with due diligence at Tenant's
expense in Tenant's name, may contest in good faith the validity or enforcement
of any applicable governmental requirement provided that Landlord is not
subjected to any fine or penalty.
4.4 COVENANTS. At all times during the Term, Tenant shall comply with,
perform, and be bound by, all the terms, provisions, conditions, restrictions,
and covenants set
-8-
<PAGE> 14
forth in the covenants with respect to the Carolina Central Industrial Center
recorded, or intended to be recorded, among the land records of Alamance County,
North Carolina (the "Covenants") substantially in the form attached as Exhibit
E to this Lease. For the purposes of this Lease, the word "Developer" as used in
the Covenants shall be deemed to mean the Landlord, and the words "Owner" and
"lot owner" as used in the Covenants shall be deemed to mean the Tenant
provided, however, that Tenant shall not be deemed an owner for purposes of the
Article of the Covenants entitled "Duration and Modification of Restrictions";
and, provided further, that no amendment or revocation of the Covenants shall
serve to reduce or revoke Tenant's obligation to Landlord to perform and be
bound by the Covenants as set forth in Exhibit E without Landlord's written
agreement to the contrary delivered to Tenant.
ARTICLE V
---------
Transfers
---------
5.1. SUBLETTING. Tenant shall not have the right to sublet the Leased
Premises, or any portion thereof, or to assign Tenant's interest in this Lease,
or any portion thereof, without the prior consent of Landlord. Subletting or
assignment shall not relieve Tenant of its obligations to Landlord under this
Lease.
ARTICLE VI
Parking
-------
6.1. PARKING. Subject to such reasonable rules, regulations, or
conditions as Landlord may impose, Tenant shall be entitled to the non-exclusive
use in common with others of automobile parking areas, driveways, access roads,
footways, and loading facilities as may be constructed by
-9-
<PAGE> 15
Landlord for the common use by other tenants of the Building.
ARTICLE VII
Maintenance and Alterations
---------------------------
7.1. MAINTENANCE AND REPAIR. Except as provided in this Section 7.1
and except as provided in Section 1.2, Tenant at its sole cost and expense, at
all times during the Term, shall maintain and keep in an orderly condition and
in a good state of repair the Leased Premises and every part thereof, including,
but not by way of limitation, all interior walls, windows, roof, plumbing and
sewerage facilities, air-conditioning system, heating system, electrical
facilities and equipment, exterior lighting, and all other fixtures, equipment
and appliances of every kind and nature, reasonable use and wear thereof
excepted, provided, however, that if any part of the Building of which the
Leased Premises are a part is leased by Landlord to one or more entities other
than Tenant, Landlord, provided Landlord is given written notice of the
necessity therefor, shall perform all such maintenance and repair with respect
to such Building except those items which relate solely to the interior of the
Leased Premises and other interior parts of the Building leased to other
tenants. Landlord shall charge the cost therefor to Tenant and to such other
tenants, and shall apportion such cost according to a square foot proportional
basis as each area so leased to Tenant or other tenants bears to the total area
of the Building. Tenant shall pay such charge as additional rent upon receipt of
a bill therefor from Landlord. The cost of maintenance and repair shall include
all costs allocable to such maintenance and repair in accordance with generally
accepted accounting principles .
Landlord shall maintain all exterior walls, foundations, and
structural parts of the Building of which the
-10-
<PAGE> 16
Leased Premises are a part. Tenant waives all right to make repairs at the
expense of Landlord as provided by any provision of law now or hereafter in
effect. Except as expressly provided in this Lease, Landlord shall not be called
upon or obligated to make or pay for any repairs, replacements, restorations,
improvements, alterations, or additions whatsoever in or about the Leased
Premises.
7.2 COMMON AREA MAINTENANCE. For each year during the Term and all
renewal periods, Tenant shall pay as additional rent upon receipt of a bill
therefor from Landlord, a common area maintenance charge representing Tenant's
proportionate share of the cost to Landlord of operating, maintaining,
repairing and replacing the parking areas and exterior grounds in and around the
Property of which the Leased Premises are a part. Such charge shall be for
repair of the parking areas and for keeping them clear of snow, debris, and
other rubbish and for maintenance of all exterior grounds, grass, landscaping
and related areas. Tenant's proportionate share shall be the amount determined
by multiplying the total annual expense to the Landlord for so maintaining the
parking areas and exterior grounds by a fraction, the numerator of which is
_________, representing the number of square feet of the Leased Premises, and
the denominator of which shall be the floor area of the other buildings on the
Property of which the Leased Premises are a part. The cost of maintenance shall
include all costs and expenses of operating, maintaining, repairing and
replacing such areas allocable thereto in accordance with generally accepted
accounting principles.
7.3. ALTERATIONS BY TENANT. Tenant, without the prior written consent
of Landlord, shall not make any interior alterations, structural alterations,
changes to the exterior
-11-
<PAGE> 17
appearance of the Leased Premises, additions, or other improvements to the
Leased Premises, except for maintenance and repair required of Tenant.
ARTICLE VIII
Surrender of Leased Premises
----------------------------
8.1. SURRENDER. Upon termination of the Term, or any earlier
termination of this Lease, Tenant shall surrender to Landlord the Leased
Premises, including all alterations, improvements and other additions, in good
order and repair, reasonable wear and tear excepted.
8.2. TENANT EQUIPMENT EXCEPTED. If Tenant is not in default under this
Lease, Tenant shall be entitled to (or, at Landlord's request, must) remove from
the Leased Premises at the end of the Term Tenant's office, trade and
manufacturing fixtures, furniture, equipment and signs, which Tenant has
installed on the Leased Premises prior to or during the Term at the cost of
Tenant and which are not an integral part or necessary to the operation of the
Leased Premises as are plumbing, heating, ventilating, air-conditioning, and
other similar equipment. Tenant shall at its own cost and expense repair any and
all damage to the Leased Premises resulting from or caused by such removal, and
shall restore the Leased Premises to good order and condition, reasonable wear
and tear excepted. Tenant shall have thirty (30) days after termination of
this Lease for any reason whatsoever to effect such removal, repair and
restoration, except that no such fixtures or equipment placed on or in the
Leased Premises by Tenant, and which remain the property of Tenant, may be
removed at a time when Tenant is in default in payment of rent or any other
money payable hereunder, or in the performance of any other covenant under this
Lease.
-12-
<PAGE> 18
EXHIBIT 10.3
LEASE
BETWEEN
INDUSTRIAL DEVELOPMENT ASSOCIATES
AND
ALPHABET, INC.
Carolina Central Industrial Center
Mebane, North Carolina
<PAGE> 19
ARTICLE IX
Mechanic's Liens
----------------
9.1. MECHANIC'S LIENS. Prior to approving any construction on the
Leased Premises by Tenant, Landlord shall have the right to require Tenant, or
Tenant's contractor for such construction, to furnish a bond in an amount equal
to the estimated cost of such construction with corporate surety approved by
Landlord for (a) completion of such construction and (b) indemnifying Landlord
and Tenant, as their interests may appear, against liens for labor and
materials, which bond shall be furnished before any work is begun or any
materials delivered. Landlord shall also have the right at any time before,
during or after such construction to require Tenant to furnish such other
assurances against mechanic's liens as may be reasonable including, but not
limited to, releases of liens signed by all contractors, subcontractors and
suppliers, and affidavits executed by Tenant, Tenant's contractor or architect,
that all labor and materials theretofore furnished have been paid.
ARTICLE X
Insurance and Indemnity
-----------------------
10.1. CASUALTY INSURANCE. Beginning on the date of this Lease and
continuing during the entire Term, Landlord, at its expense, shall keep the
Building on the Leased Premises insured against loss or damage by fire,
vandalism and other casualty to the extent now or hereafter covered under
standard extended coverage, provided, however, that if the premiums for such
insurance for any year during the Term exceed the amount of such premiums for
the first full calendar year commencing after the Commencement Date, Tenant
shall pay Landlord as additional rent upon receipt of a bill therefor from
Landlord
-13-
<PAGE> 20
the amount of such excess. Such payment by Tenant shall be based on a square
foot proportional basis as to the total area of any Building of which the Leased
Premises are a part.
Tenant shall at all times during the Term maintain at its own cost and
expense such casualty insurance against loss, damage, or destruction to all
signs, trade fixtures, improvements, equipment, furniture and other
installations and property installed by Tenant on the Leased Premises, and
shall, upon Landlord's request, provide Landlord with certificates of insurance
evidencing that such policies are in force or copies of such policies.
10.2. INDEMNITY. At all times after Tenant takes possession of the
Leased Premises and for any period that Tenant enters the Leased Premises prior
to the Commencement Date to make its installations, Tenant shall protect,
indemnify, and save the Landlord harmless of, from and against any and all
actions liabilities, damages, costs, expenses, fees, demands or claims of any
nature whatsoever arising from (a) any work or thing done in or about the Leased
Premises, and the improvements now or hereafter constructed thereon, or any part
thereof, by Tenant or its agents or employees or independent contractors hired
by Tenant, (b) injury to or death of persons or damage to property on the Leased
Premises or the improvements now or hereafter constructed thereon, and (c) any
negligent act or omission on the part of the Tenant, or its employees or
invitees or independent contractors arising out of the occupancy or use of the
Leased Premises and the improvements now or hereafter constructed thereon,
except that Tenant shall not be required to save and hold Landlord harmless or
to indemnify Landlord if the injury or loss is due to the negligence of the
Landlord or its agents or employees.
-14-
<PAGE> 21
10.3. PUBLIC LIABILITY INSURANCE. During all periods of construction
or reconstruction work performed by Tenant on the Leased Premises, Tenant, at
its own expense, shall keep in force, by advance payments of premiums, workmen's
compensation and builder's risk insurance reasonably acceptable to Landlord.
Beginning on the date of commencement of Tenant's entry upon the Leased
Premises and continuing during the entire Term, Tenant, at Tenant's expense,
shall keep in force, by advance payments of premiums, public liability
insurance in an amount of not less than three million dollars ($3,000,000.00)
for personal injury or death and not less than two hundred thousand dollars
($200,000.00) for damage to property, insuring against any liability that may
accrue on account of any occurrences in or about the Leased Premises or in
consequence of Tenant's occupancy of the Leased Premises. Such insurance shall
protect and indemnify not only against any and all such liability, but also
against all loss, expense and damage of any and every sort and kind, including
costs of investigation and attorney's fees and other costs of defense. All such
insurance shall be with insurers approved by Landlord, and all policies shall
name Landlord and Tenant as beneficiary as their respective interests may
appear. Such policies shall provide that notwithstanding any act or negligence
of Tenant which might otherwise result in a forfeiture, such policies shall not
be cancelled without at least ten (10) days' prior written notice to each
insured. Tenant shall furnish Landlord with a copy of all such policies or a
certificate that such policies are in effect.
10.4. REVISION OF INSURANCE COVERAGE. As of January 1, and January 1 of
each fifth (5th) year thereafter,
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<PAGE> 22
the parties shall review whether the insurance minimums stated in Section 10.3
provide for sound and prudent coverage in relation to liability risks as of each
such date. As of each date, the parties shall mutually agree on appropriate
liability insurance minimums. If within fifteen (15) days following each date
the parties are unable to agree on liability insurance minimums, the Landlord
may procure the required insurance and charge the cost thereof to Tenant as
additional rent.
Within thirty (30) days following establishment of any required
adjustment, Tenant shall forward to Landlord certificates of insurance
indicating that insurance in no less than the required adjustment amounts is in
full force and effect.
ARTICLE XI
Eminent Domain
--------------
11.1. TOTAL TAKING. If the entire Leased Premises be taken under
the power of eminent domain or by purchase in lieu thereof (herein together
called "Eminent Domain"), this Lease shall terminate as of the date possession
is taken.
11.2. PARTIAL TAKING. If any portion of the Leased Premises shall be
taken under the power of Eminent Domain, and the portion not so taken would
not, in the reasonable judgment of Tenant which shall be communicated in
writing to Landlord stating the reasons therefor within sixty (60) days
following the date on which Tenant receives notice of the condemning
authority's intention to take such property, be adequate for the continued
operation of Tenant's business, either unrestored or restored, or if Landlord
deems such restoration to be impractical, this Lease shall be deemed to have
terminated as of the date of taking of possession. If this Lease is not
terminated pursuant to this Section 11.2, Landlord, im-
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<PAGE> 23
mediately following the taking, to the extent of condemnation proceeds made
available to Landlord, shall proceed to restore such part of the Leased
Premises as is not taken to as near the former condition of the original Leased
Premises, less all signs, trade fixtures, improvements, furniture, and other
installations and property installed by Tenant, as the circumstances will
permit, and Tenant shall continue to pay rent in full and to utilize the Leased
Premises for the operation of its business.
11.3. DAMAGES. All damages awarded for any such taking under the
power of Eminent Domain shall be paid to the Landlord, except for Tenant's
fixtures and equipment used in operation of the Leased Premises.
11.4. RENT. If this Lease is terminated as provided in this Article XI,
all rent shall be paid up to the date that possession is taken by the condemning
authority, and Landlord shall make a proportional refund to Tenant of any rent
or other amounts paid by Tenant which are applicable to any period after that
date and not yet earned.
ARTICLE XII
Damage and Destruction.
-----------------------
12.1. RESTORATION OF DAMAGED OR DESTROYED LEASED PREMISES. If the
Leased Premises, or any other portion of the Building, shall, through no fault
of Tenant or Tenant's agents, servants, employees, customers, contractors,
visitors or licensees, be damaged by fire, the elements, unavoidable accident
or other casualty, but the Leased Premises are not thereby rendered
untenantable, or are thereby rendered only partially untenantable, Landlord
shall promptly at its own expense cause such damage to be repaired to the
extent of insurance proceeds made available to Landlord. If by reason of such
occurrence
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<PAGE> 24
the Leased Premises shall be rendered wholly untenantable, Landlord shall
promptly at its own expense cause such damage to be repaired, unless within
sixty (60) days after such occurrence Landlord shall give Tenant written notice
that it has elected not to reconstruct the destroyed premises in which event,
this Lease and the tenancy hereby created shall cease as of the date of such
occurrence, the rental to be adjusted as of such date. Any repair or
reconstructions performed by Landlord pursuant to this Section shall not
include any and all signs, trade fixtures, improvements, equipment, furniture,
or other installations and property installed by Tenant. Such items shall be
restored or replaced by Tenant at Tenant's sole cost and expense. All of the
above notwithstanding, if Landlord, in its absolute discretion, shall desire,
within a reasonable time after the occurrence of any such accident or casualty,
(even though the Leased Premises may not have been affected by the same) to
demolish the Building, then, upon written notice from Landlord to Tenant, this
Lease shall terminate on a date to be specified in such notice, and all rent
payable hereunder shall be adjusted as of the time of the occurrence of any
such accident or casualty.
12.2. NO ABATEMENT. Tenant shall not be entitled to any abatement or
diminution of rent during any period because of any casualty damage. Tenant at
all times shall maintain business interruption insurance with respect to the
business operated on the Leased Premises and rent abatement insurance in such
amounts as the Landlord shall reasonably request.
ARTICLE XIII
Default by Tenant
-----------------
13.1. TENANT'S DEFAULT. If Tenant (a) shall fail to pay any rent or
other sum of money due hereunder within
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<PAGE> 25
ten (10) days after receipt of written notice that such payment has not been
made when due, (b) shall fail to perform any other of the terms, conditions, or
covenants of this Lease to be observed or performed by Tenant for more than
thirty (30) days after written notice of such default as shall have been mailed
to Tenant, unless such default is of a nature that it cannot practically be
cured within such thirty (30) day period and Tenant is proceeding with due
diligence to cure such default, or (c) shall abandon the Leased Premises, then
at Landlord's option and without limiting Landlord in the exercise of any other
right or remedy Landlord may have in law or equity on account of such default,
and without any further demand or notice, Landlord may
(i) Re-enter the Leased Premises with or without process
of law, take possession of all Improvements, additions, alterations,
equipment and fixtures thereon, eject all parties in possession thereof
therefrom, and, without terminating this Lease, at any time and from
time to time relet the Leased Premises or any part or parts thereof for
the account of Tenant or otherwise, receive and collect the rents
therefor, applying the rents first to the payment of such expenses as
Landlord may have paid, assumed or incurred in recovering possession of
the Leased Premises, including costs, expenses and attorney's fees, and
for placing the Leased Premises in good order and condition or
preparing or altering the same for reletting, and all other expenses,
commission and charges paid, assumed or incurred by Landlord in or in
connection with reletting the Leased Premises, and then
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<PAGE> 26
to the fulfillment of the covenants of Tenant. Any such reletting may
be for the remainder of the Term of this Lease or for a longer or
shorter period. Landlord may execute any lease made pursuant to the
terms hereof either in Landlord's name or in the name of Tenant, as
Landlord may see fit, and the subtenant therein shall be under no
obligation whatsoever for the application by Landlord of any rent
collected by Landlord from such subtenant to any and all sums, due
and owing or which may become due and owing under the provisions of
this Lease. Nor shall Tenant have any right or authority to collect any
rent from subtenant. In any case and whether or not the Leased Premises
or any part thereof be relet, Tenant shall pay to Landlord all sums
required to be paid by Tenant up to the time of re-entry by Landlord.
Thereafter Tenant, if required by Landlord, shall pay to Landlord,
until the end of the Term of this Lease, the equivalent of the amount
of all rent and other charges required to be paid by Tenant under the
terms of this Lease, less the proceeds of such reletting during the
Term of this Lease, if any, after payment of the expenses of Landlord.
Such rent shall be due and payable on the several rent days herein
specified, and Landlord need not wait until the termination of this
Lease to recover any rent by legal action or otherwise. Re-entry by
Landlord shall not constitute an election to terminate this Lease
unless Landlord gives Tenant
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<PAGE> 27
notice of Landlord's election to terminate.
(ii) Declare this Lease at an end, reenter the Leased Premises
with or without process of law, eject all parties in possession
thereof therefrom and repossess and enjoy the Leased Premises
together with all Improvements thereto, and Landlord shall thereupon
be entitled to recover from Tenant the worth, at the time of such
termination, of the amount of rent and charges equivalent to rent
reserved in this Lease for the balance of the Term. For the purpose
of this sub-paragraph (ii), all Impositions and contributions to
expenses and other items paid by Tenant shall be projected over the
term of the Lease at an average increase of such items as may have
occurred since the date of this Lease to the date of default.
13.2. REMEDIES NOT EXCLUSIVE; NO WAIVER. The remedies of Landlord set
forth in this Lease are cumulative and are in addition to and not exclusive of
any other remedy of Landlord herein given or which may be permitted by law, and
if any breach or threatened breach by Tenant of this Lease occurs, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right and remedy allowed by law or in equity or by statute
or otherwise in addition to rights set forth in this Lease. Tenant shall
permit any re-entry as provided for in this Article XIII without hindrance to
Landlord, and Landlord shall not be liable in damages or guilty of trespass
because of such re-entry. The failure of Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease or to
exer-
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<PAGE> 28
addition to any other remedies provided Landlord in the event of Tenant's
default as set forth in this Lease or under any applicable law, shall have the
option, to be exercised by written notice given to Tenant, to declare this Lease
terminated at any time after the expiration of twenty (20) days following the
commencement of such proceeding or the assertion of such lien, unless the
proceeding is dismissed or the lien discharged and unless all payments of rent
and other payments required by this Lease to be made by Tenant to Landlord are
paid promptly during such period of twenty (20) days. Landlord shall under no
circumstances be required to permit a receiver or any person claiming through or
under Tenant to retain possession of the Leased Premises. Landlord need not
lease the Leased Premises to such receiver or person, and Landlord shall be
entitled to immediate possession of the Leased Premises. Any repossession or
termination hereunder shall not operate in any way to prejudice or affect the
right of Landlord for recovery of rent or other charges theretofore accrued,
thereafter accruing or to any other damages, nor shall any such termination or
repossession ever be construed as a waiver of or an election not to claim future
damages on account of such breach, but all such damages, including all future
rentals, shall be fully recoverable by Landlord.
ARTICLE XV
Miscellaneous
-------------
15.1. RECORDING. Landlord reserves the right at any time to require
this Lease, or a short form thereof, to be recorded at Landlord's expense among
the Land Records of Alamance County, North Carolina.
15.2. ESTOPPEL CERTIFICATES. Each party agrees at reasonable intervals
and from time to time upon not less than five (5) days' prior written notice by
the other to execute,
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<PAGE> 29
acknowledge and deliver a statement in writing certifying (i) that this Lease
is unmodified and in full force and effect (or if there have been
modifications, that the Lease is in full force and effect as modified and
stating the modifications), (ii) the dates to which the rent and other charges
have been paid in advance, if any, and (iii) stating whether or not to the best
knowledge of the signer of such certificate the signing party is in default in
performance of any covenant, agreement or condition contained in this Lease
and, if so, specifying each such default of which the signer may have
knowledge. Each party acknowledges that any such statement delivered under this
Lease may be relied upon by third parties not a party to this Lease.
15.3. RIGHT TO ENTER. Landlord and its agents shall have the right to
enter the Leased Premises at reasonable hours, and at any time if any emergency
exists, to examine the Leased Premises, or to make such repairs and alterations
as shall be reasonably necessary for the safety and preservation of the Leased
Premises, or during the last twelve (12) months of the Term to show both the
interior and exterior of the Leased Premises to prospective tenants or
purchasers and to place "For Rent" or "For Sale" signs thereon.
15.4. CONDITIONS AND TERMINATION. At Landlord's option this Lease shall
become void and all parties shall be relieved of all obligations imposed
hereunder (a) if, by December 31, 1978, Landlord has not yet obtained (i) water
and sewer connection permits, (ii) building permits, and (iii) all other
governmental approvals necessary to permit the construction of the Building on
the Leased Premises or (b) if Landlord has not completed construction of the
Building by December 31, 1979.
If this Lease terminates pursuant to this Section
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<PAGE> 30
15.4, Landlord shall refund to Tenant the amount of all security deposits made
by Tenant to Landlord under this Lease.
15.5. LAWS OF NORTH CAROLINA. This Lease shall be construed and applied
in accordance with the laws of the State of North Carolina.
15.6. SEVERABILITY. Any provision or provisions of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect or impair or
invalidate any other provision, and the remaining provision shall remain
in full force and effect.
15.7. HEADINGS. The headings of the various Articles and Sections of
this Lease are inserted for reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Lease.
15.8. NOTICES. Any notice, request, demand, approval, or consent to be
given under this Lease shall be in writing and shall be deemed to have been
received when mailed by United States, registered or certified mail, postage
prepaid, addressed to the other party at the addresses set forth in the first
paragraph of this Lease.
Either party may at any time change its address by mailing a notice, as
specified in this Section 15.8, that such change is desired and setting forth
the new address.
15.9. FORCE MAJEURE. In no event shall Landlord be liable for, nor
shall Tenant have the right to terminate this Lease for, delays in the
prosecution of Landlord's share of construction beyond Landlord's control
("Force Majeure") , including (but not limited to) delays caused directly or
indirectly by strikes, lockouts, the unavailability of labor or materials, Acts
of God, acts of any Federal, State, or local governmental agency or authority,
war, insurrection, rebellion, riot, civil disorder, fire, explosion, windstorm,
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<PAGE> 31
hail, snow, extreme cold, rain, flood, damage from aircraft, vehicles, or smoke,
or by any other casualty of a substantial enough nature to cause delay.
15.10. SUCCESSORS. This Lease shall be binding upon and inure to the
benefit, as the case may require, of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
15.11. SUBORDINATION. This Lease shall be subject to and subordinate at
all times to the Covenants (whether recorded before or after the date of this
Lease) and to the lien of any mortgages or deeds of trust now or hereafter made
by Landlord on the Leased Premises and to all advances made or hereafter to be
made thereunder. Although this subordination provision shall be self-operative
and no further instrument of subordination shall be required, Tenant will,
nevertheless, execute and deliver such further instruments confirming such
subordination or status of this Lease as may be required by the Landlord for
financing or refinancing the Leased Premises.
15.12. ASSIGNMENT OF LANDLORD'S INTEREST. If Landlord should ever
assign this Lease or the rents hereunder to a creditor as security for a debt,
Tenant shall, after notice of such assignment and upon demand by Landlord or the
assignee, pay all suns thereafter becoming due Landlord hereunder to the
assignee and give all notices required to be given Landlord hereunder both to
Landlord and the assignee.
15.13. TRANSFER BY LANDLORD. If Landlord sells, leases or in any manner
transfers title to the Leased Premises, including foreclosure sale by judicial
proceeding or otherwise the Landlord shall be relieved of all covenants and
obligations arising hereunder, provided the Landlord is not then in default
hereunder and that such transferee shall agree to assume all
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<PAGE> 32
covenants and obligations of the Landlord hereunder. Tenant agrees that it will
attorn to such transferee, provided such transferee has assumed Landlord's
covenants and obligations hereunder, and Tenant shall continue to perform all of
the terms, covenants, and conditions, and obligations of this Lease.
If Tenant obtains a money judgment against Landlord, any of its
partners or its successors or assigns under any provisions of, or with respect
to this Lease or on account of any matter, condition or circumstance arising out
of the relationship of the parties under this Lease, or of Tenant's occupancy of
the Property, Tenant shall be entitled to have execution upon such judgment only
upon Landlord's estate in the Leased Premises, and not out of any other assets
of Landlord, any of its partners, or its successors or assigns; and Landlord
shall be entitled to have any such judgment so qualified as to constitute a
lien only on the fee simple estate subject to any liens antedating any such
judgment except that this limitation shall not apply to the extent that any such
judgment against Landlord is covered by insurance.
15.14. TIME OF ESSENCE. Time is of the essence in this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
ATTEST: LANDLORD
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
/s/ Mary L. Farrell
- ------------------------------ By /s/ Michael J. Batza
Mary L. Farrell --------------------------------
Michael J. Batza, Jr.,
Vice President
ATTEST: TENANT
ALPHABET, INC.
/s/ Charles L. Thompson
- ------------------------------ By /s/ David M. Draime
Charles L. Thompson --------------------------------
David M. Draime
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<PAGE> 33
STATE OF MARYLAND, COUNTY OF BALTIMORE, to wit:
I HEREBY CERTIFY that on this day of 197 before me, the
subscriber, a notary public of the State of Maryland, personally appeared
Michael J. Batza, Jr., Vice President of MSC Corporation, a Maryland
corporation and general partner of Industrial Development Associates, a
Maryland limited partnership, and on behalf of such limited partnership
executed the foregoing instrument and acknowledged such execution of such
instrument as the act and deed of such limited partnership.
IN WITNESS WHEREOF, I have affixed my official seal.
--------------------------------------
[Seal] Notary Public
My Commission Expires:
STATE OF OHIO, COUNTY OF , to wit:
I HEREBY CERTIFY that on this 24th day of October, 1978 before me, the
subscriber, a notary public of the State of Ohio, personally appeared David
M. Draime, President of Alphabet Inc., and on behalf of such corporation
executed the foregoing instrument and acknowledged such execution of such
instrument as the act and deed of such corporation.
IN WITNESS WHEREOF, I have affixed my official seal.
--------------------------------------
[Seal] Notary Public
My Commission Expires: 11-14-82
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<PAGE> 34
Exhibit A to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Description of Leased Premises
The description of Leased Premises shall consist of final
plans and specifications known as the CMS, Inc. Manufacturing
Plant, as prepared by Alley, Williams, Carmen & King, Inc.,
engineers ard architects, dated 19 May 1978.
Sheets 1-A, 1-B, 2, 3, 4, 5, 6, 7, 8, and 9 inclusive.
<PAGE> 35
Exhibit B to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Property On Which The Building Is Located
Shall consist of site plan and survey as it appears on Sheet 2
of Final Plans and Specifications for the CMS, Inc. Manufacturing
Plant, dated 19, May 1978, as prepared by Alley, Williams, Carmen
& King.
<PAGE> 36
Exhibit C to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Landlord's Plans
<PAGE> 37
Exhibit E to
Carolina Central
Industrial Center
Lease
CAROLINA CENTRAL INDUSTRIAL CENTER
Declaration of
Covenants and Restrictions
This Declaration is made this day of 1978 by INDUSTRIAL
DEVELOPMENT ASSOCIATES, a Maryland limited partnership ("Developer").
RECITALS
--------
A. Developer is the owner of a parcel of land located in Alamance
County, North Carolina (the "Property") described in Exhibit A to this
Declaration, as may be amended.
B. Developer has caused the Property to be subdivided for use as an
industrial center and desires to subject Property to certain covenants,
agreements, and restrictions (the "Restrictions") as hereinafter set forth.
THEREFORE, Developer hereby declares that the Property shall be subject
to the Restrictions as set forth in this Declaration.
ARTICLE I
The Property
------------
The Property subject hereto is situated in Alamance County, North
Carolina and is more particularly described in Exhibit A attached hereto and
made part hereof. Additional lands may be annexed to the Property, and thereby
subject to the Restrictions, as set forth herein.
<PAGE> 38
ARTICLE II
Definition of Terms
-------------------
Wherever used in this Declaration, the following terms shall have the
following meanings:
"Occupant" shall mean and refer to persons or entities in actual
possession of any parcel on the Property.
"Owner" shall mean and refer to the owner of any parcel on the
Property.
"Restrictions" shall mean and refer to the covenants and restrictions
contained herein or as the same may be modified in accordance with the
provisions of Article III hereof.
"Person" shall mean artificial persons as well as natural persons and
includes the plural.
"Property" shall mean and refer to that certain property described in
Exhibit A attached hereto and made part hereof and, from and after any
annexation, such additional property as may be annexed in the manner described
herein.
"Street" shall mean any street, highway or other thoroughfare within
the Property and shown on any recorded subdivision plat, whether designated
thereon as street, boulevard, place, drive, road, terrace, way, lane, circle or
otherwise.
"Structure" shall mean and refer to any thing or device the placement
of which upon the Property might affect the physical appearance thereof,
including, by way of illustration and not limitation, buildings, sheds, covered
patios, fountains, swimming, wading or other pools, trees, shrubbery, paving,
curbing, landscaping or fences or walls more than three (3) feet in height or
any sign or signboard. "Structure" shall also mean any excavation or fill, the
volume of which exceeds ten (10) cubic yards; or any excavation, fill, ditch,
diversion dam or other thing or device which affects or alters the natural flow
of surface waters upon or across the Property or which affects or alters the
<PAGE> 39
flow of any water in any natural or artificial stream, wash or drainage channel
upon or across the Property.
ARTICLE III
Duration and Modification of Restrictions
-----------------------------------------
1. DURATION. These Restrictions shall continue from the date of this
Declaration until January 1, 2010, subject to modification pursuant to Article
III, Section 2, and thereafter shall be automatically extended for successive
periods of ten years, unless and until terminated pursuant to Article III,
Section 2 below.
2. MODIFICATION OR TERMINATION. These Restrictions may at any time
after the date hereof be modified in any particular, or terminated in their
entirety, by the recording among the Land Records of Alamance County, North
Carolina, of an agreement of modification or termination executed jointly by
the Developer (so long as the Developer or its successor pursuant to Article IX
exists) and the Owners (excluding mortgagees, holders of security devices who
are not in possession, lessees and tenants) of a majority of the acreage in the
Property, provided that no such modification shall affect any plans,
specifications, or use theretofore approved by the Developer pursuant to these
Restrictions or any improvements theretofore or thereafter made pursuant to
such approval.
3. ANNEXATION. Developer may, from time to time, annex additional lands
to the Property, and thereby subject the same to the Restrictions, by the
execution and filing for recordation among the Land Records of Alamance County
of an instrument expressly stating an intention so to annex and describing such
additional lands (and the interests and estates therein) to be so annexed.
ARTICLE IV
Use of Property; Restrictions
-----------------------------
1. NO RESIDENCES. No building or other Structure on the Property shall
be used, temporarily or permanently, as a residence .
2. BUILDING HEIGHT LIMITATION. All buildings shall be limited to a
height of fifty (50) feet above finished grade elevation; except that this
height limitation may be exceeded, with written approval of the Developer.
3. PARKING. All present and future vehicle parking, including trucks,
trailers, employee and visitor parking, shall
<PAGE> 40
be provided on the Property and shall comply with all provisions of the
applicable governmental requirements. All parking areas are to be paved to
provide dustfree all-weather surfaces with macadam, concrete or any approved
material other than gravel. No parking area will be permitted within building
set back lines (fifty (50) feet on primary roads and thirty (30) feet on
secondary roads) except that lots bounded by more than one road may have parking
areas within the set-back lines along roads other than the one on which the
building fronts if, in the judgment of the Developer, the parking area is set
back a reasonable distance and is properly screened from both front and side
roads. Off-street parking spaces will be provided in accordance with the
following:
a) one space - size 10' x 20' for automobiles per 1,000 sq. ft.
of warehouse space
b) one space - size 10' x 20' for automobiles per 600 sq. ft. of
manufacturing space
c) one space - size 10' x 20' for automobiles per 250 sq. ft. of
office space
4. LOADING. No loading docks shall be permitted on t f the front of any
building, and, exceot where a lot is bounded by three or more roads, no loading
docks shall be permitted on the side of any building facing a road.
5. STORAGE. No material, supplies, or products shall be stored or
permitted to remain on the Property outside a permanent structure without the
prior written consent of Developer. Approval of outside storage will be granted
only where storage is screened from view by a masonry wall, or other appropriate
screen, six (6) feet in height or rising two (2) feet above the stored material,
whichever is higher.
6. MATERIALS. Without the Developer's prior written consent, the use
of concrete block or cinder block for outside facing of exterior walls will not
be permitted nor will any frame structures be permitted.
7. SIGNS. A scale drawing in color of any sign, billboard, trademark
or advertising device to be used on any lot or the exterior of any building or
Structure will be submitted to Developer in triplicate for the written approval
by Developer. Normally the Occupant's trade mark and/or trade name may be
displayed on the building in the manner in which they are generally used by the
Occupant.
8. OPEN AREA. Not more than fifty per cent (50%) of any lot area shall
be covered by Structures.
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<PAGE> 41
9. COLOR. No building or Structure shall be painted, repainted,
stuccoed or be surfaced with any material unless and until Developer approves
the color and/or material in writing.
10. GROUND COVER. All set-back areas facing roads between the front
building line and the curb, with the exception of driveways, sidewalks, and
other walk ways shall be used exclusively for the planting and growing of trees,
shrubs, lawns and other ground covering or material as approved by Developer. If
developed lots are not properly maintained, Developer may undertake such
maintenance as may be necessary, at the expense of the Owner.
11. NUISANCE. Owners shall not cause or make (or permit to be caused or
made) any excessive noise, odors, harmful sewage or vibration that could be
deemed objectionable to other occupants and that would conflict with the
purposes or restrictions of the Property, and shall not create or maintain a
nuisance. Each Owner must provide for trash disposal from his building.
No use will be made of any lot or any portion thereof or any building
or Structure thereon at any time, nor shall any materials or products be
manufactured, processed or stored thereon or therein, which shall, cause an
undue fire hazard to adjoining properties, or which shall constitute a nuisance
or cause the emission of noxious odors or gases or smoke, or cause noises or
other conditions which might injure the character of the lot in question or
neighboring properties or which shall constitute a violation of any law of the
United States, the State of North Carolina, or Alamance County, or any
regulation or ordinance promulgated thereunder.
12. UNUSED AREA. All unused land area that is planned for future
building expansion or other purposes shall be maintained and kept free of
unsightly plant growth, stored material, rubbish and debris.
ARTICLE V
Setbacks
--------
No Structure, or any part thereof or projection therefrom, shall be
erected nearer than fifty (50) feet from any primary road on the Property (a
primary road being a public right-of-way sixty (60) feet or more in width
granted, or intended to be granted, such intention to be evidenced by prior
written notice to each Owner, to Alamance County), nor nearer
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<PAGE> 42
than thirty (30) feet from any secondary road on the Property (a secondary road
being a public right-of-way less than sixty (60) feet in width granted, or
intended to be granted, such intention to be evidenced by prior written notice
to each Owner, to Alamance County), nor nearer than thirty (30) feet from any
side or rear boundary line of the parcel on which the Structure is erected.
ARTICLE VI
Plans and Specifications
------------------------
1. No Structure, building, fence, wall, sign, advertising device,
roadway, loading facility, outside storage facility, parking area, site grading,
planting, landscaping, facility for industrial waste or sewage disposal, nor any
other improvement shall be commenced, erected or constructed, nor shall any
addition thereto or change or alteration therein be made (except to the interior
of a building), nor shall any change in the use of any premises be made, until
the plans and specifications therefor, showing the nature, kind, shape,
heights, materials, color scheme, lighting and location on the lot of the
proposed improvements, grading, landscaping or alterations and the proposed use
or change in the use of the premises, shall have been submitted to and approved
in writing by the Developer and a copy of such plans and specifications as
finally approved lodged permanently with the Developer. The Developer shall have
the right to refuse to approve any plans or specifications or proposed use of
the premises for any reason which the Developer, in its sole discretion, may
deem in the best interests of the Property and the Owners, occupants or lessees
or prospective owners or lessees of other properties therein.
2. No parking will be permitted on the Streets on the Property and each
Owner, unless otherwise agreed to by Developer, shall provide on his property
necessary and adequate parking facilities and private driveways as approved by
the Developer under paragraph 1 of this Article VI.
3. Construction and alteration of all improvements on the Property
shall be in accordance with the requirements of all applicable Building, Zoning,
and other Codes and Regulations.
ARTICLE VII
Maintenance
-----------
1. Each Owner shall at all times keep his premises, buildings,
improvements and appurtenances in a safe, clean, neat and
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<PAGE> 43
sanitary condition and shall comply with all laws, ordinances and regulations
pertaining to health and safety. Each Owner shall provide for the removal of
trash and rubbish from his premises.
2. During construction it shall be the responsibility of each Owner to
insure that construction sites are kept free of unsightly accumulations of
rubbish and scrap materials, and the construction materials, trailers, shacks
and the like are kept in a neat and orderly manner.
3. The Developer agrees to maintain all undeveloped land owned by it within
the Property in a manner compatible with the provisions of this Article VII.
ARTICLE VIII
Covenants Run with Land; Enforceability
---------------------------------------
1. The foregoing covenants and restrictions shall run with, burden, and
bind the Property and shall bind and inure to the benefit of, and be
enforceable by, Developer and Owner and the respective heirs, successors and
assigns of each. The Developer reserves the right, however, from time to time
hereafter to delineate, plat, grant or reserve within the Center such public
streets, roads, sidewalks, ways and appurtenances thereto, and such easements
for drainage and public utilities, as it may deem necessary or desirable for the
development of the Property (and from time to time to change the location of the
same) free and clear of these restrictions and covenants, and to dedicate the
same to public use or to grant the same to Alamance County and/or to appropriate
public utility corporations.
2. Such covenants and restrictions shall be jointly and severally
enforceable by the Developer and its succesors and assigns and by the Owner, and
its successors and assigns, provided however that only the Developer or its
assignees, under Article IX hereof, shall have the right to exercise the
discretionary powers herein reserved to the Developer.
3. If any violation or breach of any of these Restrictions shall exist on
the Property, and the Owner shall not have taken reasonable steps toward the
removal or termination of the same within fifteen (15) days after written notice
thereof, the Developer shall have the right, through their agents and employees,
to enter upon the Property, with respect to any operation being conducted
thereon, and summarily abate, remove and extinguish any thing or condition that
may be or exist thereon contrary to the provisions hereof. The Developer, or any
such agent, shall not thereby be deemed to have trespassed
-7-
<PAGE> 44
upon the Property and shall be subject to no liability to the Owner or Occupant
of the Property for such entry, abatement or removal.
The cost of any abatement or removal of violations authorized under
this Section shall be a binding, personal obligation of the Owner as well as a
lien (enforceable in the same manner as a mortgage) upon the Property. The lien
provided in this Section shall not be valid as against a bona fide purchaser
(or bona fide mortgagee) of the property in question unless a suit to enforce
such lien shall have been filed in a court of record in Alamance County prior to
the recordation among the Land Records of Alamance County of the deed (or
mortgage) conveying the property in question to such purchaser (or subjecting
the same to such mortgage).
4. Violation of any of these Restrictions may be enjoined, abated,
restrained or otherwise remedied by appropriate legal or equitable proceedings.
Proceedings to restrain violation of these Restrictions may be brought at any
time that such violation appears reasonably likely to occur in the future. In
the event of proceedings brought by any party or parties to enforce or restrain
violation of any of these Restrictions, or to determine the rights or duties of
any person hereunder, the prevailing party in such proceedings may recover a
reasonable attorneys' fee to be fixed by the court, in addition to court costs
and any other relief awarded by the court in such proceedings.
5. The failure of any person entitled to enforce any of these
Restrictions, to enforce the same shall in no event be deemed a waiver of the
right of any such person to enforce these Restrictions thereafter.
6. Waiver or attempted waiver of any provision of these Restrictions
shall not be deemed a waiver thereof with regard to any subsequent violation
with respect to such provision or any other provision of these Restrictions.
ARTICLE IX
Nominees and Successors of Developer
------------------------------------
The Developer may from time to time delegate any or all of its rights'
powers, discretion and duties hereunder to such agent or agents as it may
nominate. It may also permanently assign any or all of its powers and duties
(including discretionary powers and duties), obligations, rights, title,
easements and estates reserved to it by this Declaration to any one or more
corporations, associations, or persons that will accept
-8-
<PAGE> 45
the same. Any such assignment shall be in writing recorded among the Land
Records of Alamance County and the assignee shall join therein for the purpose
of evidencing its acceptance of the same, and such assignee shall thereupon have
the same rights, title, powers, obligations, discretion and duties as are herein
reserved to the Developer, and the Developer shall thereupon be released
therefrom.
ARTICLE X
Good Faith Lenders Clause
-------------------------
No violation of any of these Restrictions shall defeat or render
invalid the lien of any mortgage or deed of trust made in good faith and for
value upon the Property; provided, however, that any mortgagee or trustee or
beneficiary under any deed of trust in actual possession, or any purchaser at
any trustees', mortgagees' or foreclosure sale shall be bound by and subject to
these Restrictions as fully as the Owner.
ARTICLE XI
Owner's Covenant
----------------
The Owner covenants for himself, his heirs, successors and assigns to
observe, perform and be bound by these Restrictions and to incorporate these
Restrictions by reference in any deed or other conveyance of all or any portion
of the Property.
IN WITNESS WHEREOF, the Developer has caused this Declaration to be
executed as of the day and year first above written.
ATTEST: INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
/s/ Mary Farrell
- -------------------------------------- /s/ Michael J. Batza, Jr.
Mary Farrell ---------------------------------
Michael J. Batza, Jr.
(Vice President)
ATTEST: Alphabet, Inc., General Partner
/s/ Arlene L. Burnett
- -------------------------------------- By /s/ D.N. Draime
Arlene L. Burnett --------------------------------
D.N. Draime (President)
- 9-
<PAGE> 46
STATE OF
COUNTY OF
I, a Notary Public of said County and State, do hereby certify that
Michael J. Batza, Jr. the duly authorized Vice President of MSC Corporation, a
Naryland corporation, such corporation being a duly authorized General Partner
of INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership, personally
appeared before me this day and acknowledged the due execution of the foregoing
instrument. Witness my hand and official seal this day of______________, 1978.
---------------------------
Notary Public
My commission expires:
STATE OF
COUNTY OF
I, Arlene L. Burnett a Notary Public of said County and State, do
hereby certify that the duly authorized President of Alphabet Inc., an Ohio
corporation, such corporation being a duly authorized General Partner of
INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership, personally
appeared before me this day and acknowledged the due execution of the foregoing
instrument. Witness my hand and offical seal this 24th day of October, 1978.
/s/ Arlene L. Burnett
---------------------------
Notary Public
My commission expires: 11/14/82
- 10 -
<PAGE> 47
Exhibit A
---------
<PAGE> 48
Exhibit E to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Covenants
<PAGE> 49
MEMORANDUM 0F LEASE
THIS MEMORANDUM OF LEASE is made this 24th day of October, 1976 by and
between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership having
a place of business c/o MSC Corporation at 21 West Road, Towson, Maryland 21204
("Landlord") as Landlord and ALPHABET, INC.
, an Ohio corporation having a place of business at P.O. Box 308,
Orwell, Ohio 44076 ("Tenant") as Tenant.
A. By lease dated October 24, 1978, (the "Lease") Landlord has leased
to Tenant the premises described in Exhibit A to this Memorandum of Lease and
located in the Carolina Central Industrial Center, Mebane, Alamance County,
North Carolina together with necessary access, parking and utility easements to
serve the premises.
B. Landlord and Tenant desire to enter into this Memorandum of Lease
for the purpose of recordation and giving notice of the existence of the Lease.
NOW THEREFORE, in consideration of the rents received and the covenants
and conditions more particularly set forth in the Lease, Landlord and Tenant do
hereby covenant, promise and agree as follows:
1. Landlord, in consideration of the rent to be paid and the covenants
to be performed by Tenant, does hereby demise and Lease unto Tenant and Tenant
hereby rents from Landlord, a portion of the premises known as Carolina
Central Industrial Center, Mebane, Alamance County, North Carolina, which
portion thereof leased to Tenant is shown and described on Exhibit "A", attached
hereto and made a part hereof, being part of
<PAGE> 50
the Carolina Central Industrial Center as shown on Exhibit "B", attached
hereto and made part hereof.
2. The original term of the lease shall commence on March 31, 1979, (or
on such date that landlord gives tenant notice pursuant to Section 1.3 of said
lease) and shall terminate on the last day of the month in which the 25th
annual anniversary of the "commencement" date shall occur.
3. Tenant has three (3) consecutive five (5) year renewal options to
renew such Lease.
4. This instrument is executed for the purpose of giving public notice
of the fact of execution of the above described Lease and all of the terms and
conditions of such Lease and Exhibits and Attachments thereto are incorporated
herein by reference.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written. '
ATTEST: LANDLORD :
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
- ----------------------------------- By /s/ Michael J. Batza, Jr. (Seal)
---------------------------
Michael J. Batza, Jr.,
Vice President
ATTEST: TENANT:
ALPHABET, INC.
- ----------------------------------- By /s/ Richard A. Bechtold (Seal)
-----------------------------
Richard A. Bechtold
Vice President
- 2-
<PAGE> 51
STATE OF MARYLAND
COUNTY OF HARFORD
This 24th day of October, 1978, personally came before me, E. Rebecca
Kincaid a notary public of said county and state, Michael J. Batza, Jr. who,
being by me duly sworn, says that he is Vice President of MSC Corporation, a
corporation, and general partner of Industrial Development Associates, a
Maryland limited partnership, and that the seal affixed to the foregoing
instrument in writing is the corporate seal of said corporation, and that said
writing was signed and sealed by him in behalf of said corporation acting as a
general partner of said partnership by its authority duly given. And the said
Michael J. Batza, Jr. acknowledged the said writing to be the act and deed of
said corporation acting as general partner of said partnership.
/s/ E. Rebecca Kincaid
---------------------------
Notary Public
My Commission Expires: 7/1/82
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
This 15th day of December, 1978, personally came before me, Janet F.
Minnis, a notary public of said county and state, Richard A. Bechtold, who
being by me duly sworn, says that he is Vice President of Alphabet, Inc., an
Ohio corporation, and that the seal affixed to the foregoing instrument in
writing is the corporate seal of said corporation, and that said writing was
signed and sealed by him in behalf of said corporation by its authority duly
given. And the said Richard A. Bechtold acknowledged the said writing to be the
act and deed of said corporation.
/s/ Janet F. Minnis
---------------------------
Notary Public
My Commission expires: 8-9-83
-3-
<PAGE> 52
SCHEDULE OF EXHIBITS
1. Exhibit A - Description of the Leased Premises
2. Exhibit B - Description of the Carolina Central Industrial
Center
<PAGE> 53
Exhibit A to Memorandum
of Lease between
Industrial Development
Associates
and
Alphabet, Inc.
Description of Leased Premises
Tenant has leased from Landlord 50,256 square feet of light
manufacturing space, consisting of the entire single tenant building located on
4.278 acres of land owned by Industrial Development Associates known as Building
#1 in the Carolina Central Industrial Center.
<PAGE> 54
Exhibit B to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Carolina Central Industrial Center
[Street map showing location of Building Number 1 and plot lines.]
<PAGE> 55
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is made this 24th day of October, 1978 by and
between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership having
a place of business c/o MSC Corporation at 21 West Road, Towson, Maryland 21204
("Landlord") as Landlord and ALPHABET, INC., an Ohio corporation having
a place of business at P.O. Box 308, Orwell, Ohio 44076 ("Tenant") as Tenant.
A. By lease dated October 24, 1978, (the "Lease") Landlord has leased
to Tenant the premises described in Exhibit A to this Memorandum of Lease and
located in the Carolina Central Industrial Center, Mebane, Alamance County,
North Carolina together with necessary access, parking and utility easements to
serve the premises.
B. Landlord and Tenant desire to enter into this Memorandum of Lease
for the purpose of recordation and giving notice of the existence of the Lease.
NOW THEREFORE, in consideration of the rents received and the covenants
and conditions more particularly set forth in the Lease, Landlord and Tenant do
hereby covenant, promise and agree as follows:
1. Landlord, in consideration of the rent to be paid and the covenants
to be performed by Tenant, does hereby demise and Lease unto Tenant and Tenant
hereby rents from Landlord, a portion of the premises known as Carolina
Central Industrial Center, Mebane, Alamance County, North Carolina, which
portion thereof leased to Tenant is shown and described on Exhibit "A", attached
hereto and made a part hereof, being part of the
<PAGE> 56
Carolina Central Industrial Center as shown on Exhibit "B", attached hereto and
made part hereof.
2. The original term of the Lease shall commence on March 31, 1979 (or
on such date that landlord gives tenant notice pursuant to Section 1.3 of said
lease) and shall terminate On the last day of the month in which the 25th
annual anniversary of the "commencement" date shall occur.
3. Tenant has three (3) consecutive five (5) year renewal options to
renew such Lease.
4. This instrument is executed for the purpose of giving public notice
of the fact of execution of the above described Lease and all of the terms and
conditions of such Lease and Exhibits and Attachments thereto are incorporated
herein by reference.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
ATTEST : LANDLORD :
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
- -------------------------------------- By /s/ Michael J. Batza (Seal)
------------------------
Michael J. Batza, Jr.,
Vice President
ATTEST: TENANT :
ALPHABET, INC
- -------------------------------------- By /s/ Richard A. Bechtold (Seal)
------------------------
Richard A. Bechtold
Vice President
- 2-
<PAGE> 57
STATE OF MARYLAND
COUNTY OF HARFORD
This 24th day of October, 1978, personally came before me, E. Rebecca
Kincaid, a notary public of said county and state, Michael J. Batza, Jr. who,
being by me duly sworn, says that he is Vice President of MSC Corporation, a
corporation, and general partner of Industrial Development Associates, a
Maryland limited partnership, and that the seal affixed to the foregoing
instrument in writing is the corporate seal of said corporation, and that
said writing was signed and sealed by him in behalf of said corporation acting
as a general partner of said partnership by its authority duly given. And the
said Michael J. Batza, Jr. acknowledged the said writing to be the act and deed
of said corporation acting as general partner of said partnership.
- ----------------------------------- ----------------------------
Notary Public
My Commission Expires: 7/1/82
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
This 15 day of December, 1978, personally came before me, Janet F.
Minnis, a notary public of said county and state, Richard A. Bechtold, who
being by me duly sworn, says that he is Vice President of Alphabet, Inc. an
Ohio corporation, and that the seal affixed to the foregoing instrument in
writing is the corporate seal of said corporation, and that said writing was
signed and sealed by him in behalf of said corporation by its authority duly
given. And the said Richard A. Bechtold acknowledged the said writing to be the
act and deed of said corporation.
- ----------------------------------- ----------------------------
Notary Public
My Commission Expires: 8/9/83
<PAGE> 58
SCHEDULE OF EXHIBITS
1. Exhibit A - Description of the Leased Premises
2. Exhibit B - Description of the Carolina Central Industrial
Center
<PAGE> 59
FIRST AMENDMENT TO LEASE
BETWEEN
INDUSTRIAL DEVELOPMENT ASSOCIATES
AND
ALPHABET, INC.
This First Amendment to Lease is made this 23 day of December, 1978 by
and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership
("Landlord") and ALPHABET) INC. ("Tenant") .
PRELIMINARY STATEMENT
---------------------
A. By lease dated October 24 , 1978 (the "Lease") Landlord leased to
Tenant certain property (the "Leased Premises") located at the Carolina Central
Industrial Center, Alamance County, North Carolina, as more particularly des-
cribed in Exhibit A to the Lease.
B. New York Life Insurance Company ("New York Life"), in connection
with its agreement to provide financing to the Landlord with respect to the
Carolina Central Industrial Center, has requested that Landlord and Tenant
amend the Lease.
NOW, THEREFORE, in consideration of the covenants herein contained and
other good and valuable consideration, Landlord and Tenant agree as follows:
<PAGE> 60
1. If New York Life, its successors or assign, whether by foreclosure
or otherwise, shall succeed to the interest of the landlord under the Lease,
Tenant shall not seek to hold New York Life responsible for the return to Tenant
of any security deposit paid by Tenant to Landlord pursuant to Section 3.5 of
the Lease unless New York Life has received such security deposit from the prior
landlord or otherwise.
2. Section 4.2 of the Lease is amended as follows:
"4.2. Use of Premises. Tenant may use the
Leased Premises only for the purpose of light manufacturing of wiring
harness for automotive and related industries.
3. Section 7.2 of the Lease is hereby amended by inserting in the
fifteenth line of such section the number "50,998 which represents the number of
square feet of the Leased Premises.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
ATTEST: LANDLORD:
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
/s/ E. Rebecca Kincaid
- ----------------------------------- By /s/ Michael J. Batza, Jr. (Seal)
------------------------
Michael J. Batza, Jr.
Vice President
ATTEST: TENANT :
ALPHABET, INC
/s/ Janet F. Minnis
- ----------------------------------- By /s/ Richard A. Bechtold (Seal)
------------------------
ALPHABET, INC.
<PAGE> 61
STATE OF MARYLAND
COUNTY OF HARFORD
This 23rd day of December 1978, personally came before me E. Rebecca
Kincaid, a notary public of said county and state, Michael J. Batza, Jr., who,
being by me duly sworn, says that he is Vice President of MSC Corporation, a
corporation, and general partner of Industrial Development Associates, a
Maryland limited partnership, and that the seal affixed to the foregoing
instrument in writing is the corporate seal of said corporation, and that said
writing was signed and sealed by him in behalf of said corporation acting as a
general partner of said partnership by its authority duly given. And the said
Michael J. Batza, Jr., acknowledged the said writing to be the act and deed of
said corporation acting as general partner of said partnership.
NOTARY PUBLIC
E. Rebecca Kincaid
----------------------------
Notary Public
My Commission Expires 7/1/82
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
This 2 day of January, 1979, personally came before me, Janet T.
Minnis, a notary public of said county and state, Richard A. Bechtold, who,
being by me duly sworn, says that he is Vice President of Alphabet, Inc., an
Ohio corporation, and that the seal affixed to the foregoing instrument in
writing
<PAGE> 62
was signed and sealed by him in behalf of said corporation by its authority
duly given. And the said Richard A. Bechtold, acknowledged the said writing to
be the act and deed of said corporation.
Janet F. Minnis
- ----------------------------------- ----------------------------
Notary Public
My Commission Expires 8-9-83
<PAGE> 63
SECOND AMENDMENT TO LEASE
BETWEEN
INDUSTRIAL DEVELOPMENT ASSOCIATES
AND
ALPHABET INC. (t/a MCR, INC.)
This Second Amendment to Lease is made this 15th day of December, 1981
by and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited
partnership ("Landlord") and ALPHABET INC. ("Tenant").
By Lease dated October 24, 1978 (the "Lease"), and First Amendment
dated December 23, 1978 (the "First Amendment") ' Landlord leased to Tenant
certain property (the "Leased Premises") located at the Carolina Central
Industrial Center, Alamance County, North Carolina, as more particularly
described in Exhibit A to the Lease.
Tenant and Landlord are desirous of amending the Lease and First
Amendment.
NOW, THEREFORE, in consideration of the covenants herein contained
and other good and valuable consideration, Landlord and Tenant hereby agree as
follows:
1. Section 3.1, ANNUAL RENT, of the Lease, is hereby amended so as to
provide as of January 1, 1982 an annual rent increase from $94,346.00 to
$132,356.00. Said rent to be paid in equal monthly installments of $11,029.67.
2. Section 3.3, UTILITIES, of the Lease, is hereby amended so as to
provide beginning January 1, 1982, that Landlord shall be responsible for and
pay all charges for gas, electricity, water, and sewer expenses. Tenant shall
maintain the services in its name and control. Monthly, upon receipt of bills
for the abovementioned services, Tenant shall forward same to Landlord. Landlord
shall pay all utility bills in a prompt manner.
Tenant shall retain the right, in the event of Landlord's failure to
pay the utility charges, to cure the default. Tenant reserves all legal rights
to pursue, in the event of said default, whatever action it may have under
appropriate North Carolina law to recoup its out-of-pocket expenses and legal
fees for same.
Tenant will continue to pay all charges and expenses related to use of
telephone services.
3. Add Section 3.6, ANNUAL ADJUSTMENT. Tenant's basic annual rent as
amended ($132,356.00) shall be adjusted annually by an amount equal to 3% of
the previous year's rent. This adjustment is intended to compound on an annual
basis. Landlord shall advise Tenant of his new monthly rent prior to year end
and bill the gross adjusted amount beginning January l of each calendar year.
<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
ATTEST: LANDLORD:
INDUSTRIAL DEVELOPMENT ASSOCIATES
______________________________ By _________________________________(SEAL)
Michael J. Batza, Jr.
Meridian Inc., General Partner
ATTEST : TENANT:
ALPHABET INC.
_______________________________ By ___________________________________(SEAL)
Richard A. Bechtold
STATE OF ___________, COUNTY OF __________, to wit:
I HEREBY CERTIFY that on this ____ day of _____________, 198__ before
me, the subscriber, a notary public of the State of ________________,
personally appeared MICHAEL J. BATZA, JR., Assistant Secretary of Meridian
Inc., a Maryland corporation and general partner of Industrial Development
Associates, a Maryland limited partnership, and on behalf of such limited
partnership executed the foregoing instrument and acknowledged such execution
of such instrument as the act and deed of such limited partnership.
IN WITNESS WHEREOF, l have affixed my officiaL seal.
(SEAL) -----------------------------
Notary Public
My Commission expires:
STATE OF ____________, COUNTY OF ___________, to wit:
l HEREBY CERTIFY that on this ____ day of _______________, 198__
before me, the subscriber, a notary public of the State of __________________,
personally appeared RICHARD A. BECHTOLD, Vice President of Alphabet Inc., and
on behalf of such corporation executed the foregoing instrument and acknowledged
such execution of such instrument as the act and deed of such corporation.
IN WITNESS WHEREOF, l have affixed my official seal.
(SEAL) -----------------------------
Notary Public
My Commission expires:
-2-
<PAGE> 1
Exhibit 10.4
LEASE AGREEMENT
---------------
between
HUNTERS SQUARE, INC.
--------------------
and
ALPHABET, INC.
--------------
TABLE OF CONTENTS
-----------------
ARTICLE NO. TITLE PAGE NO.
1 Parties 1
1.1 Landlord 1
1.2 Tenant 1
2 Basic Lease Provisions 1
2.1 Office Building 1
2.2 Premises 1
2.3 Term 1
2.4 Minimum Rent 1
2.5 Security Deposit 1
2.6 Permitted Use 1
2.7 Tax Charge 1
2.8 CAM Charge 1
2.9 Insurance Charge 1
2.10 Monthly Payment Total 1
2.11 Price Index 1
2.12 CPI Increase Formula 2
2.13 Floor Area 2
3 Demise 2
4 Tern 2
5 MinImum Rent 2
6 Security Deposit 2
7 Real Estate Taxes 3
8 Use 3
9 Rules and Regulations 3
10 Conduct of Business 3
11 Signs 4
12 Property in the Premises 4
13 Trade Fixtures 4
14 Alterations 4
15 Liens 5
16 Common Areas 5
17 Utilities 5
18 Maintenance 6
19 Assignment and Subletting 6
20 Insurance 7
21 Fire or Other Casualty 8
22 Eminent Domain 8
23 Subordination, Attornment and
Mortgagee's Approval 9
24 Estoppel Certificate 9
25 Bankruptcy 10
26 Default 10
27 Surrender of Premises 11
28 Holding Over 12
29 Access to Premises 12
30 Quiet Enjoyment 12
31 Waiver 12
32 Notices and Payments 12
33 Relationship of Parties 13
34 Exoneration of Individuals 13
35 Administrative Fee 13
36 Interpretation of Lease Provisions 13
<PAGE> 2
LEASE
THIS LEASE AGREEMENT (the "Lease") is made this 6th day of July, 1988, by and
between the parties named in Article 1, which parties, in consideration of the
mutual covenants herein set forth, do hereby agree as herein specified.
ARTICLE 1. PARTIES
-------------------
1.1 Landlord: 1.2 Tenant:
HUNTERS SOUARE, INC. ALPHABET, INC.
------------------------------ ---------------------------
------------------------------
herein called "Landlord", herein called "Tenant",
whose address is: whose address is:
Post Office Box 8827 9400 East Market Street
------------------------------ ---------------------------
Warren, Ohio 44484 Warren, Ohio 44484
------------------------------ ---------------------------
ARTICLE 2. BASIC LEASE PROVISIONS AND DEFINITIONS
-------------------------------------------------
The following are presented for the convenience of the parties and include a
summary of the basic terms of this Lease. Each reference in this Lease to one of
the following provisions shall be construed to incorporate all of the terms
provided for under such provisions:
2.1 Building HUNTERS SQUARE located
-------- --------------
at 8700 East Market Street, in the Township
------------------------ --------------------
of Howland , County of Trumbull , and State of Ohio, as
-------------- -----------------
shown on Exhibit A, attached hereto and made a part hereof.
2.2 PREMISES (Article 3) Suite No. 1 containing
-------
approximately 6,240 square feet (Floor Area).
---------
2.3 TERM (Article 4) Five ( 5 )
--------------------- ----
lease years beginning July 1, 1988 ("Commencement Date") and
--------------
ending June 30, 1993 , with two (2) five year options.
-----------------
2.4 RENT (Article 5) Sixty Two Thousand-Four Hundred and
--------------------------------------
00/100-Dollars ($___62,400.00) per lease year, payable in advance monthly
installments of Five Thousand-Two Hundred and 00/100 Dollars
-----------------------------------------
($ 5,200.00 ) each, subject to adjustment as hereinafter provided.
- -----------------
2.6 PERMITTED USE (Article 8) Only for the:
Use of general corporate offices.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
under the name of ALPHABET, INC.
--------------------------------------------------------------.
2.7 TAX CHARGE (Article 7) Initial monthly payment: $___260.00
2.8 CAM CHARGE (Article 16) Initial monthly payment: $__312.00
2.9 INSURANCE CHARGE (Article 20.5) Initial monthly payment:
$ 78.00.
2.10 MONTHLY PAYMENT TOTAL Initial monthly total of items set forth
above in 2.4, 2.7, 2.8, and 2.9: $___5,850.00
2.11 PRICE INDEX Price Index, as used in this Lease, shall mean the Consumer
Price Index, All Urban Consumers (U. S. City Average) as compiled by the Bureau
of Labor Statistics, United States Department of Labor, which became effective
January, 1978. If such Price Index should in the future be compiled on a
different basis, appropriate adjustments will be made for purposes of
computations. If the United States Department of Labor 'no longer compiles and
publishes such Price Index, any comparable index published by any other branch
or department of the federal government shall be used for the purpose of
(1)
<PAGE> 3
computing the adjustments herein provided for, and if no such index is compiled
and published by any branch or department of the federal government, the
statistics reflecting cost of living changes, as compiled by any institution,
organization or individual, generally recognized as an authority by financial
and insurance institutions shall be used as a basis for such adjustments.
2.12 CPI INCREASE FORMULA CPI Increase Formula, as used in this Lease, shall
refer to the following determination: using the Price Index applicable on the
first day of the month in which this Lease was executed as the denominator and
the index number for the first month of each lease year or other period being
adjusted as the numerator, multiply said resulting fraction times the payment
being adjusted.
2.13 FLOOR AREA The area determined by measuring from the exterior faces of all
outside walls and the centerline of common walls.
ARTICLE 3. DEMISE
-----------------
3.1 Landlord hereby leases to Tenant, and the Tenant hereby rents from the
Landlord, the Premises.
3.2 Tenant acknowledges and agrees that it has examined
the Premises and knows the present condition thereof and accepts the Premises in
its "as is" condition and that no representations as to the condition or repair
of said Premises were made by Landlord or anyone on Landlord's behalf at any
time prior to the execution of this Lease.
ARTICLE 4. TERM
---------------
4.1 To have and to hold the Premises for the Term. In the event that
the date the Tenant is granted possession of the Premises is later
than the Commencement Date, the parties agree that such later date
shall be the Commencement Date of the Term.
4.2 See attached page 2A.
ARTICLE 5. RENT
---------------
5.1 Tenant shall pay to Landlord the Rent on or before the first day of each
calendar month during the Term of this Lease.
5.2 In the event any installment of Rent or other charges accruing under this
Lease shall become overdue, a "Late Charge" of five ($.05) cents for each dollar
so overdue may be charged by Landlord for the purpose of defraying the expense
incident to handling such delinquent payment.
ARTICLE 6. SECURITY DEPOSIT.
----------------------------
RENEWAL OPTION CLAUSE
- ---------------------
Provided Tenant is not in default and is in full operation during the entire
final year of the initial term of this Lease, Tenant, at its option, shall be
entitled to renew this Lease for two ( 2 ) additional term(s) of five ( 5 )
year(s) (each) by giving a written notice of its intention to do so to the
Landlord one (1) year before the end of the term of this Lease, or one (1) year
before the end of the next prior renewal period, if it has been exercised. Said
renewal(s) shall be upon all the terms and provisions of this Lease, except that
the Minimum Rent in effect for the last year of the initial term shall be
adjusted in accordance with the CPI Increase Formula as of the first day of each
renewal term (but in no event shall the Minimum Rent during the renewal period
be less than the Minimum Rent for the last year of the initial term).
(2)
<PAGE> 4
ARTICLE 7. REAL ESTATE TAXES.
-----------------------------
7.1 Beginning with the Commencement Date, Tenant shall pay a "Tax Charge" as its
proportionate share of the "Real Estate Tax Expense" which shall include all
real estate taxes and assessments both general and special imposed by federal,
state or local governmental authority or any other taxing authority having
jurisdiction over the Building, against the land, buildings and all other
improvements within the Building, together with any and all expenses incurred by
Landlord in negotiating, appealing or contesting such taxes and assessments.
Real Estate Tax Expense shall include the face amount of real estate taxes but
shall not include any additional charges or penalties incurred by Landlord due
to late payment of real estate taxes. Tenant's Tax Charge shall be computed by
multiplying the total of such Real Estate Tax Expense by a fraction whose
numerator is the Floor Area of Tenant's Premises and whose denominator is the
number of square feet of Gross Leasable Area within that portion of the Building
included within the tax statement. Any dispute as to the areas used in
determining the Real Estate Tax Expense shall be resolved by certification of
Landlord's architect.
7.2 Landlord shall annually estimate and adjust Tenant's Tax Charge based on
charges in the amount of the Real Estate Tax Expense.
7.3 If this Lease terminates (other than by reason of Tenant's default) during
a tax year, Tenant's obligation for Real Estate Tax Expense with respect
thereto shall be appropriately pro rated.
ARTICLE 8. USE
--------------
8.1 Tenant agrees that the Premises shall be occupied by no other
person or entity except upon and with the written consent of Landlord
first had, and shall be used for the Permitted Use, and for no other
purpose or use.
ARTICLE 9. RULES AND REGULATIONS.
---------------------------------
Landlord reserves the right from time to time to adopt and promulgate
reasonable rules and regulations applicable to the Premises and the Building,
including, but without limitation, the designation of certain areas for employee
parking, and to amend and supplement such rules and regulations.
ARTICLE 10. CONDUCT OF BUSINESS.
--------------------------------
10.1 Tenant will keep the inside and outside of all glass in the doors and
windows of the Premises clean; will keep all exterior and interior store front
surfaces clean; will replace promptly at its own expense with glass of like kind
and quality any plate glass or window glass of the Premises which may become
cracked or broken; will not, without the consent in writing of Landlord, place
or maintain any merchandise or other articles in any vestibule or entry of the
Premises, on the sidewalks adjacent thereto or elsewhere on the exterior
thereof; will maintain the Premises, at its own expense, in a clean, orderly and
sanitary condition and free of insects, rodents, vermin and other pests; will
not permit accumulations of garbage, trash or rubbish and other refuse, but will
remove the same at its expense; will not burn any trash or garbage whatsoever;
will not use or permit the use of any objectionable advertising medium within
the Building or in any manner a'udible or visible outside the Premises; will not
cause or permit objectionable odors to emanate from the Premises; will not
solicit business or hold demonstrations in the parking or other Common Areas nor
distribute any hand bills or other
(3)
<PAGE> 5
advertising matter to, in, or upon any automobiles parked in the parking areas
or in any other Common Areas; will comply with all laws and ordinances and all
valid, rules and regulations of governmental authorities and all recommendations
of the Fire Underwriters Rating Bureau with respect to the use or occupancy of
the Premises by Tenant. No auction, fire, liquidation, bankruptcy, or
going-out-of-business sales shall be conducted in the Premises without the
advance written consent of Landlord nor shall Tenant conduct its business in
such a fashion as to give the impression such a prohibited sale is being
conducted.
ARTICLE 11. SIGNS.
------------------
11.1 Tenant agrees that it will not erect any signs without first obtaining
Landlord's approval as to size, color, type and location of the permitted signs.
Tenant agrees to maintain its signs in a good state of repair and save the
Landlord harmless from any loss, cost or damage as a result of the erection,
maintenance, existence or removal of the same and shall repair any damage which
may have been caused by the erection, existence, maintenance or removal of such
signs. Upon vacating the storeroom, the Tenant agrees, at its sole cost, to
remove all signs and to repair all damage caused by such removal.
ARTICLE 12. PROPERTY IN THE PREMISES.
-------------------------------------
12.1 All leasehold or building improvements or additions shall, when installed
or completed, attach to the freehold and become and remain the property of the
Landlord. All store fixtures or trade fixtures and signs shall remain the
property of the Tenant subject at all times to the Landlord's claim for rent and
other sums which may become due to the Landlord under this Lease.
12.2 Tenant further agrees that all personal property of every kind or
description which may at any time be in the Premises shall be at the Tenant's
sole risk, or at the risk of those claiming under the Tenant. Landlord shall not
be responsible or liable to Tenant for any loss or damage that may be occasioned
by the acts or omissions of persons occupying any space adjacent to or adjoining
Tenaht's Premises, or any part thereof. Landlord shall not be responsible or
liable to Tenant for any loss or damage resulting to Tenant or its property or
its business from roof leaks, water, gas, steam, fire, or the bursting, stoppage
or leaking water and/or sewer pipes, or from the heating or plumbing fixtures,
or from electric wires, or from gas or odors, or caused in any manner
whatsoever.
ARTICLE 13. TRADE FIXTURES.
---------------------------
13.1 All trade fixtures and equipment installed by Tenant in the Premises shall
be new or completely reconditioned.
13.2 Tenant may, at the expiration of said term, remove all the Tenant's trade
fixtures which can be removed without costly injury to, or undue defacement of
said Premises, provided all rents stipulated herein are paid in full and
Tenant is not otherwise in default hereunder, and that any and all damage to
the Premises or to Landlord's premises (resulting from or caused by such
removal) shall be promptly repaired at Tenant's expense.
ARTICLE 14. ALTERATIONS.
------------------------
14.1 Tenant further covenants not to permit alterations of or upon any part of
the Premises except by and with the written consent of the Landlord first had.
Tenant further agrees, in the event of making such alterations as herein
provided, to indemnify and save harmless the Landlord from all expense, liens,
claims or damages to either persons or property or the Premises, arising out of
or resulting from the undertaking or making of said alterations.
14.2 Any alterations made by Tenant shall consist of new material installed in a
workmanlike manner and in compliance with all applicable laws and regulations.
(4)
<PAGE> 6
ARTICLE 15. LIENS.
------------------
15.1 No work which Landlord permits Tenant to do or which Tenant is obligated to
perform pursuant t9 this Lease, whether in the nature of erection, construction,
alteration or repair, shall be deemed to be for the immediate use and benefit of
Landlord so that no mechanics' or other lien or encumbrance or charge shall be
allowed against the right, interest or estate of Landlord by reason of any
consent given by Landlord to Tenant to improve the Premises. In the event any
mechanics or other lien shall at any time be filed against the Premises by
reason of work or materials performed or furnished, or alleged to be performed
or furnished, to Tenant or anyone holding the Premises through or under Tenant,
Tenant shall forthwith cause the same to be discharged of record by payment,
deposit, bonding in an amount satisfactory to the Landlord, or by order of court
of competent jurisdiction. If Tenant shall fail to cause such lien forthwith to
be so discharged or bonded after being notified of the filing thereof, then, in
addition to any other right or remedy of Landlord, Landlord may discharge the
same by paying the amount claimed to be due or bonding or deposit procedure, and
the amount so paid by Landlord including reasonable attorney's fees, with
interest therein at the Default Rate, and costs and allowances, shall constitute
additional Rent payable by Tenant under this Lease and shall be paid by Tenant
to Landlord on demand.
ARTICLE 16. COMMON AREAS
------------------------
16.1 Landlord shall make available from time to time to service the Building
such Common Areas as and to the extent Landlord shall alone from time to time
deem appropriate. Common Areas shall be defined as including but not limited to
any parking areas, driveways, service courts, access and egress roads,
sidewalks, opened and enclosed courts and malls, landscaped and planted areas,
fire corridors, meeting areas and public restrooms. Landlord shall operate,
manage, equip, light, repair and maintain said Common Areas for their intended
purposes in such manner as Landlord shall in its sole discretion from time to
time determine, and may from time to time change the size, location, elevation,
nature and/or use of any Common Areas and may make installations and/or
construct or erect buildings, structures, booths therein or thereon and move or
remove the same and shall have the right to retain revenue from income-producing
events whether or not conducted for promotional purposes.
16.2 Tenant, its officers, employees, customers and invitees shall have the
non-exclusive right in common with Landlord and all others to whom Landlord has
or may hereafter grant rights, to use said Common Areas as designated by
Landlord, subject to such rules and regulations as Landlord may impose. Landlord
may at any time close any Common Area to make repairs or changes or to prevent
the acquisition of public rights in such area or to discourage noncustomer
parking. Tenant agrees to cause its employees to park in such areas as may be
designated by Landlord for "Employee Parking".
16.3 Tenant shall pay to Landlord a "CAM Charge" as its proportionate share of
the cost and expense to Landlord of operating, maintaining and repairing said
Common Areas (hereinafter referred to as "Common Area Maintenance Costs"). The
initial monthly payment shall be adjusted effective on the first day of the
first month of the second lease year and on the first day of the first month of
each lease year thereafter in accordance with the CPI Increase Formula.
ARTICLE 17. UTILITIES.
17.1 From the date Tenant is given possession of the Premises, Tenant agrees to
pay for all utility services rendered or furnished to the Premises including
gas, water, electricity, sprinkler charges assessed by any governmental.
authority, fire line charges, sewer rental, sewage treatment facilities and the
like, together with all taxes levied or other charges on such utilities and
governmental charges based on utility consumption, standby utility capacity or
potential utility use. Any such charges for services supplied by Landlord, or
charges for utilities which may be rebilled by the
(5)
<PAGE> 7
Landlord, shall be due and payable within ten (10) days after billings therefor
are rendered to Tenant. In no event shall Landlord be liable for the quality,
quantity, failure or interruption of such services to the Premises.
ARTICLE 18. MAINTENANCE.
------------------------
18.1 Landlord covenants and agrees to keep and maintain (except as hereinafter
set forth), the roof and other structural and exterior portions of the Building;
except, however, that Landlord shall not be responsible for the following:
doors, door checks and operators and windows; reasonable wear and tear; and
damage caused by any act or negligence of Tenant, its employees, agents,
invitees, licensees or contractors. Other than as herein provided, Landlord
shall not be responsible to make any other improvements or repairs of any kind
in or upon the Premises.
18.2 Tenant covenants and agrees to keep and maintain at its own cost and
expense in good order, condition and repair the Premises and every part thereof,
except as hereinabove provided, including, but without limitation, the exterior
and interior portions of all doors, door checks and operators, windows and plate
glass, all plumbing and sewage facilities and electrical systems within the
Premises, fixtures, air-conditioning and electrical equipment, and interior
walls, floors and ceilings, signs and all interior building appliances and
similar equipment. Tenant further agrees to replace any of said equipment when
necessary at its own cost and expense. Tenant also covenants and agrees to be
responsible for any damage to the Premises or to the Building, or any part
thereof, including but not limited to the roof, caused by any act or negligence
of Tenant, its employees, agents, invitees, licensees or contractors.
ARTICLE 19. ASSIGNMENT AND SUBLETTING.
--------------------------------------
19.1 Tenant covenants and agrees not to assign this Lease or to sublet the whole
or any part of the Premises, or to permit any other persons to occupy same
without the written consent of the Landlord first had. Any assignment or
subletting, even with the consent of Landlord, shall not relieve Tenant from
liability for payment of rent or other sums herein provided or for the
obligation to keep and be bound by the terms, conditions and covenants of this
Lease, notwithstanding the fact that this Lease may be amended by agreement
between such assignee or subtenant and Landlord. In the event any assignment or
subletting, even with the consent of Landlord, results in rental income or other
lease charges in an amount greater than that provided for in this Lease, then
such excess shall belong to the Landlord and shall be payable to Landlord as
additional rental herein reserved. The acceptance of rent from any other person
shall not be deemed to be a waiver of any of the provisions of this Lease or to
be a consent to the assignment of this Lease or subletting of the Premises .
19.2 An assignment for the benefit of creditors or by operation of law shall not
be effective to transfer any rights to assignees without the written consent of
the Landlord first having been obtained .
19.3 Provided Tenant is a corporation, then if at any time during the term of
this Lease any part or all of the corporate shares of Tenant shall be
transferred by sale, assignment, bequest, inheritance, operation of law or other
disposition so as to result in a change in the present effective voting control
of Tenant by the person or persons owning a majority of said corporate shares on
the date of this Lease, Tenant shall promptly notify Landlord in writing of such
change, and Landlord may terminate this Lease at any time after such change in
control by giving Tenant ninety (90) days prior written notice of such
termination.
(6)
<PAGE> 8
ARTICLE 20. INSURANCE.
----------------------
20.1 Tenant covenants and agrees to provide on or before the commencement of the
term and to keep in force during the entire term of this Lease: (1)
comprehensive general liability insurance for the mutual benefit of Landlord and
Tenant relating to the Premises and its appurtenances in an amount of not less
than One Million ($1,000,000.00) Dollars in respect of personal injury or death
and of not less than Five Hundred Thousand ($500,000.00) Dollars in respect of
property damage, which insurance shall name Landlord as an additional insured;
(2) fire and extended coverage, vandalism, malicious mischief and special
extended coverage insurance in an amount adequate to cover the cost of
replacement of all leasehold or building improvements in the Premises which were
originally constructed or provided by or on behalf of Tenant as well as the cost
of replacement of all fixtures, equipment, decorations, contents and personal
property therein; and (3) plate glass insurance with respect to all plate and
other glass in the Premises. Tenant agrees to deliver to Landlord at least
fifteen (15) days prior to the time such insurance is first required to be
carried by Tenant, and thereafter at least fifteen (15) days prior to the
expiration of any such policy, either a duplicate original or a certificate and
true copy of all policies procured by Tenant in compliance with its obligations
hereunder, together with evidence of payment therefor.
20.2 All of the aforesaid insurance shall be written by one (1) or more
responsible insurance . companies satisfactory to Landlord and shall contain
endorsements that: (1) such insurance may not be canceled or amended with
respect to Landlord (or its designee(s)), except upon ten (10) days written
notice by registered mail to Landlord (and such designee(s)), by the insurance
company; and (2) Tenant shall be solely responsible for payment of premiums for
such insurance. In the event Tenant fails to furnish such insurance, the
Landlord may obtain such insurance and the premiums shall be paid by Tenant to
the Landlord upon demand.
20.3 Tenant will indemnify, save harmless, and defend Landlord from and against
any and all claims and demands in connection with any accident, injury or damage
whatsoever caused to any person or property arising directly or indirectly out
of the Tenant's initial construction, alteration, renovation, remodeling and/or
fixturing of the Premises (whether or not occurring prior to the Commencement
Date hereof), or out of the business conducted in the Premises or occurring in,
on or about the Premises or any part thereof, or arising directly or indirectly
from any act or omission of Tenant or any of its contractors, subcontractors or
concessionaires or subtenants or their respective licensees, servants, agents,
employees, contractors or subcontractors, and from and against any and all
costs, expenses and liability incurred in connection with any such claim or
proceeding brought thereon. The comprehensive general liability coverage
maintained by Tenant pursuant to Subsection A above shall specifically insure
the contractual obligations of Tenant as set forth herein.
20.4 Each insurance policy carried by Landlord or Tenant and insuring all or any
part of the Building, the Premises, including improvements, alterations and
changes in and to the Premises made by either of them and Tenant's trade
fixtures and contents therein, shall be written in a manner to provide that the
insurance company waives all right of recovery by way of subrogation against
Landlord or Tenant, as the case may be, in connection with any loss or damage to
the Premises, property or businesses building and contents caused by any of the
perils covered by fire and extended coverage, and business interruption
insurance, or for which either party may be reimbursed as a result of insurance
coverage affecting any loss suffered by it. So long as the policy or policies
involved can be so written and maintained in etfect, neither Landlord nor Tenant
shall be liable to the other for any such loss or damage, provided, however,
that the foregoing waivers of liability given by Landlord and Tenant to each
other shall apply only to the extent of any recovery made by the parties hereto
under any policy of insurance now or hereafter issued.
(7)
<PAGE> 9
20.5 Landlord agrees to maintain: (1) comprehensive general liability insurance
relating to the Building and its Common Areas on an occurrence basis in the
minimum amount of One Million Dollars ($1,000,000.00); (2) fire and extended
coverage, vandalism, malicious mischief and special extended coverage insurance
to the extent of the replacement value of the buildings and improvements
originally constructed by Landlord. Tenant agrees to pay to Landlord as its
share of the cost of such insurance during each month, the Insurance Charge. The
initial monthly payment shall be adjusted effective on the first day of the
first month of the second lease year and on the first day of the first month of
each lease year thereafter in accordance with the CPI Increase Formula.
ARTICLE 21. FIRE OR OTHER CASUALTY.
-----------------------------------
21.1 Should the Premises (or any part thereof) be damaged or destroyed by fire
or other casualty insured under the standard fire and casualty insurance policy
with approved standard extended coverage endorsement applicable to the Premises,
Landlord shall, except as otherwise provided herein, and to the extent it
recovers proceeds from such insurance, repair and/or rebuild the same with
reasonable diligence. Landlord's obligation hereunder shall be limited to the
building and improvements originally provided by Landlord at the Commencement
Date of the term of this Lease. Landlord shall not be obligated to repair,
rebuild or replace any property belonging to Tenant or any improvements to the
Premises furnished by Tenant. If there should be a substantial interference with
the operation of Tenant's business in the Premises as a result of such damage or
destruction which requires Tenant to temporarily close its business to the
public, the Rent shall abate but only to the extent of the proceeds actually
received by Landlord under its rent insurance policy. Unless this Lease is
terminated by Landlord as hereinafter provided, Tenant shall, at its cost and
expense, repair, restore, redecorate and refixture the Premises and restock the
contents thereof in a manner and to at least a condition equal to that existing
prior to such damage or destruction, except for the building and improvements to
be reconstructed by Landlord as above set forth, and the proceeds of all
insurance carried by Tenant on the property, decorations and improvements' as
well as fixtures and contents in the Premises shall be held in trust by Tenant
for such purposes. Tenant agrees to commence such work within ten (10) days
after the date of such damage or destruction or the date Landlord completes any
reconstruction required to be completed by it pursuant to the above, whichever
date is later, and Tenant shall diligently pursue such work to its completion.
Tenant further agrees that all such work required of it shall be done within a
period of sixty (60) days after it is required to commence such work.
21.2 Notwithstanding anything to the contrary contained in the preceding
subsection A or elsewhere in this Lease, Landlord at its option, may terminate
this Lease on thirty (30) days notice to Tenant, given within ninety (90) days
after the occurrence of any damage or destruction if: (1) the Premises are
damaged or destroyed as a result of a risk which is not covered by Landlord's
insurance, or (2) the Premises be damaged and the cost to repair the same shall
be more than twenty-five (25%) percent of the cost of replacement thereof, or
(3) the Premises are damaged during the last two (2) years of the term, or (4)
the Building shall be damaged to the extent of twenty-five (25%) percent or more
of the then monetary value thereof (whether the Premises are damaged or not).
ARTICLE 22. EMINENT DOMAIN.
---------------------------
22.1 If the whole or any part of the Premises shall be taken by any public or
quasi-public authority under the power of eminent domain, condemnation or
expropriation or in the event of a conveyance in lieu thereof, then this Lease
shall terminate on the date when Tenant is required to yield possession thereof.
22.2 If more than twenty (20%) percent of (a) the Floor Area of the Building, or
(b) the Common Areas, shall be taken or conveyed as aforesaid, Landlord shall
have the right, at its option, to be
(8)
<PAGE> 10
exercised by notice in writing delivered to Tenant, to terminate this Lease
effective, at the option of Landlord, either upon the date title vests in the
condemning authority, or upon the date Landlord is required to deliver
possession of the part taken or conveyed.
22.3 In the event of a taking under the power of eminent domain of the Premises,
Common Areas, or any other portion of the Building, whether whole or partial,
all compensation awarded for such taking of the fee and leasehold estate, or
consideration paid for a conveyance in lieu of condemnation, as damages or
otherwise, shall belong to and be the property of Landlord, except that Tenant
shall be entitled to recover from the condemning authority, but not from
Landlord, such amounts as may be separately awarded to Tenant for removal
expenses , business dislocation damages and moving expenses, provided no such
claim shall diminish or adversely affect Landlord's award. Tenant hereby assigns
to Landlord all right, title and interest of Tenant in and to any award made for
leasehold damages and/or diminution in the value of Tenant's leasehold estate.
ARTICLE 23. SUBORDINATION, ATTORNMENT AND
-----------------------------------------
MORTGAGEE'S APPROVAL.
---------------------
23.1 The Landlord reserves the right and privilege to subject and subordinate
this Lease at all times to the lien of any mortgage or mortgages now or
hereafter placed upon the Landlord's interest in the said Premises and on the
land and buildings of which said Premises are a part, or upon any buildings
hereafter placed upon the land of which the Premises are a part (the holder of
any such mortgage hereinafter referred to as mortgagee), and to any and all
advances to be made under such mortgages, and all renewals, modifications,
extensions, consolidations and replacements thereof.
23.2 Tenant covenants and agrees to execute and deliver, upon demand, such
further instrument or instruments subordinating this Lease on the foregoing
basis to the lien of any such mortgage or mortgages as shall be desired by the
Landlord and any mortgagees or proposed mortgagees, and hereby irrevocably
appoints Landlord the attorney-in-fact of Tenant to execute and deliver such
instrument or instruments for and in the name of Tenant in the event Tenant
shall fail to execute such instrument or instruments within ten (10) days after
written notice to do so.
23.3 Tenant shall, in the event of the sale or assignment of Landlord 5
interest in the Building, or in the event of any proceedings brought for the
foreclosure of, or in the event of the exercise of the power of sale under any
mortgage covering the Building, attorn to and recognize such purchaser or
mortgagee as Landlord under this Lease, and in any such events, Landlord named
herein shall not thereafter be liable on this Lease.
23.4 If any mortgagee shall have given prior written notice to Tenant that it is
a holder of a mortgage as described in the first paragraph of this Article and
such notice includes the address to which notices to such mortgagee are to be
sent, then Tenant agrees to give to such mortgagee notice simultaneously with
any notice given to Landlord to correct any default of Landlord as hereinabove
provided and agrees that the mortgagee shall have the right, within sixty (60)
days after receipt of said notice, to correct or remedy such default before
Tenant may take any action under this Lease by reason of such default .
ARTICLE 24. ESTOPPEL CERTIFICATE.
---------------------------------
24.1 At any time, and from time to time, upon the written request of Landlord or
any mortgagee, Tenant, within ten (10) days of the date of such written request,
agrees to execute and deliver to Landlord and/or such mortgagee, a written
statement: (a) ratifying this Lease; (b) confirming the Commencement and
expiration dates of the term of this Lease; (c) certifying that Tenant is in
occupancy of the Premises and that this Lease is in full force and effect and
has not been modified, assigned, supplemented or amended, except by such
writings as shall be stated; (d) certifying that all conditions and
(9)
<PAGE> 11
agreements under this Lease to be satisfied and performed have been satisfied
and performed, except as shall be stated; (e) certifying that Landlord is not in
default under this Lease and there are no defenses or offsets against the
enforcement of this Lease by Landlord, or stating the defaults and/or defenses
claimed by Tenant; (f) reciting the amount of advance rental, if any, paid by
Tenant and the date to which rental has been paid; (g) reciting the amount of
security deposited with Landlord, if any; and (h) any other information which
Landlord or the mortgagee shall require.
ARTICLE 25. BANKRUPTCY.
-----------------------
25.1 Tenant covenants and agrees that if, at any time, Tenant becomes a debtor
under the Bankruptcy Code or is adjudged bankrupt or insolvent under the laws of
any state, or makes a general assignment for the benefit of creditors, or if a
receiver of Tenant's property in the Premises is appointed and shall not be
discharged within thirty (30) days of such appointment, then Landlord may, at
its option, declare this Lease terminated and shall forthwith be entitled to
immediate possession of the Premises except that if any such proceedings are
pursuant to the Bankruptcy Code, then Landlord shall be entitled to all the
rights and remedies accorded landlords, including without limitation those set
forth in said Bankruptcy Code.
25.2 If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code to the extent provided in the Assignment
Clause of this Lease, any and all monies or other considerations payable or
otherwise to be delivered in connection with such assignment, shall be paid or
delivered to Landlord, shall be and remain the exclusive property of Landlord,
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any and all monies or other considerations
constituting Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and be
promptly paid or delivered to Landlord. Any person or entity to which this Lease
is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising under
this Lease on and after the date of such assignment. Any such assignee shall,
upon demand, execute and deliver to Landlord an instrument confirming such
assignment.
ARTICLE 26. DEFAULT.
--------------------
26.1 All rights and remedies of Landlord herein enumerated shall be cumulative,
and none shall exclude any other rights or remedies allowed by law or in equity.
The occurrence of any of the following shall constitute a default and breach of
this Lease by Tenant:
A. If Tenant shall fail, neglect or refuse to pay any
installment of fixed Rent at the time and in the amount as herein
provided, or to pay any other monies agreed by it to be paid promptly
when and as the same shall become due and payable under the terms
hereof, and if any such default should continue for a period of more
than ten (10) days; or if
B. Tenant shall abandon or vacate the Premises or shall fail,
neglect or refuse to keep and perform any of the other covenants,
conditions, stipulations or agreements herein contained, and in the
event any such default shall continue for a period of more than ten
(10) days after notice thereof is given in writing to Tenant by
Landlord (provided, however, that if the cause for giving such notice
involves the making of repairs or other matters reasonably requiring a
longer period of time than the period of such notice, Tenant shall be
deemed to have complied with such notice so long as it has commenced to
comply with said notice within the period set forth in the notice and
is diligently prosecuting compliance of said notice); or if
C. Tenant shall repeatedly be late in the payment of rent
or other sums or charges due Landlord under this Lease or shall
repeatedly default in the keeping, observing, or performing of
(10)
<PAGE> 12
any other covenants or agreements herein contained to be kept, observed
or performed by Tenant (provided notice of payment or other defaults
shall have been given to Tenant, but irrespective of whether or not
Tenant shall have timely cured any such payment or other defaults of
which notice was given).
26.2 In the event of any such default or breach of this Lease by Tenant,
Landlord shall have the right and option to declare the entire Rent due for the
balance of the term hereof immediately due and payable by Tenant, and shall have
any or all of the remedies hereinafter set forth, and further, in the event of
such default or breach of this Lease by Tenant, the Tenant does hereby authorize
and fully empower Landlord or Landlord's agent to cancel or anul this Lease at
once and reenter and remove all persons and their property, and such property
may be stored in a public warehouse or elsewhere at the cost of the Tenant, all
without service of notice or resort to legal process and without being deemed
guilty of any manner of trespass and without prejudice to any remedies which
might otherwise be used by Landlord.
26.3 Any payment required to be made by Tenant under the provisions of this
Lease not made by Tenant when and as due shall thereupon be deemed to be due and
payable by Tenant to Landlord on demand with interest thereon from the date when
the particular amount became due to the date of payment thereof to Landlord. The
aforesaid interest shall be at the rate of two (2%) percent above the prime
interest rate per annum announced from time to time by AmeriTrust Company
National Association, Cleveland, Ohio ("Default Rate").
26.4 The Landlord may, however, at its option, at any time after such default or
violation of condition or covenant, reenter and take possession of said Premises
and remove said property without such re-entry working a forfeiture of the rents
to be paid and the covenants, agreements and conditions to be kept and performed
by Tenant for the full term of this Lease. In such event, Landlord shall have
the right, but not the obligation, to divide or subdivide the Premises in any
manner Landlord may determine and to lease or let the same or portions thereof
for such periods of time and at such rentals and for such use and upon such
covenants and conditions as Landlord may elect, applying the net rentals from
such letting first to the payment of Landlord's expenses incurred in
dispossessing Tenant and the cost and expense of making such improvements,
alterations and repairs in the Premises as may be necessary in order to enable
Landlord to relet the same, and to the payment of any brokerage commissions or
other necessary expenses of Landlord in connection with such reletting. The
balance, if any, shall be applied by Landlord from time to time on account of
the payments due or payable by Tenant hereunder with the right reserved to
Landlord to bring such action or proceedings for the recovery of any deficits
remaining unpaid as Landlord may deem favorable from time to time without
obligation to await the end of the term hereof for the final determination of
Tenant's account.
ARTICLE 27. SURRENDER OF PREMISES.
----------------------------------
27.1 Tenant covenants and agrees to vacate, remove from and deliver up and
surrender the possession of the Premises to Landlord upon the expiration of the
term or upon the expiration of any extension or renewal thereof, without any
specific notice to vacate, and upon any earlier termination of this Lease, as
herein provided, in as good condition and repair as the same shall be at the
commencement of said term or may have been put by the Landlord during the
continuance thereof, ordinary wear and tear alone excepted. Tenant shall be
considered in possession of the Premises and responsible for payment of rental
and all other charges hereunder until such time as it has complied with the
provision of this Article and shall have delivered all keys to the Premises to
Landlord. Any cost or expense incurred by Landlord in cleaning the Preipises or
for damage caused by the Tenant may be charged against Tenant and/or deducted
from the Security Deposit. Tenant agrees to give to Landlord written notice of
its intention to terminate its tenancy and its possession rights under this
Lease at the expiration of the term, such notice to be given at least six (6)
months prior to the term expiration date.
(11)
<PAGE> 13
ARTICLE 28. HOLDING OVER.
-------------------------
28.1 In the event Tenant remains in possession of all or any part of the
Premises (or fails to deliver the keys to Landlord as above required) after the
expiration of the term of this Lease or any renewal thereof, Tenant shall be
deemed to be occupying the Premises as a tenant from month to month at a monthly
rental equal to twice the sum of (i) the monthly installment of Rent payable
during the last month of the term or any extension or renewal that was in
effect, and (ii) one-twelfth (1/12th) of all items of additional rent or other
charges payable or paid during the last lease year. Such continued occupancy
shall not defeat Landlord's rights to regain possession of the Premises.
ARTICLE 29. ACCESS TO PREMISES.
-------------------------------
29.1 Tenant further agrees to permit the Landlord or the Landlord's agents to
inspect or examine the Premises at any reasonable time, and to permit the
Landlord to make such repairs or improvements to the building of which the
Premises are a part that the Landlord may deem desirable or necessary for its
preservation and which the Tenant has not covenanted herein to do or has failed
to do. In the event of an emergency, Landlord shall have the right to enter the
Premises without Tenant's permission.
29.2 Tenant further agrees that on and after ninety (90) days next preceding the
expiration of the term of this Lease the Landlord or its agents shall have the
right to show the Premises to potential tenants, and to place notices offering
the Premises "To Let" or "For Sale" on the front of the Premises or any part
thereof.
ARTICLE 30. QUIET ENJOYMENT.
----------------------------
30.1 Landlord covenants and agrees that if the Tenant shall perform all of the
covenants and agreements herein stipulated to be performed on the Tenant's part,
the Tenant shall, at all times during said term, have the peaceable and quiet
enjoyment and possession of the Premises without any manner of hindrance from
the Landlord or any persons lawfully claiming through the Landlord.
ARTICLE 31. WAIVER.
-------------------
31.1 No waiver of any covenant or condition or of the breach of any covenant or
condition of this Lease shall be taken to constitute a waiver of any subsequent
breach of such covenant or condition, nor to justify or authorize the
nonobservance on any other occasion of the same or any other covenant or
condition hereof; nor shall the; acceptance of rent or other payment by the
Landlord at any time when the Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default or of the Landlord's
right to terminate this Lease on account of such default; nor shall any waiver
or indulgence granted by the Landlord to the Tenant be taken as an estoppel
against the Landlord.
ARTICLE 32. NOTICES AND PAYMENTS.
---------------------------------
32.1 Any bill, statement, notice, communication or payment which Landlord or
Tenant may desire to be required to give to the other party shall be in writing
and shall be sent to the other party by registered or certified mail to the
address specified in the opening paragraph of this Lease or to such other
address as either party shall have designated to the other by like notice, and
the time of the rendition of such shall be when same is deposited in an official
United States Post Office, postage prepaid.
32.2 All payments required under this Lease are to be paid in legal tender and
lawful money of the United States or the equivalent, at Landlord's above
specified address.
(12)
<PAGE> 14
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE made and entered into this 30th day of
June, 1996, by and between HUNTERS SQUARE INC. (hereinafter called
"Landlord") , and ALPHABET INC. (hereinafter called "Tenant"),
WHEREAS, Landlord and Tenant entered into a Lease Agreement (the
"Lease") dated January 11, 1995, for a suite containing 15,300 square
feet in the building known as Hunter Square I located at 8700 E.
Market Street, Warren, Ohio; and
WHEREAS, Landlord and Tenant are desirous of amending certain provisions
set forth in the Lease.
NOW THEREFORE, for mutual valuable considerations, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. 2.2 (Article 3) PREMISES Square footage is increased to 15,300.
2. 2.4 (Article 5) RENT is amended to provided for a revised rental of
One Hundred Fifty Eight Thousand-Seven Hundred Sixty and 00/100 Dollars
($158,760.00) per lease year payable in advance monthly installments of Thirteen
Thousand-Two Hundred Thirty and 00/100 Dollars $13,230.00) each.
3. 2.7 (Article 7) TAX CHARGE is amended to provide for a revised
monthly Tax Charge of $1,147.50 subject to the terms of the original lease.
4. 2.8 (Article 16) CAM CHARGE is amended to provide for a revised
monthly CAM Charge of $1,185.75 subject to the terms of the original lease.
5. 2.9 (Article 20.5) INSURANCE CHARGE is amended to provide for a
revised monthly Insurance Charge of $191.25 subject to the terms of the original
lease.
6. 2.10 Monthly Payment Total is $15,754.50.
7. The effective date of this Amendment is 6/30/96
Except as herein Specifically modified, supplemented and amended, all
the terms, covenants and conditions of the Lease shall remain in full force and
effect and, together with the terms and conditions of this Amendment to Lease,
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and permitted assigns, respectively, of the Landlord
and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
Lease to be signed upon the day and year first above written.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Landlord and Tenant have caused this Lease to be signed and sealed as of the day
and year first above written.
Signed in the presence of: LANDLORD: HUNTERS SQUARE,
INC.
- ----------------------------- /s/ Carter P. Lewis, Treasurer
------------------------------
- ----------------------------- TENANT: ALPHABET, INC.
- ----------------------------- ---------------------------
By: /s/ David L. Thomas
- ----------------------------- -----------------------
David L. Thomas
<PAGE> 15
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE made and entered into this 20th day of
November, 1990, by and between HUNTERS SQUARE, INC. an Ohio Corporation
(hereinafter called "landlord"), and ALPHABET, INC. (herein after called
"Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement (the
"Lease") dated July 6, 1988, for a suite in the office building known as Suite
No. 1 containing approximately 6,240 square feet in the building known as
Hunters Square located at 8700 East Market Street, Howland Township, Trumbull
County, Ohio; and
WHEREAS Landlord and Tenant are desirous of amending certain provisions
set forth in the Lease and Amendment to Lease dated June 28, 1989.
NOW, THEREFORE, for mutual valuable considerations, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Article 2.2 is modified to increase the Floor Area of the Premises
to 9,940 square feet.
2. Article 2.4 is amended to provide for a revised rental of Ninety
Nine Thousand-Three Hundred Ninety Six and 00/100 Dollars ($99,396.00) per lease
year, payable in advance monthly installments of Eight Thousand Two Hundred
Eighty Three and 00/100 Dollars ($8,283.00).
3. Article 2.7 is amended to provide for a revised monthly Tax Charge
of $701.67.
4. Article 2.8 is amended to provide for a revised monthly CAM Charge
of $596.07.
5. Article 2.9 is amended to provide for a revised monthly Insurance
Charge of $89.84.
6. Article 2.10 is amended to provide for a monthly payment total of
items set forth in Articles 2.4, 2.7, 2.8 and 2.9 of $9,670.58.
7. The effective date of this Amendment is December 1, 1990.
Except as herein specifically modified, supplemented and amended, all
of the terms, covenants and conditions of the Lease shall remain in full force
and effect and, together with the terms and conditions of this Amendment to
Lease, shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and permitted assigns, respectively, of the Landlord
and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
Lease to be signed upon the day and year first above written.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Landlord and Tenant have caused this Lease to be signed and sealed as of the day
and year first above written.
Signed in the presence of: LANDLORD: HUNTERS SQUARE, INC.
/s/ Carter P. Lewis
- ------------------------------ -------------------------------------
Carter P. Lewis, Treasurer
- ------------------------------
TENANT: ALPHABET, INC.
/s/ David L. Thomas
- ------------------------------ -------------------------------------
David L. Thomas, President
- ------------------------------
<PAGE> 16
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE made and entered into this 28th
day of June, 1989, by and between HUNTERS SQUARE, INC. an Ohio Corporation
hereinafter called "Landlord"), and ALPHABET, INC. (hereinafter called
"Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement
(the "Lease") dated July 6, 1988, for a suite in the office building known as
Suite No. 1 containing approximately 6,240 square feet in the building known as
Hunters Square located at 8700 East Market Street, Howland Township, Trumbull
County, Ohio; and
WHEREAS, Landlord and Tenant are desirous of amending certain
provisions set forth in the Lease.
NOW, THEREFORE, for mutual valuable considerations, the receipt
and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Article 2.2 is modified to increase the Floor Area of the
Premises to 9,360 square feet.
2. Article 2.4 is amended to provide for a revised rental of
Ninety Three Thousand-Six Hundred and 00/100 Dollars (93,600.00) per lease year,
payable in advance monthly installments of Seven Thousand Eight Hundred and
00/100 Dollars ($7,800.00).
3. Article 2.7 is amended to provide for a revised monthly Tax
Charge of $ 663.00.
4. Article 2.8 is amended to provide for a revised monthly CAM
Charge of $ 507.00.
5. Article 2.9 is amended to provide for a revised monthly
Insurance Charge of $ 78.00.
6. Article 2.10 is amended to provide for a monthly payment
total of items set forth in Articles 2.4, 2.7, 2.8 and 2.9 of $9,048.00.
Commencing
7. The effective date of this Amendment is July 1, 1989.
Except as herein specifically modified, supplemented and
amended, all of the terms, covenants and conditions of the Lease shall remain in
full force and effect and, together with the terms and conditions of this
Amendment to Lease, shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and permitted assigns, respectively, of
the Landlord and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this
Amendment to Lease to be signed upon the day and year first above written.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Landlord and Tenant have caused this Lease to be signed and sealed as of the
day and year first above written.
Signed in the presence of: LANDLORD: HUNTERS SQUARE, INC.
/s/ Carter P. Lewis
- ------------------------------ -------------------------------------
Carter P. Lewis, Treasurer
- ------------------------------
TENANT: ALPHABET, INC.
/s/ David L. Thomas
- ------------------------------ -------------------------------------
David L. Thomas, President
- ------------------------------
<PAGE> 17
STATE OF OHIO ) SS:
COUNTY OF TRUMBULL )
Personally appeared before me, the undersigned, a Notary Public in and for said
County and State, Carter P. Lewis, known to me to be the Treasurer of Hunters
Square, Inc., the corporation which executed the foregoing document, who
acknowledged that he did sign the foregoing document for and on behalf of said
corporation, being thereunto duly authorized by its Board of Directors; that the
same is his free act and deed as such officer and the free act and deed of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Warren, Ohio, this 28th day of June, 1989.
/s/ Deanne M. Moore
--------------------------------
Notary Public
NOTARY SEAL
DEANNE M. MOORE
Notary Public State of Ohio
My Commission Expires 3/27/1990
STATE OF OHIO ) SS:
COUNTY OF TRUMBULL )
Personally appeared before me, the undersigned a Notary Public in and for said
County and State, David Thomas, known to me to be the President of Alphabet,
Inc., the corporation which executed the foregoing document, who acknowledged
that he did sign and seal the foregoing document for and on behalf of said
corporation, being thereunto duly authorized by its Board of Directors; that the
same is his free act and deed as such officer and the free act and deed of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Warren, Ohio, this 28th day of June, 1989
/s/ Deanne M. Moore
--------------------------------
Notary Public
NOTARY SEAL
DEANNE M. MOORE
Notary Public State of Ohio
My Commission Expires 3/27/1990
<PAGE> 18
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE made and entered into this 11th day of
January, 1995, by and between Hunters Square, Inc. (hereinafter called
"Landlord"), and Alphabet, Inc. (hereinafter called "Tenant"),
WHEREAS, Landlord and Tenant entered into a Lease Agreement
(the "Lease") dated July 6, 1988, in the building known as Hunters Square I,
located at 8700 East Market Street, Warren, Ohio; and
WHEREAS, Landlord and Tenant are desirous of amending certain
provisions set forth in the Lease and Amendments to Lease dated June 28, - 1989,
November 20, 1990, January 26, 1993 and September 7, 1994.
NOW THEREFORE, for mutual valuable considerations, the receipt
and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Amendment dated September 7, 1994, is null and void. This
amendment dealt with the expansion into the suite currently occupied by
psychiatric professional Group.
2. Tenant agrees to lease all remaining space in the building
as it becomes available at the following minimum rental rates:
Suite # Current Tenant SF Rate/SF/YR*
------- -------------- -- -----------
3 Jim Gray 2080 $11.00
6 Automotive Events 1900 11.00
10 Psy Prof Group 3120 11.00
*Charges for Taxes, CAM and Insurance are additional per the
original lease. The rate on these future expansions will be fixed at $11.00/SF
minimum rent thru June 30, 2001 and not subject to the increase in 1998 as in
Article 5 below.
3. 2.2 (Article 3) Premises Square footage is increased to
11,560.
4. 2.3 (Article 4) Term is amended to provide for an extension
of the term to June 30, 2001, together with two (2) five year options.
5. 2.4 (Article 5) Rent is amended to provide for a revised
rental of One Hundred Seventeen Thousand-Six Hundred Twenty Four and 00/100
Dollars ($117,624.00) per lease year commencing February 1, 1995, - payable in
advance monthly installments of Nine Thousand-Eight Hundred - Two and 00/100
Dollars ($9,802.00). Commencing July 1, 1998 thru June 30, 2001, monthly minimum
rent shall increase to One Hundred Thirty Eight Thousand-Two Hundred Four and
00/100 ($138,204.00) per lease year payable in advance monthly installments of
Eleven Thousand-Five Hundred Seventeen and 00/100 Dollars ($11,517.00).
6. 2.7 (Article 7) Tax Charge is amended to provide for a
revised monthly Tax Charge of $867.00 subject to the terms of the original
lease.
7. 2.8 (Article 16) CAM Charge is amended to provide for a
revised monthly CAM charge of $877.00 subject to the terms of the original
<PAGE> 19
8. 2.9 (Article 20.5) Insurance Charge is amended to provide
for a revised monthly Insurance Charge of $145.00 subject to the terms of the
original lease.
9. 2.10 Monthly Payment Total is $11,691.00.
10. The effective date of this Amendment is January 11, 1995.
Except as herein specifically modified, supplemented and
amended, all the terms, covenants and conditions of the Lease shall remain in
full force and effect and, together with the terms and conditions of this
amendment to Lease, shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and permitted assigns, respectively, of
the Landlord and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this
Amendment to Lease to be signed upon the day and year first above written.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Landlord and Tenant have caused this Lease to be signed and sealed as of the
day and year first above written.
Signed in the presence of: LANDLORD: HUNTERS SQUARE,
INC.
/s/ Carter P. Lewis
Nancy A. Termine -----------------------------------
- ----------------------------- Carter P. Lewis, Treasurer
Nancy A. Termine
- ----------------------------- TENANT: ALPHABET, INC.
/s/ David L. Thomas
- ----------------------------- -----------------------------------
By: David L. Thomas
- ----------------------------- President
<PAGE> 20
STATE OF )
COUNTY OF )
Personally appeared before me, a Notary Public in and for said County and State,
the above named Carter Lewis and David Thomas who acknowledged that they did
sign the foregoing instrument and that the same is their free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Trumbull County this 7th day of September 1994
Nancy A.Myers
----------------------------
Nancy A.Myers, Notary Public
State of Ohio
My Commission Expires 11-14-95
STATE OF )
COUNTY OF )
Personally appeared before me, the undersigned, a Notary Public in and for said
County and State, __________________________________ and
_________________________________ known to me to be the ________ President and
___________________________ Secretary, respectively, of
_________________________________________ the corporation which executed the
foregoing document, who acknowledged that they did sign and seal the foregoing
document for and on behalf of said corporation, being thereunto duly authorized
by its Board of Directors; that the same is their free act and deed as such
officers and the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal
at ___________________________________________ this ___________date
of ______________________ 19___
STATE OF )
COUNTY OF )
Personally appeared before me, a Notary Public in and for said County and State,
the above named _____________________________ who acknowledged that ________
did sign the foregoing instrument and that the same is _______ free act and
deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
_____________________________ this _______ day of _____________ 19__.
Nancy A.Myers
----------------------------
Nancy A.Myers, Notary Public
State of Ohio
My Commission Expires 11-14-95
<PAGE> 21
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE made and entered into this 26th day of
January, 1993, by and between HUNTERS SQUARE, INC. an Ohio Corporation
hereinafter called "Landlord") and ALPHABET, INC. (hereinafter called
"Tennant"),
WHEREAS, Landlord and Tenant entered into a Lease Agreement
(the "Lease") dated July 6, 1988, for a suite in the office building known as
Suite No. 1, located at 8700 East Market Street, Howland Township, Trumbull
County, Ohio; and
WHEREAS, Landlord and Tenant are desirous of amending certain
provisions set forth in the Lease and Amendments to Lease dated June 28, 1989,
and November 20, 1990.
NOW THEREFORE, for mutual valuable considerations, the receipt
and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. 2.2 (Article 3) Premises will remain the same. Tenant's
suite has approximately 9,940 square feet of space.
2. 2.3 (Article 4) Term is amended to provide for a new five
year term, commencing July 1, 1993 and ending June 30, 1998.
3: 2.4 (Article 5) Rent will remain the same. Ninety Nine
Thousand-Three Hundred Ninety Six and 00/100 Dollars ($99,396.00) per lease
year, payable in advance monthly installments of Eight Thousand Two Hundred
Eighty Three and 00/100 Dollars ($8,283.00).
4. 2.7 (Article 7) Tax Charge is amended to provide for a
revised monthly Tax Charge of $704.00.
5. 2.8 (Article 16) CAM Charge is amended to provide for a
revised monthly CAM Charge of $737.00
6. 2.9 (Article 20.5) Insurance Charge is amended to provide
for a revised monthly Insurance Charge of $124.00.
7. 2.10 (Monthly Payment Total) is Nine Thousand-Eight Hundred
Forty Eight and 00/100 Month ($9,848.00).
8. The effective date of this Amendment is July 1, 1993.
Except as herein specifically modified, supplemented and
amended, all of the terms, covenants and conditions of the Lease shall remain in
full force and effect and, together with the terms and conditions of this
Amendment to Lease, shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and permitted assigns, respectively, of
the Landlord and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this
Amendment to Lease to be signed upon the day and year first above written.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Landlord and Tenant have caused this Lease to be signed and sealed as of
the day and year first above written!
Signed in the presence of: LANDLORD: HUNTERS SQUARE, INC.
/s/ William Hull /s/ Carter P. Lewis
- ----------------------------------- ----------------------------------
William Hull Carter P. Lewis, Treasurer
- -----------------------------------
<PAGE> 22
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE made and entered into this 28th day of June,
1989, by and between HUNTERS SQUARE, INC. an Ohio Corporation (hereina ter
called "Landlord"), and ALPHABET, INC. (hereinafter called "Tennant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement (the
"Lease") dated July 6, 1988, for a suite in the office building known as Suite
No. 1 containing approximately 6,240 square feet in the building known as
Hunters Square located at 8700 East Market Street, Howland Township, Trumbull
County, Ohio; and
WHEREAS, Landlord and Tenant are desirous of amending certain
provisions set forth in the Lease.
NOW, THEREFORE, for mutual valuable considerations, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Article 2.2 is modified to increase the Floor Area of the Premises
to 9,360 square feet.
2. Article 2.4 is amended to provide for a revised rental of Ninety
Three Thousand-Six Hundred and 00/100 Dollars (93,600.00) per lease year,
payable in advance monthly installments of Seven Thousand Eight Hundred and
00/100 Dollars ($7,800.00).
3. Article 2.7 is amended to provide for a revised monthly Tax Charge
of $ 663.00.
4. Article 2.8 is amended to provide for a revised monthly CAN Charge
of $ 507.00.
5. Article 2.9 is amended to provide for a revised monthly Insurance
Charge of $ 78.00.
6. Article 2.10 is amended to provide for a monthly payment total of
items set forth in Articles 2.4, 2.7, 2.8 and 2.9 of $9,048.00. Commencing
7. The effective date of this Amendment is July 1, 1989.
Except as herein specifically modified, supplemented and amended, all
of the terms, covenants and conditions of the Lease shall remain in full force
and effect and, together with the terms and conditions of this Amendment to
Lease, shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and permitted assigns, respectively, of the Landlord
and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
Lease to be signed upon the day and year first above written.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Landlord and Tenant have caused this Lease to be signed and sealed as of the day
and year first above written.
Signed in the presence of: LANDLORD: HUNTERS SQUARE,
INC.
/s/ Carter P. Lewis
/s/ William Hull -----------------------------------
- ----------------------------- Carter P. Lewis, Treasurer
William Hull
- ----------------------------- TENANT: ALPHABET, INC.
/s/ David L. Thomas
- ----------------------------- -----------------------------------
By: David L. Thomas, President
- -----------------------------
<PAGE> 23
STATE OF OHIO ) SS:
COUNTY OF TRUMBULL )
Personally appeared before me, the undersigned, a Notary Public in and for said
County and State, Carter P. Lewis, known to me to be the Treasurer of Hunters
Square, Inc., the corporation which executed the foreqoing document, who
acknowledged that he did sign the foregoing document for and on behalf of said
corporation, being thereunto duly authorized by its Board of Directors; that the
same is his free act and deed as such officer and the free act and deed of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Warren,
Ohio, this 28th day of June, 1989.
/s/ Jan I. Jocola
------------------------------
Notary Public
Jan I. Jocola Notary Public
State of Ohio
My Commission Expires March 14, 1991
STATE OF OHIO ) SS:
COUNTY OF TRUMBULL )
Personally appeared before me, the undersigned a Notary Public in and for said
County and State, David Thomas, known to me to be the President of Alphabet,
Inc., the corporation which executed the foregoing document, who acknowledged
that he did sign and seal the foregoing document for and on behalf of said
corporation, being thereunto duly authorized by its Board of Directors; that the
same is his free act and deed as such officer and the free act and deed of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Warren,
Ohio, this 28th day of June, 1989.
/s/ Jan I. Jocola
------------------------------
Notary Public
Jan I. Jocola Notary Public
State of Ohio
My Commission Expires March 14, 1991
<PAGE> 1
EXHIBIT 10.5
CONTRACT
TO PURCHASE "H" AND "C" BODY ELEMENTIZED ASSEMBLIES
EFFECTIVE DATE: JANUARY 4, 1993
EXPIRATION DATE: DECEMBER 31,1993
<PAGE> 2
JCI, Incorporated
Purchase Order PEDP3250002
Page 2
l. Beginning January 4, 1993, JCI, Incorporated, will charge Packard Electric
according to the attached element price list:
2. JCI, Incorporated, will invoice Packard Electric Division twice per month,
on the fifteenth day of the month and the last day of the month.
3. Invoice will be by element number and will include the manifest number. Any
hand-generated manifest or additions of elements to manifest by hand must
be invoiced separately and referenced to the manifest.
4. OVERTIME:
--------
Packard Electric will consider for payment that overtime which has been
caused by material shortages, schedule increases and/or other extenuating
circumstances.
Overtime shall be billed as follows:
Payable
O.T. Rate Wage Factor
--------- ---- ------
1.5 Wage Rate x .65
2:0 Wage Rate x 1.25
Your company must be able to prove that overtime was paid to those employes
listed and that they actually worked on a part number that may be caused by
Packard to have required overtime.
Your company must forecast weekend overtime no later than Friday, listing the
number of people, estimated overtime hours, part number and reason for overtime.
This information must be faxed to your buyer (Packard extension 216-373-7058)
for review and approval. Any overtime required on a weekday must be forecasted
that day to the buyer for review prior to the overtime being worked.
*5. DOWNTIME DUE TO LACK OF OR INCORRECT SCHEDULE TRANSMISSION OR MATERIAL
----------------------------------------------------------------------
SHORTAGES CAUSED BY PACKARD ELECTRIC DIVISION:
----------------------------------------------
In the case of downtime, every effort should be made to assign productive
work to employes.
In the event that downtime is incurred and no productive work can be
assigned, the following guidelines will be used:
* Wage Rate x 1.25 x Hours Down = Amount
<PAGE> 3
JCI, Incorporated
Purchase Order PEDP3250002
Page 3
- - Hours Down should not exceed four(4) hours based on your policy of paying
four(4) hours to each employe called to work.
- - If material shortages will affect the next day's production, employes will
be informed not to report to work.
Your company must supply reason for downtime and be able to document
material shortage was caused by Packard and not due to any ordering, etc.,
problem caused by your company. This information will be supplied weekly in
writing. Fax to your buyer at (216) 373-7058.
Packard Electric shall be the sole determiner of the cause of any overtime
or downtime.
6. All productive material, including components, cut leads and subassemblies
are to be bailed.
F.O.B. the Elementized Plant.
7. JCI, Incorporated will complete RCI's on material received as required by
Packard Electric Division.
8. Major engineering changes and model change such as those requiring major
board changes or plant rearrangement will be negotiated when the change has
been defined. Minor changes will be the responsibility of JCI,
Incorporated. Determination of major or minor changes will be negotiated
when the change has been defined. All changes, whether Packard Electric or
Alphabet, initiated will be communicated to the buyer.
8A. Any approved rework will be done at $14.95 per hour. All rework must have
prior approval by Packard Electric Purchasing or a Packard Electric issued
RMA.
8B. Engineering changes and model change rearrangements will be done at $10.75
per hour.
9. The manufacturing system will be designed by Packard Electric Division. Any
revisions to the system will be approved by Packard Electric Division.
Responsibility for the revisions will be determined at that time. JCI,
Incorporated will share improvements to Packard Electric Division as a
result of these revisions.
10. Packard Electric Division and JCI, Incorporated will actively pursue cost
reduction.
11. This contract includes the following:
A. Distribution responsibility as stated in NIA, Incorporated's Purchase
Order PEDP2250029.
B. Manufacturing Engineering responsibilities for maintenance,
installation and debug of equipment bailed by Packard Electric
Division.
<PAGE> 4
JCI, Incorporated
Purchase Order PEDP3250002
Page 4
C. Plant layout design in accordance with Packard Electric Division
designed manufacturing system. Layout, installation and rearrangement
of the manufacturing system.
D. Methods Engineering, training of new systems and process with the
direction and/or assistance of Packard Electric Division; training of
new employes; manufacturing system as agreed.
E. JCI, Incorporated will provide information management services as
contracted with Electronic Data Systems at cost to Packard Electric
Division.
12. The attached Statement of Understanding is a part of this contract. If
there is a conflict between this portion of the contract and the Statement
of Understanding, this portion of the contract will take precedence.
13. Production schedules will be transmitted to JCI, Incorporated via computer.
14. COMPONENT AND CUT LEAD SCHEDULES:
--------------------------------
JCI, Incorporated will have an active purchase order with Packard Electric
Division for components and cut leads; ordering of cut leads and components
will be through the computer transactions.
A. Design of the Materials System is the responsibility of Packard
Electric Division.
B. Operations of the Materials System at JCI, Incorporated is the
responsibility of JCI, Incorporated.
C. Inventory levels will be a joint decision of JCI, Incorporated and
Packard Electric Division.
D. Monthly audits of bailed productive material will be conducted by
Packard Electric Division in accordance with Attachment 'A'.
15. MINIMUM BUYBACK CLAUSE:
----------------------
A. Packard Electric will guarantee buyback of $3,100,000 from 1/4/93 to
6/30/93.
B. This will be adjusted quarterly at $1,550,000 per quarter.
C. In the event that invoices to Packard Electric Division do not equal
or exceed $1,550,000, Packard Electric Division will pay JCI,
Incorporated the difference up to $1,550,000.
D. In the event that the next quarter purchases exceed $1,550,000, JCI,
Incorporated will return the excess not to exceed the amount received
in the previous quarter.
E. If on June 30, 1993, Packard Electric Division has paid JCI,
Incorporated any amount under this clause that is in excess of
$3,100,000, and total purchases has equaled or exceeded $3,100,000.
JCI, Incorporated will return the amount paid under this clause.
F. In the event a strike or work stoppage occurs within General Motors
Corporation, this clause will not apply. This will apply for the
number of working days lost.
<PAGE> 5
ATTACHMENT 'A'
July 27, 1988
Mike Bagby
Alphabet, Inc.
Engineering Offices
PO Box 8607
Market Place
Warren, OH 44484
Subject: IMPLEMENTATION OF MONTHLY PRODUCTIVE MATERIAL AUDITS
Dear Mike:
Beginning August 1, 1988, monthly audits of bailed PED productive material
will commence. These audits will cover the entire elementized production
process and include MCK, NIA, FMA, JCI, and NIAD. The inventory that you
will be responsible for is the difference between PED's LRS Cum Year to Date
shipments to the EWAP's; and what the EWAP's have shipped as finished goods
to the BOC car assembly plants. The following series of events will occur
at the beginning of every month.
1.) Purchasing & Accounting will determine the list of part numbers to be
audited.
2.) This list will be given to NIAD on the Friday prior to the 1st Monday
of the month.
3.) For each part to be audited, PEd Purchasing will establish the following:
- The quantity shipped to each EWAP
- The quantity shopped to BOC
- The MIMS inventory between PED & EWAP's
4.) NIAD will be responsible for reporting the inventory, between random MIMS
storage and shipment to BOC, to PED Purchasing. NIAD will report for
inventory located at MCK, NIA, JCI, FMA as well as NIAD.
<PAGE> 6
Implementation of Monthly Audits
7/27/88
Page 2
5.) PED Purchasing will calculate the amount of inventory that alphabet is
responsible for, and compare it to the quantity reported by NIAD. If there
is a shortfall greater than 1.5%, responsibility for this shortfall will
be determined between Packard Electric and Alphabet. If it is determined
that Alphabet has lost, destroyed or misused this material financial
burden will lie with them at Packard Electric's normal selling price at the
time of the audit. In the case of items without Packard Electric selling
prices, Packard will use cost values. Examples are base dash subassemblies
and cut leads.
* It is Alphabet's responsibility to bring to PED's attention any mistakes
involving the quantities shipped to the EWAP's. The cum ship number from
the packing slips will be the basis of all the above calculations, unless
brought to PED's attention within five days of material receipt.
- ----------------------------
Thomas J. Krivan
GENERAL SUPERVISOR
PRODCTION/MATERIAL CONTROL
bn/1.48
cc: G. Gati NIA M. Monus MCK
E. Kratochvil JCI E. Weible FMA
G. May 40E L. Wolfe 40E
R. Miller 40E
<PAGE> 7
STATEMENT OF UNDERSTANDING
The following terms and conditions constitute a supplement to the standard
purchase order number P3250002 between Packard Electric Division, General
Motors Corporation, hereinafter called "PACKARD," and JCI, Incorporated,
hereinafter called "SUPPLIER," to manufacture wiring harness assemblies.
MATERIALS
- ---------
A. PURCHASED MATERIALS
1. Supplier will purchase all necessary material to produce these
assemblies, if available, from Packard, F.O.B. Shipping Point, at
the regularly established selling prices.
2. Any specified non-Packard material must be purchased from either
Packard or a source approved by Packard. Supplier will have the
option to develop additional sources for such non-Packard material
and Packard will make every reasonable, good faith effort to approve
alternate sources so requested.
3. On materials purchased from Packard:
A. Terms will be net 10th and 25th Proximo.
B. Release will be considered from the first two weeks; changes
will only be accepted in third and subsequent weeks.
4. Packaging materials will normally be purchased from Packard-approved
suppliers. All labels must be approved by Packard Electric and meet
the General Motors' shipping/parts identification label standard.
These are to be bar-coded labels.)
5. Canadian suppliers will submit on behalf of Packard Electric Division,
duty drawback forms as required (K-32A's).
B. BAILED PRODUCTIVE MATERIALS
1. Packard will bail prepared leads and/or other materials to Supplier,
F.O.B. supplier. Supplier will be financially responsible for this
material.
2. To insure the proper flow of bailed material to the Supplier, the
following activities must be done by Supplier:
a. An accurate and daily report of production
b. An accurate and daily report of material receipts (or whenever
a shipment is received)
c. An accurate and controlled inventory kept (including store
audits)
d. Report any shutdown shortage three days prior to running out
e. Report all "red tags" immediately and remove from inventory
<PAGE> 8
3. On a regular basis, special inventories will be taken by Supplier
and/or Package Electric. One such inventory will take place during
Packard's annual inventory. All such inventories will be conducted
at Supplier's expense. After the annual inventory is taken, inventory
will be adjusted accordingly, along with appropriate payments being
made to Packard at normal selling price for unaccountable material.
There is a 1.5 percent scrap factor allowed on the dollar value of
material consumed by Supplier.
C. MATERIAL DISPOSITION
1. Any material to be scrapped or returned to Packard must be approved
by Packard at which time a Returned Material Authorization (R.M.A.)
will be issued for formal authorization.
2. Surplus or obsolete material is controlled via the Surplus Material
Disposition Policy letter of 2/11/86 (attached).
PRICE
- -----
A. HARNESS PRICING
1. All prices, as listed on the above Packard Purchase Order will be
firm for the time period indicated on the Purchase Order. These
prices are subject to change as component and cable prices from
Packard or approved suppliers are changed.
2. If an Engineering Change takes place, assembly prices will be
renegotiated accordingly.
3. Assembly pricing will reflect price changes for Packard-sourced parts
as soon as it can be determined that such sourced parts are in
current use in the assemblies, typically thirty (30) days after the
change is effective.
4. Cooper price changes will be reflected within thirty (30) days of
price change at Packard.
5. Packard will supply material stocklists which the Supplier will
update and reflect invoice prices for all material purchased
direct. (Invoice prices are to be used if the component is
purchased from Pioneer or Anixter.)
<PAGE> 9
TRANSPORTATION
- --------------
A. NORMAL MODE
1. Assemblies furnished by Supplier will be shipped from Supplier LTL
(less than a load) on designated ship day.
2. Raw materials will be shipped LTL from Packard to Supplier.
B. PREMIUM MODE
If it becomes necessary for Supplier to ship material via a premium mode,
Supplier will be subject to a premium transportation chargeback, if they
were behind schedule through no fault of Packard. Supplier will be debited
for the premium portion of transportation (i.e., credit allowed for normal
transportation). If Packard ships material to Supplier via premium mode,
the responsibility for premium transportation must be determined the day
the shipment is made between Packard Customer Service and Supplier. The
Supplier is responsible to order material with designated lead time and to
carry a 20-day component inventory.
SHIPPING AND INVOICING
- ----------------------
All assemblies completed pursuant to purchase orders will be purchased by
Packard from Supplier, F.O.B. Supplier's dock. Material shipped to Packard's
customer will be on Packard's manifest form and Supplier's Bill of Lading. All
shipments MUST be communicated to Packard personnel ON the day of shipment.
Packard's customer will determine the normal mode of shipment. Invoices will be
sent to Packard. Only one invoice should be used for all material shipped on any
given day. (This may require multiple-page invoicing.) In order to process
invoices in a timely manner, pilots, SP's, new parts, etc. may be invoiced
separately. Each line item on the invoice MUST reference its manifest number. Do
NOT show any prices on manifests. Manifests must be submitted to Packard in
compliance to attached procedure.
The Supplier will be required to participate in the Production Point of Use
System.
SCHEDULING
- ----------
A. Supplier schedules are generated from Packard Customer requirements,
currently two weeks ahead of actual ship schedule.
B. Second-week schedules will be moved into Week One as a rule. Exception will
be due to known customer adjustments.
C. FAB authority shall never be exceeded. During periods of buildout, buildup,
or cycle, Production Control's MAPS will be the official schedule document.
D. Schedules are expected to be met each week, as they are the customer
requirement. Supplier performance may enable a reduction in the current
ten-day finished-goods inventory level.
Page 3
<PAGE> 10
E. Supplier will be an active participant in Packard's Production Readiness
program.
F. Changes in the scheduling system are being implemented to increase the
Supplier self responsibilities and Supplier is expected to participate.
ENGINEERING AND TECHNICAL ASSISTANCE
- ------------------------------------
A. Packard will assist Supplier in establishing the following:
1. Tooling needs.
2. Quality Control procedures.
3. Product Modifications for cost reduction and manufacturing
improvements are encouraged. These modifications must be approved by
Packard Engineering and will be reflected in print changes.
B. Supplier agrees to revise harness tooling as directed by Packard. Packard
agrees to pay quoted and agreed-to costs incurred by Supplier in instituting
such revisions.
QUALITY CONTROL
- ---------------
A. Supplier will establish and maintain an effective quality control system in
compliance with Packard Specifications. Packard will provide Supplier with
the book entitled "Quality Control for Packard Electric Suppliers," in
order to assist Supplier with such compliance.
B. Supplier will perform weekly Quality Index (Q.I.) audits and report the
results weekly to Quality Assurance.
C. Supplier will perform monthly GMPCP audits which will be subject to
semi-annual review by Packard auditors.
D. Supplier will work toward self-certification by demonstrating an ability to
submit defect-free samples. It is the Supplier's responsibility to pay the
freight on any samples submitted to Packard for approval.
E. If any substitution of parts or design are necessary or prudent, Supplier
will initiate the request for "permit" with the appropriate department at
Packard. Such requests will be promptly reviewed for effect on quality and
cost.
F. Packard will provide supplier the initial gauge for receiving inspection of
non-Packard produced parts; all subsequent gauges will be the
responsibility of the Supplier per the Packard Gauge Policy Letter of March
18, 1986.
G. Supplier will be responsible to develop an appropriate S.P.C. program. All
build fixtures will be released utilizing statistical methods, and lead
prep operations must be under statistical control.
H. Quality Improvement Plans must be continually monitored to insure they
address the needs of our customer.
Page 4
<PAGE> 11
I. Supplier's management plan will utilize visual controls.
J. Supplier's production system will incorporate a material and tool respect
program.
TOOLING AND EQUIPMENT
- ---------------------
A. Supplier is responsible for the purchase, installation, and maintenance of
all equipment required for the manufacture of the assemblies. Equipment may
be available from Packard Sales. For equipment available from Packard,
Supplier will inspect the condition and will determine the service required
to keep equipment in good condition.
B. All equipment and tooling bailed to the Supplier shall be subject to the
attached terms and conditions of Schedule A.
FIRE PROTECTION SURVEY
- ----------------------
The attached Fire Protection Survey must be completed by the Supplier and
returned to the buyer. The buyer will forward to Packard Electric Chief of Plant
Security, Station 11A.
TERM
- ----
The term of this Agreement commences upon the date said Purchase Order is signed
by both parties and ends on the "Expiration Date" as set forth herein.
Page 5
<PAGE> 12
SCHEDULE A
----------
I. TOOL BAILMENT
-------------
1. TOOLING REQUIREMENTS: Supplier will obtain all tooling necessary to
manufacture products purchased by Packard from Supplier pursuant to
said Purchase Order.
2. OWNERSHIP: Tools subject to this Agreement are the property of Packard
and are to be used to produce parts for Packard only. The tools may
not be removed or disposed of without the written consent of Packard.
Tools are to remain in the custody of the Supplier.
3. DESIGN AND BUILD: If Supplier is to provide tool design and build the
tool, tool and tool design will be priced as listed on the attached
Purchase Order. Tool and tool design will be the property of Packard.
Packard must approve the tool design prior to construction. Supplier
must label tooling as specified by Packard.
4. TOOL CAPACITY: Supplier will provide an ESTIMATE of tooling capacity
to Packard on or before the commencement of this Agreement and an
ACTUAL capacity no later than OCTOBER 1 of contract year.
5. SET-UP AND MAINTENANCE: Supplier is responsible for the porper set-up,
maintenance and replacement of all tooling.
6. PERISHABLE TOOLS: Perishable tools for tools designed by Packard will
be purchased from Packard, unless otherwise permitted by Packard in
writing.
7. A semiannual tooling reconciliation will take place via a physical
inventory by Supplier.
II. EQUIPMENT - BAILMENT
--------------------
1. OWNERSHIP: Equipment bailed to Supplier is the property of Packard and
is to be used exclusively for such purpose as directed in writing by
Packard. Equipment may not be removed or disposed of without written
consent of Packard. Packard is responsible to get bailed equipment
returned in good, productive condition. Any equipment returned and
deemed not to be "in good productive condition", will be repaired and
the supplier will bear the full cost of all repairs.
2. MAINTENANCE: Supplier is responsible for proper maintenance of said
equipment. All factory supplies (i.e., greases, coolant, lubricants,
maintenance and processing supplies) will be procured and paid for by
Supplier. In the event that it becomes necessary to replace any NON
maintenance type item of Bailed Property, Packard will be obligated to
pay for the cost of replacing such items provided, however, that if
such replacement is necessitated as a result of Supplier's failure to
maintain or operate such items in accordance with the instructions
furnished by Packard, then Supplier will tear the full cost of
replacing such items.
Page 6
<PAGE> 13
III. ADDITIONAL OBLIGATIONS WITH RESPECT TO BAILED TOOLS AND EQUIPMENT
-----------------------------------------------------------------
1. TERM: The period of bailment for each item loaned hereunder commences
upon the date said item is delivered to Supplier and ends on the
"Expiration Date" as set forth herein.
2. LOCATION: Supplier agrees that it will at all times keep the bailed
property at its facility, unless otherwise authorized in writing by
Packard, which authorization will not be unreasonably withheld.
Supplier grants to Packard the right to enter Supplier's facility
during regular business hours to inspect the Bailed Property and
Supplier records regarding its use of Bailed Property.
3. USE: Supplier will not commingle the Bailed Property with its property
or that of any third party; nor shall Supplier remove, alter, or
disfigure any labels, plates or marking affixed to the Bailed Property
which identify the Bailed Property as property owned by Packard.
4. STANDARD OF CARE: Supplier will exercise the same standard of care in
use and maintenance of the Bailed Property as it would exercise in the
use of its own tools and equipment, but in no event will Supplier
exercise less than a reasonable standard of care in the use and
maintenance of Bailed Property. Supplier will comply with all federal,
state, and municipal laws, ordinances and regulations relating to its
possession, use or maintenance. Unless otherwise authorized in writing
by Packard, Supplier will not use the Bailed Property for any purpose
other than for the performance of its obligations to Packard under the
said Purchase Order.
5. REPOSSESSION: Packard may take possession, at its expense, of any part
of Bailed Property upon ten (10) days' written notice to Supplier if
such property is no longer utilized by Supplier in performing its
obligations under the said Purchase Order. Supplier will, upon
Packard's instructions, promptly prepare for shipment and delivery all
or any part of the Bailed Property to any location designated by
Packard, F.O.B. Supplier's plant. Packard will pay Supplier for its
direct expenses incurred in preparing the Bailed Property for shipment
in accordance with Packard's instructions.
6. INDEMNITY: By acceptance of this Purchase Order, Supplier agrees to
defend, indemnify, and safe harmless General Motors Corporation, its
employees, agents, and representatives from and against any and all
claims, losses, damages, expenses (including reasonable counsel fees)
and other liabilities of whatever nature resulting from damages or
injuries, including death, to any property or persons (including
employees or Supplier) caused, or alleged to be caused, in whole or in
part, by any equipment furnished by Packard to Supplier in connection
with this Purchase Order.
7. DAMAGES: Supplier will reimburse Packard for all Bailed Property
damangaed or destroyed as a result of Supplier's negligent acts under
this Purchase Order.
Page 7
<PAGE> 14
8. PROPRIETARY INFORMATION: It is understood by Supplier that Packard
will from time to time, disclose manufacturing techniques and other
information to Supplier which are proprietary to Packard. Also, it is
understood that Supplier may disclose manufacturing techniques and
other information to Packard which are proprietary to Supplier. During
the term of this Agreement and for a period of two years thereafter,
Supplier and Packard agree not to disclose, disseminate or otherwise
make available any such techniques or information to any third party,
unless such information (1) is a matter of public record; (2) has been
obtained from a third party; or (3) was know to such party prior to
the date of this Agreement, without first obtaining the written
approval of the proprietor. Supplier and Packard further agree not to
utilize any such techniques or information for any purposes other than
the manufacture of products for Packard by Supplier under said
Purchase Order for the term of the Agreement and a period of three (3)
years thereafter.
9. TERMINATION: This bailment may be terminated at any time prior to its
expiration by either party by giving notice of the intent to terminate
to the other party 120 days prior to the effective date of such
termination, provided that such termination shall not relieve Supplier
of the responsibilities for the safe return of the loaned property nor
the obligations of Supplier incurred prior to such termination
including, but not limited to obligations incurred in Paragraph 8
herein above.
In witness whereof, the parties have caused this Purchase Agreement to be
executed by their duly authorized representatives.
GENERAL MOTORS CORPORATION
PACKARD ELECTRIC DIVISION
BY /s/ Raymond D. Miller BY
---------------------------- -----------------------------
TITLE Buyer TITLE
------------------------- --------------------------
New Supplier Development Supplier Representative
DATE 1/12/93 DATE
-------------------------- ---------------------------
Page 8
<PAGE> 15
February 11, 1986
POLICY: SURPLUS MATERIAL DISPOSITION
To formalize a system to control and reduce surplus material at the Warren
Suppliers that is created by: a) overshipments, B) over-ordering, C) engineering
changes, d) third-party orders, e) model change, and f) schedule reductions, the
following will apply:
A) OVERSHIPMENTS: RESPONSIBILITY - CUSTOMER SERVICE
Supplier will notify Customer Service of overshipments within ten days of
receipt. Customer Service will authorize return and make disposition within
ten days. Packard Electric is responsible for transportation.
B) OVER-ORDERS: RESPONSIBILITY - CUSTOMER SERVICE (SUPPLIER)
Customer Service will provide the supplier with other users of the
material, and the supplier will make the appropriate contacts for sale of
over-ordered material. If Packard Electric has a need for the material,
Customer Service will authorize the return to the location needing the
material. A restocking fee of $50.00 will be charged. The customer
(supplier) is responsible for transportation.
C) ENGINEERING CHANGES: RESPONSIBILITY - PRODUCT ENGINEERING AND SALES
Material that is excess due to an engineering change will be returned and
charged to the change notice. The process will be:
1) Industrial Engineering will forward a coordination letter with the
proposed date for the change to the supplier for his input and agreement.
The supplier must consider components and cut leads in the system.
Production Control will be the focal point for the cut leads inventory
control.
2) Cut leads that are excess must be identified and packaged for return no
later than ten days after the change is made. Production Control will RMA
the leads within five days of receipt of the quantity involved.
3) Components that are excess in the supplier company will be identified
and packaged no later than ten days after the change is made. Customer
Service will RMA the components within five days of receipt of the quantity
involed.
4) Material discovered after the ten-day period will be the responsibility
of the supplier.
Page 9
<PAGE> 16
POLICY: SURPLUS MATERIAL DISPOSITION
D) THIRD-PARTY ORDERS: RESPONSIBILITY - CUSTOMER SERVICE AND PRODUCTION
CONTROL
Non-Packard material that is ordered through Packard can incur cancellation
costs if ordered then the order is changed. Ths supplier should, if a
change is made in their order, be able to give supporting data for the
change to Customer Service then the cancellation charge, if possible, can
be properly allocated.
E) MODEL CHANGE: RESPONSIBILTY - PRODUCTION CONTROL
Material that will be excess due to the model change will be identified by
the supplier from his APL with assistance from Production Control. This
should occur no later than when pilots for the next model year are shipped.
Non-carryover material identified above will be purchased in quantities
form Packard Electric or Pioneer, as necessary, to minimize the buildout
excess material. Purchasing must approve purchases from Pioneer if it
effects the final product cost.
If the supplier has controlled the excess material and after buildout,
Production Control will authorize returns as necessary for restocking or
claims. Again, only unopened containers will be considered.
F) SCHEDULE REDUCTION (GENERAL INDUSTRY REDUCTION):
RESPONSIBILITY - PRODUCTION CONTROL
All reduction in schedules will be communicated expeditiously to the
supplier. A cooperative effort with Production Control will be made to
dispose of the material that is in excess. If the excessive material will
not be used, RMA's should be issued to return full containers back to
Packard and the claim should be started at this time (i.e., after the model
year). Sales by the supplier to other users should be investigated also,
with the help of Customer Service.
G) CLAIMS: RESPONSIBILITY - CUSTOMER SERVICE AND SUPPLIER
Supplier will be required to submit claims folders to Packard Customer
Service for non-carryover harness part numbers within the defined time
frame for model Change.
Page 10
<PAGE> 17
END OF MONTH MANIFEST PROCEDURE
SUPPLIER PROCEDURE FOR SUBMITTING MANIFESTS
FOR END-OF-THE MONTH SHIPMENTS
Manifests must reach the Packard Electric Division Accounts Receivable
Department prior to 11:00 A.M., E.S.T., on the first working day of the
month following the month the shipment was made. To accomplish this, the
following must happen:
1. Manifests for shipments made on the fourth and third days prior to the last
day of the month must be sent to PACKARD ELECTRIC AND EXPEDITED, OVERNIGHT
DELIVERY SERVICE, no later than the third day prior to the last day of the
month.
2. Manifests for shipments made on the seconday day prior to the end of the
month will be sent by Dex or Rapicom to the Accounts Receivable
Department on (216) 373-5314, Attention: G.S. Flick ON THE LAST
WORKING DAY OF THE MONTH.
3. Manifests for shipments made on the last day of the month will be sent by
Dex or Rapicom to the Accounts Receivable Department on (216) 373-5314,
Attention: G.S. Flick, prior to 11:00 A.M., E.S.T. ON THE FIRST WORKING DAY
OF THE MONTH FOLLOWING THE MONTH THE SHIPMENT WAS MADE.
4. When shipments are made during weekends and holidays after the last normal
working day of the month, refer to paragraph 3, above.
________________________________________________________________________________
EXAMPLE:
- --------
Shipment Made Date to Send Manifest Method to Send
- ------------- --------------------- --------------
#1 7/26/90 No Later Than 7/27/90 Overnight Delivery Service
7/27/90 No Later Than 7/27/90 Overnight Delivery Service
#2 7/30/90 7/31/90 Rapicom or Dex
#3 7/31/90 8/1/90 Rapicom or Dex
Page 11
<PAGE> 18
[LOGO] PACKARD ELECTRIC
Division of General Motors Corporation PO Box 431 Warren Ohio 44486
BAILED PROPERTY -- Unless otherwise indicated on the Purchase Order, all
supplies, materials, tools, jigs, dies, fixtures, patterns, equipment, and
other items furnished by Buyer, either directly or indirectly, to Seller to
perform the order, or for which Seller has been reimbursed by Buyer, shall be
and remain the property of Buyer. The Seller is responsible and accountable for
reasonable due care of bailed material and tools while in their possession or
control. Therefore, losses due to theft, abnormal shop loss, negligent
destruction or maintenance and losses attributable to poor management control
will be borne by Seller. Seller shall bear the risk of loss of and damage to
Buyer's property up to $250,000 over and above normal wear and tear. Where
losses are attributable to gross negligence, lack of reasonable due care or
poor management controls then the reasonable value of the material or
equipment as determined by Packard's cost records will be assessed to the
supplier. Such property shall at all times be properly housed and maintained by
Seller; shall not be used by Seller for any purpose other than the performance
of the order unless otherwise authorized in writing by Buyer; shall be deemed
to be personalty, shall be conspicuously marked "Property of General Motors
Corporation" by Seller, shall not be commingled with the property of Seller or
with that of a third person; and shall not be moved from Seller's premises
without Buyer's prior written approval. Upon the request of Buyer, such
property shall be immediately delivered to Buyer by Seller, either (1) F.O.B.
cars or trucks at Seller's plant, properly packed and marked in accordance
with the requirements of the carrier selected by Buyer to transport such
property, or (2) to any location designated by Buyer, in which event, Buyer
shall pay to Seller the cost of delivering such property to such location.
Buyer shall have the right to enter onto Seller's premises at all reasonable
times to inspect such property and Seller's records with respect thereto.
Periodically, the Seller will be required to confirm the amount and status of
bailed material in the Seller's possession. All paperwork connected with the
return of material, including applicable invoices, should show Packard Electric
Purchase Order Number, if applicable, and this Bailment Number.
Page 12
<PAGE> 19
MEMORANDUM OF UNDERSTANDING
REGARDING THE SALE AND PURCHASE OF MATERIAL
March 13,1996
l. All inbound freight charges are to be paid by DPES.
2. Material will be shipped FOB destination.
3. Only direct material will be purchased (clips, conduit, TPAs, modules,
relays, tape).
4. Returnable items and items not tied directly to the harness on a per
harness basis will not be purchased (scrim, tyzalls, velcro, containers,
mylars, kebobs, relay covers, fuseblock covers, labels, tags, etc).
5. Alphabet will continue to have access to the Delphi Packard IMS System (all
screen transaction, and report access will remain the same).
6. DPES will notify Alphabet of any requests for change to the Daily
Transactivity Report.
7. A price per element will be determined based on material content plus the
negotiated mark-up.
8. The material content per element will be maintained on a stocklist. Changes
in component content or component price will necessitate adjustments to the
stocklist and element pricing.
9. An Element Price Change Notification (EPCN) will be initiated by Alphabet
when component content or price change. Effective points for element price
changes will be documented on the EPCN. Any adjustments necessary due to
timing differences between date of component use and effective date of
element price change will be determined by Alphabet and Delphi Packard
Purchasing.
10. Delphi Packard manufactured material will be purchased directly from Delphi
Packard, non-Delphi Packard material will be purchased from a Delphi
Packard approved source.
11. Delphi Packard will source outside material suppliers and assist in
determining material prices and payment terms.
12. Alphabet will use only Delphi Packard approved suppliers and purchase
material from the designated Delphi Packard source.
13. DPES is responsible to notify Alphabet of material price changes in advance
of the effective date of change.
14. Exceptions on incoming material due to packing slip errors or weigh count
discrepancies will be handled through the RMA process. Exceptions will be
documented and forwarded to Supervisor of Production Material Control. An
RMA will be issued and a debit or credit memo will be issued from Alphabet
to Delphi Packard.
15. Nonconforming material will be handled through the RMA process. The
component supplier will issue an RMA. Alphabet will dispose of the material
for credit per the RMA instructions.
16. Alphabet is responsible for any material damaged at the Alphabet plant.
<PAGE> 20
17. Alphabet will be responsible to track costs associated with Plant Trial
Runs (PTR). Element price will not be adjusted for short run trials. A
material cost will be submitted by Alphabet to Delphi Packard Purchasing
for consideration and payment.
18. Past model service material and past model obsolete material will not be
purchased.
19. Delphi Packard will refund Alphabet for all excess and obsolete material
that was ordered due to schedule requirements. (Whether material was
purchased for DPES or an approved supplier as directed by DPES). ORES will
issue an RMA for this material as soon as possible after being notified by
Alphabet of part numbers and quantities in excess. DPES will make every
attempt within reason to issue this RMA between 30 and 60 days from written
notification by Alphabet.
20. With regards to component inventory, in the event that Alphabet's annual
book to physical inventory exceeds 0.5%, DPES will reimburse Alphabet for
The amount of the shortfall after notification by Alphabet. Alphabet will
debit DPES within 30 days of notifying DPES.
21. with regards to sub assembly inventory, in the event that Alphabet's annual
book to physical inventory exceeds 0.5%. OPES will reimburse Alphabet for
the amount of the shortfall after notification by Alphabet. Alphabet will
debit DPES within 30 days of notifying DPES. Alphabet will inventory sub
assemblies quarterly and attempt to reconcile and make adjustments through
DPES including debits or credits at this time.
22. In the event that the payment terms agreed upon by Alphabet and DPES are
not being met, both parties agree to diligently work to resolve the issues
that allow the agreed terms to continue.
/s/ David L. Thomas 3/13/96 /s/ Raymond D. Miller 3/14/96
- -------------------------------- ----------------------------------------
Alphabet Packard Electric
<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.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
August 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH
31, 1997 AND FOR THE THREE MONTHS THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 53,400
<ALLOWANCES> (216)
<INVENTORY> 29,594
<CURRENT-ASSETS> 88,585
<PP&E> 93,092
<DEPRECIATION> (38,527)
<TOTAL-ASSETS> 182,744
<CURRENT-LIABILITIES> 48,853
<BONDS> 39,940
<COMMON> 87
0
0
<OTHER-SE> 93,864
<TOTAL-LIABILITY-AND-EQUITY> 182,744
<SALES> 108,064
<TOTAL-REVENUES> 108,064
<CGS> 82,125
<TOTAL-COSTS> 82,125
<OTHER-EXPENSES> 10,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 913
<INCOME-PRETAX> 14,534
<INCOME-TAX> 136
<INCOME-CONTINUING> 14,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,398
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH
31, 1996 AND FOR THE THREE MONTHS THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 154
<SECURITIES> 0
<RECEIVABLES> 36,832
<ALLOWANCES> (265)
<INVENTORY> 32,012
<CURRENT-ASSETS> 76,725
<PP&E> 87,217
<DEPRECIATION> (31,049)
<TOTAL-ASSETS> 164,925
<CURRENT-LIABILITIES> 38,717
<BONDS> 48,123
<COMMON> 0
0
0
<OTHER-SE> 78,085
<TOTAL-LIABILITY-AND-EQUITY> 164,925
<SALES> 83,455
<TOTAL-REVENUES> 83,455
<CGS> 64,927
<TOTAL-COSTS> 64,927
<OTHER-EXPENSES> 11,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,061
<INCOME-PRETAX> 5,540
<INCOME-TAX> 120
<INCOME-CONTINUING> 5,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,420
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND FOR THE YEAR THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 357
<SECURITIES> 0
<RECEIVABLES> 47,048
<ALLOWANCES> (265)
<INVENTORY> 30,158
<CURRENT-ASSETS> 82,655
<PP&E> 91,616
<DEPRECIATION> 36,416
<TOTAL-ASSETS> 178,487
<CURRENT-LIABILITIES> 42,698
<BONDS> 51,156
<COMMON> 87
0
0
<OTHER-SE> 84,546
<TOTAL-LIABILITY-AND-EQUITY> 178,487
<SALES> 363,748
<TOTAL-REVENUES> 363,748
<CGS> 288,142
<TOTAL-COSTS> 288,142
<OTHER-EXPENSES> 46,694
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 4,317
<INCOME-PRETAX> 24,595
<INCOME-TAX> 524
<INCOME-CONTINUING> 24,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,071
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1995 AND FOR THE YEAR THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 282
<SECURITIES> 0
<RECEIVABLES> 49,930
<ALLOWANCES> (453)
<INVENTORY> 26,428
<CURRENT-ASSETS> 85,430
<PP&E> 88,613
<DEPRECIATION> 33,846
<TOTAL-ASSETS> 172,298
<CURRENT-LIABILITIES> 50,579
<BONDS> 47,999
<COMMON> 0
0
0
<OTHER-SE> 73,720
<TOTAL-LIABILITY-AND-EQUITY> 172,298
<SALES> 278,043
<TOTAL-REVENUES> 278,043
<CGS> 211,712
<TOTAL-COSTS> 211,712
<OTHER-EXPENSES> 37,509
<LOSS-PROVISION> 325
<INTEREST-EXPENSE> 2,014
<INCOME-PRETAX> 26,808
<INCOME-TAX> 654
<INCOME-CONTINUING> 26,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,154
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1994 AND FOR THE YEAR THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,072
<SECURITIES> 0
<RECEIVABLES> 31,145
<ALLOWANCES> (172)
<INVENTORY> 21,933
<CURRENT-ASSETS> 58,612
<PP&E> 70,119
<DEPRECIATION> (27,214)
<TOTAL-ASSETS> 119,915
<CURRENT-LIABILITIES> 27,958
<BONDS> 28,845
<COMMON> 0
0
0
<OTHER-SE> 63,112
<TOTAL-LIABILITY-AND-EQUITY> 119,915
<SALES> 225,531
<TOTAL-REVENUES> 225,531
<CGS> 164,974
<TOTAL-COSTS> 164,974
<OTHER-EXPENSES> 32,542
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 2,344
<INCOME-PRETAX> 25,671
<INCOME-TAX> (995)
<INCOME-CONTINUING> 26,666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,666
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
