<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period Commission file number 001-13337
ended September 30, 1997.
STONERIDGE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1598949
-------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9400 East Market Street, Warren, Ohio 44484
---------------------------------------- ----------------------
(Address of Principal Executive Offices) (Zip Code)
(330) 856-2443
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Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]. (The Registrant's
Registration Statement on Form 8-A became effective on October 9, 1997).
The number of Common Shares, without par value, outstanding as of November 21,
1997: 22,397,311
<PAGE> 2
STONERIDGE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
Part I Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 2
31, 1996 and September 30, 1997
Condensed Consolidated Statements of Income for the three 3
months and nine months ended September 30, 1996 and
1997
Condensed Consolidated Statements of Cash Flows for the 4
nine months ended September 30, 1996 and 1997
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of 8-11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market 11
Risk
Part II Other Information 12-13
Signatures 14
Exhibit Index 15
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Pro forma
December 31, September 30, September 30,
1996 (1) 1997 1997 (3)
---------------- -------------- ---------------
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 357 $ 82 $ 1,229
Accounts receivable, net 46,783 57,312 57,312
Inventories 30,158 32,793 32,793
Deferred income taxes -- -- 4,357
Prepaid expenses and other assets 5,357 8,791 8,791
---------------- -------------- ---------------
Total current assets 82,655 98,978 104,482
---------------- -------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, net 55,200 54,809 54,809
OTHER ASSETS:
Goodwill and other intangible assets, net 30,769 29,906 29,906
Investments and other 9,863 11,067 11,067
---------------- -------------- ---------------
TOTAL ASSETS $178,487 $194,760 $200,264
================ ============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,001 $ 201 $ 201
Accounts payable 21,365 29,060 29,060
Accrued expenses and other 17,232 25,335 25,335
Accrued shareholder distributions 1,100 -- --
---------------- -------------- ---------------
Total current liabilities 42,698 54,596 54,596
---------------- -------------- ---------------
LONG-TERM DEBT, net of current portion 51,156 36,642 3,963
DEFERRED INCOME TAXES -- -- 6,468
---------------- -------------- ---------------
Total long term liabilities 51,156 36,642 10,431
---------------- -------------- ---------------
SHAREHOLDERS' EQUITY:
Common shares, without par value,
60,000,000 authorized, 13,964,448 issued
and outstanding at December 31, 1996 and
14,367,796 issued and outstanding at
September 30, 1997, stated at, -- -- --
Additional paid-in capital 9,195 12,084 135,237
Retained earnings 75,438 91,438 --
---------------- -------------- ---------------
Total shareholders' equity 84,633 103,522 135,237
---------------- -------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $178,487 $194,760 $200,264
================ ============== ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
2
<PAGE> 4
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 89,442 $ 103,919 $ 268,407 $ 322,706
COSTS AND EXPENSES:
Cost of goods sold 71,180 77,883 211,034 243,493
Selling, general and administrative 11,906 13,777 37,700 38,989
expenses
------------ ------------ ------------ ------------
Operating income 6,356 12,259 19,673 40,224
Gain on sale of equipment -- -- -- (1,733)
Interest expense, net 1,049 875 2,910 2,738
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,307 11,384 16,763 39,219
Provision for state and local income 142 239 405 564
taxes
------------ ------------ ------------ ------------
NET INCOME $ 5,165 $ 11,145 $ 16,358 $ 38,655
============ ============ ============ ============
PRO FORMA INCOME DATA:
Income before income taxes $ 5,307 $ 11,384 $ 16,763 $ 39,219
Pro forma adjustment:
Income taxes 2,176 4,667 6,873 15,369
------------ ------------ ------------ ------------
Pro forma net income $ 3,131 $ 6,717 $ 9,890 $ 23,850
============ ============ ============ ============
Pro forma net income per share $ 0.14 $ 0.31 $ 0.46 $ 1.10
============ ============ ============ ============
Pro forma weighted average shares
outstanding 21,640,248 21,640,248 21,640,248 21,640,248
============ ============ ============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
3
<PAGE> 5
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 16,358 $ 38,655
Adjustments to reconcile net income to net
cash from operating activities-
Depreciation and amortization 7,825 9,016
Gain on sale of equipment -- (1,733)
Other -- 575
Changes in operating assets and
liabilities-
Accounts receivable, net (7,500) (9,755)
Inventories (5,401) (2,624)
Prepaid expenses and other assets 2,204 (1,390)
Other assets, net (350) (2,163)
Accounts payable (5,594) 6,915
Accrued expenses and other liabilities 2,879 6,552
-------- --------
Net cash from operating 10,421 44,048
activities
-------- --------
INVESTING ACTIVITIES:
Equity investment (8,834) (1,000)
Capital expenditures (13,397) (8,058)
Proceeds from sale of property, plant and 936 2,514
equipment
-------- --------
Net cash from investing (21,295) (6,544)
activities
-------- --------
FINANCING ACTIVITIES:
Cash distributions paid (8,642) (22,655)
Proceeds from long-term debt 3,512 789
Repayments of long-term debt (304) (2,498)
Net borrowings (repayments) under credit 16,026 (15,729)
facility
Share options exercised, net -- 2,314
-------- --------
Net cash from financing 10,592 (37,779)
activities
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (282) (275)
CASH AND CASH EQUIVALENTS AT BEGINNING OF 282 357
PERIOD
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 82
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
4
<PAGE> 6
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except for share and per share data)
1. The accompanying condensed consolidated financial statements have been
prepared by Stoneridge, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
The information furnished in the condensed consolidated financial
statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a
fair presentation of such financial statements. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although
the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these
condensed consolidated financial statements be read in conjunction with
the audited financial statements and the notes thereto included in the
Company's Registration Statement on Form S-1 (Registration No.
333-33285).
The results of operations for the three and nine months ended September
30, 1997 are not necessarily indicative of the results to be expected
for the full year.
2. On October 16, 1997, the Company completed an initial public offering
of 6,727,500 Common Shares at $17.50 per share (the "Offering"). The
Company received net cash proceeds of approximately $108,500 from the
Offering. Net proceeds of the Offering were used to fund a payment to
the pre-Offering shareholders of approximately $83,000 as an S
Corporation Distribution ("S Corporation Distribution") and for the
partial repayment of debt. Certain officers and employees of the
Company reinvested $8,326 of the S Corporation Distribution in
conjunction with the Offering ("Management Reinvestment"). Immediately
prior to the completion of the Offering, the Company amended its
Articles of Incorporation to change the authorized capital shares of
the Company from 37,724 shares of Class A Common Shares (voting),
without par value, and 87,276 shares of Class B Common Shares
(non-voting), without par value, to 60,000,000 Common Shares, and
5,000,000 Preferred Shares, without par value. In addition, the amended
Articles of Incorporation provided that each Class A Common Share and
Class B Common Share automatically became 139.0856 Common Shares. All
applicable share and per share data in the accompanying unaudited
condensed consolidated financial statements have been adjusted
accordingly.
Upon completion of the Offering, the Company granted options to
purchase 488,000 Common Shares with an exercise price of $17.50 per
share to officers and other management employees. The options will vest
after two years.
Concurrent with the Offering, the Company acquired, through a share
exchange, an additional 51% of the outstanding stock of Berifors AB for
704,563 Common Shares. The Company expects to acquire the remaining 4%
of Berifors AB which it does not own for 52,500 Common Shares in
February 1998. The acquisition was accounted for as a purchase and the
excess of the cost over the fair value of assets acquired, totaling
approximately $10,500, was reflected as goodwill which will be
amortized over 40 years on a straight-line basis. As of October 10,
1997, the accounts of Berifors AB were consolidated in the financial
statements of the Company.
5
<PAGE> 7
3. The pro forma balance sheet data presented assumes on September 30,
1997, (i) termination of the Company's S Corporation status, and in
connection therewith, reinstatement of $6,468 of deferred income tax
liabilities, and $4,357 of deferred income tax assets, (ii) net cash
proceeds of approximately $108,500 from the Offering of 6,727,500
Common Shares, (iii) an $83,000 S Corporation Distribution and (iv) a
$8,326 Management Reinvestment.
Pro forma net income assumes that the Company is subject to income
taxes as a C Corporation for all income statement periods presented.
Pro forma net income per share has been calculated by dividing pro
forma net income per share by the weighted average number of Common
Shares outstanding as of September 30, 1996 (13,964,448), the number of
Common Shares issued in connection with the exercise of share options
on August 7, and October 10, 1997 (438,119), the number of Common
Shares issued in conjunction with the Offering (6,727,500), and the
number of Common Shares issued in connection with the Management
Reinvestment (510,181)
4. 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, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Raw materials $17,983 $23,608
Work in progress 6,063 5,893
Finished goods 8,224 5,552
Less-LIFO reserve (2,112) (2,260)
------- -------
Total $30,158 $32,793
======= =======
</TABLE>
5. Historical earnings per share have not been presented since such
information is not meaningful as the Company was an S Corporation for
all periods presented.
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share", which requires the disclosure of basic earnings
per share and diluted earnings per share. The Company expects to adopt
SFAS 128 in December 1997 and anticipates it will not have a material
impact on previously reported earnings per share.
6. On October 27, 1997, the Company entered into an agreement to acquire
50% of the outstanding stock of PST Industrial Eletronica da Amazonia
Ltda, a Brazilian electronics components business which specializes in
vehicle security devices. Total cash consideration paid by the Company
with respect to this acquisition was $17,500. The acquisition was
financed through the Company's credit facility. As of September 30,
1997, the Company had escrowed $1,000 as advance payment related to
this transaction.
6
<PAGE> 8
7. On September 15, 1997, the Company entered into a new credit agreement.
The new credit facility has a $125,000 borrowing limit. The credit
facility expires on June 30, 2002 and requires a commitment fee of
1/10% to 1/4% on the unused balance. Interest is payable quarterly at
the Company's option at either (i) the prime rate or (ii) LIBOR plus a
margin of 0.75% to 2.0%, depending upon the Company's fixed charge
coverage ratio, as defined in the credit facility.
The Company has entered into a $25,000 interest rate swap agreement
with a member of its bank group whereby its contractual interest rate
was swapped through February 1999 for a fixed rate of 5.795% plus a
margin of 0.75% to 2.0%, depending upon the Company's fixed charge
coverage ratio, as defined. The notional amount under the swap
agreement remains at $25,000 through maturity. Additionally, the
Company has entered into a separate $20,000 interest rate swap
agreement with a member of its bank group whereby its contractual
interest rate was swapped through August 1999 for a fixed rate of
6.28% plus a margin of 0.75% to 2.0%, 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 than 7.50%. The notional amount under the
swap agreement remains at $20,000 through maturity. The Company is
exposed to credit loss under the swap agreements in the event of
nonperformance by the bank.
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.
7
<PAGE> 9
ITEM 2.
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1996
- ----
Net Sales. Net sales for the first nine months of 1997 increased by $54.3
million, or 20.2%, to $322.7 million from $268.4 million for the same period in
1996. Sales of door lock actuator products increased by $29.4 million to $46.3
million from $16.9 million. Full production of door lock actuator products
(acquired in late 1995) was not reached until approximately November 1996. The
1997 launch of a new four wheel drive actuator product increased net sales $10.1
million. Sales of power distribution products, exclusive of contract
manufacturing, increased by $18.4 million, or 30.1%, due to increased market
penetration in the medium and heavy duty truck market and higher net sales to
the agricultural vehicle market of $10.7 million and $5.4 million, respectively.
Passenger/light truck market product introductions increased power distribution
sales by $2.3 million. Sales of instrumentation and information displays
increased by $5.0 million, or 17.3%, due principally to the introduction of new
information clusters for the medium and heavy duty truck market. Sales of switch
products increased by $4.7 million, or 6.0%, reflecting higher production levels
in served markets and new product launches. The increase in net sales was
partially offset by a sales decrease of $13.3 million, or 16.1%, under contract
manufacturing arrangements.
Cost of Goods Sold. Cost of goods sold for the first nine months of 1997
increased by $32.5 million, or 15.4%, to $243.5 million from $211.0 million for
the same period in 1996. As a percentage of sales, cost of goods sold decreased
to 75.5% in 1997 from 78.6% in 1996 while the corresponding gross profit margin
increased to 24.5% from 21.4% in 1996. The improvement in gross profit margin
primarily resulted from improved operating leverage associated with increased
actuator product sales. The consolidation of two power distribution/contract
manufacturing facilities eliminated certain fixed costs that also contributed to
the increase in gross margin. Lastly, gross margin was favorably impacted by
increased efficiencies resulting from higher production of power distribution,
switch and instrumentation and information display products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first nine months of 1997 increased by $1.3
million, or 3.4%, to $39.0 million from $37.7 million for the same period in
1996. As a percentage of sales, SG&A expenses decreased to 12.1% for the first
nine months of 1997 from 14.0% for the same period in 1996. SG&A expenses
increased $2.5 million due to the launch of the actuator product line which
included certain development, marketing and administration costs. Other
marketing support and administrative overhead costs increased an additional $2.4
million due to higher sales levels and expenditures related to information
technology. In addition, development and design costs of medium and heavy duty
truck instrumentation and information display products were responsible for $0.7
million of the increase. These increases were offset by a $4.3 million decrease
in expenses due to the expiration of the actuator products transition services
agreement in October 1996.
Interest Expense. Interest expense for the first nine months of 1997 decreased
by $0.2 million, or 6.9%, to $2.7 million from $2.9 million for the same period
in 1996. The decrease was due to a lower average outstanding indebtedness.
8
<PAGE> 10
Other Income. Other income of $1.7 million for the first nine 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 were used to retire a
note payable collateralized by the transportation equipment.
Income Before Income Taxes. As a result of the foregoing, income before taxes
increased by $22.4 million for the first nine months in 1997 to $39.2 million
from $16.8 million for the same period in 1996.
Provision for Income Taxes. Prior to October 10, 1997, the Company was an S
corporation for federal and, where qualified, state income tax purposes.
Accordingly, the Company recognized income taxes of $0.6 million and $0.4
million for foreign and state franchise taxes for the first nine months of 1997
and 1996, respectively. Had the Company been subject to federal and state income
taxes at the corporate level, the Company would have recorded provisions for
income taxes of $15.4 million and $6.9 million for the first nine months of 1997
and 1996, respectively.
Net Income. As a result of the foregoing, net income increased by $22.3 million
or 136.0%, to $38.7 million in the first nine months in 1997 from $16.4 million
for the same period in 1996. Had the Company been subject to federal and state
income taxes at the corporate level, the Company's net income would have been
$23.8 million and $9.9 million for the first nine months of 1997 and 1996,
respectively.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1996
- --------
Net Sales. Net sales for the third quarter of 1997 increased by $14.5 million,
or 16.2%, to $103.9 million from $89.4 million for the same period in 1996.
Sales of power distribution products, exclusive of contract manufacturing
increased by $8.0 million, or 44.4%, due to increased market penetration in the
medium and heavy duty truck market and higher net sales to the agricultural
vehicle market of $4.8 million and $1.8 million, respectively. New product
introductions for the automotive and light truck market increased sales of power
distribution products by $1.4 million. The launch of a new four wheel drive
actuator product increased net sales $5.1 million. Sales of actuator products
increased by $2.4 million to $14.3 million from $11.9 million. Full production
of door lock actuator products (acquired in late 1995) was not reached until
approximately November 1996. Sales of switch products increased by $1.7 million,
or 6.5%, reflecting higher production levels in served markets and new product
introductions. Sales of instrumentation and information displays increased by
$1.5 million, or 15.1%, due to the introduction of new information clusters for
the medium and heavy duty truck market. These increases were partially offset by
a sales decrease of $4.2 million, or 17.6%, under contract manufacturing
arrangements.
Cost of Goods Sold. Cost of goods sold for the third quarter of 1997 increased
by $6.7 million, or 9.4%, to $77.9 million from $71.2 million for the same
period in 1996. As a percentage of sales, cost of goods sold decreased to 74.9%
in the third quarter of 1997 from 79.6% in 1996 while the corresponding gross
profit margin increased to 25.1% in 1997 from 20.4% in 1996. The improvement in
gross profit margin primarily resulted from improved operating leverage
associated with increased actuator product sales. The consolidation of a power
distribution facility eliminated certain fixed costs that also contributed to
the increase in gross margin. Lastly, gross margin was favorably impacted by
increased efficiencies resulting from higher production of power distribution,
switch and instrumentation and information display products.
9
<PAGE> 11
Selling, General and Administrative Expenses. SG&A expenses for the third
quarter of 1997 increased by $1.9 million, or 16.0%, to $13.8 million from $11.9
million for the same period in 1996. As a percentage of net sales, SG&A expenses
remained constant at 13.3% for the third quarters of 1997 and 1996. SG&A
expenses increased $0.8 million due to the launch of the actuator product line
which included certain development, marketing and administration costs. Other
marketing support and administrative overhead costs increased an additional $2.0
million due to higher sales levels and expenditures related to information
technology. In addition, development and design costs of medium and heavy duty
truck instrumentation and information display products and automotive/light
truck switch products increased $0.5 million. These increases were offset by a
$1.4 million decrease in expenses due to the expiration of the actuator product
transition services agreement in October 1996.
Interest Expense. Interest expense for the third quarter of 1997 decreased by
$0.1 million, or 10.0%, to $0.9 million from $1.0 million for the same period in
1996. The decrease was due to a lower average outstanding indebtedness.
Income Before Income Taxes. As a result of the foregoing, income before taxes
increased by $6.1 million for the third quarter of 1997 to $11.4 million from
$5.3 million for the same period in 1996.
Provision for Income Taxes. Prior to October 10, 1997, the Company was an S
corporation for federal and, where qualified, state income tax purposes.
Accordingly, the Company recognized income taxes of $0.2 million and $0.1
million for foreign and state franchise taxes for the third quarters of 1997 and
1996, respectively. Had the Company been subject to federal and state income
taxes at the corporate level, the Company would have recorded provisions for
income taxes of $4.7 million and $2.2 million for the third quarters of 1997 and
1996, respectively.
Net Income. As a result of the foregoing, net income increased by $5.9 million,
or 113.5%, to $11.1 million in the third quarter of 1997 from $5.2 million for
the same period in 1996. Had the Company been subject to federal and state
income taxes at the corporate level, the Company's net income would have been
$6.7 million and $3.1 million for the third quarters of 1997 and 1996,
respectively.
Liquidity and Capital Resources
- -------------------------------
The net cash provided by operating activities for the first nine months of 1997
and 1996 was $44.0 million and $10.4 million, respectively. The increase in cash
provided by operating activities for the first nine months of 1997 as compared
to the first nine months of 1996, was $33.6 million. The increase in cash
provided by operating activities was the result of higher net income of $22.3
million and a decrease in working capital requirements and other operating
assets of $11.3 million.
The net cash used by investing activities for the first nine months of 1997 and
1996 was $6.5 million and $21.3 million, respectively. The decrease in cash used
from investing activities of $14.8 million for the first nine months of 1997 as
compared with the same period in 1996 was a result of lower net capital
expenditures of $6.9 million and nonrecurring investments in Berifors AB of $8.8
million in April of 1996 and in PST Industrial Eletronica da Amazonia Ltda. of
$1.0 million in July of 1997.
10
<PAGE> 12
Net cash used for financing activities for the first nine months of 1997 was
$37.8 million while net cash provided by financing activities for the same
period of 1996 was $10.6 million. Cash distributions for the first nine months
of 1997 and 1996 were $22.7 million and $8.6 million, respectively. Proceeds
from the exercise of share options were $2.3 million for the nine months ended
September 30, 1997.
As a result of the foregoing operating, investing and financing activities, net
borrowings under the credit facility decreased $15.7 million for the first nine
months of 1997 while net borrowings under the credit facility increased $16.0
million for the same period in 1996.
The Company has a $125.0 million unsecured credit facility (of which $29.0
million was outstanding as of September 30, 1997), which expires on June 30,
2002. Interest on the credit facility is payable at the Company's option of
either prime or LIBOR plus 0.75% to 2.0%. Currently the Company is borrowing at
LIBOR plus 1.0%. The Company has entered into two interest rate swap agreements
with notional amounts of $25.0 and $20.0 million. The interest rate swap
agreements exchange the variable interest rate on the credit facility for fixed
rates. The Company does not use derivatives for speculative or profit motivated
purposes.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------- ---------- --- ----------- ---------- ----- ------ ----
Not Applicable.
11
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- -----------------------------------------------------
(a) Sale of Unregistered Securities
The Company has issued the following securities relying on the
exemption from registration contained in Section 4(2) of the Securities
Act of 1933:
(i) On August 7, 1997, certain management employees and directors exercised
options to purchase 403,342 Common Shares for an aggregate exercise
price of $2,314,200.
(ii) On October 9, 1997, a management employee exercised an option to
purchase 34,771 Common Shares for an aggregate exercise price of
$199,500.
(iii) On October 10, 1997, the Company issued 704,563 Common Shares in
connection with the acquisition of 51% of Berifors AB.
(b) Use of Proceeds
On October 9, 1997, the Company's Registration Statement on Form S-1
(Registration number 333-33285) became effective. On October 16,
1997, the Company completed an initial public offering. Managing
underwriters for the Offering were Morgan Stanley & Co. Incorporated
and Donaldson, Lufkin & Jenrette Securities Corporation. The Company
registered and sold 6,727,500 Common Shares and received gross proceeds
of approximately $117,700,000. Total expenses incurred in conjunction
with the Offering were $9,150,000 which included underwriting discounts
of approximately $7,950,000 and other expenses estimated at
approximately $1,200,000. Net proceeds from the Offering of
$108,550,000 were used to fund a payment to the pre-Offering
shareholders of $83,000,000 as an S Corporation Distribution and for
the repayment of debt.
All transactions above have been adjusted to give effect to the
amendment of the Company's Articles of Incorporation as discussed in Note 2.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -------------------------------------------
None.
12
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
In connection with the Offering, the pre-Offering shareholders approved
a number of resolutions by unanimous written consent on September 30, 1997,
including resolutions adopting the amendments to its Articles of Incorporation
and Code of Regulations, and approving the Company's Long-Term Incentive Plan.
ITEM 5. OTHER INFORMATION
- -----------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits
10.11 Agreement for the Purchase and Sale of Quotas of P.S.T.
Industria Eletronica da Amazonia Ltda dated October 29, 1997.
10.12 Quotaholders' Agreement among Marcos Ferretti, Sergio De
Cerqueira Leite, Stoneridge, Inc. and P.S.T. Industria
Eletronica da Amazonia Ltda dated October 29, 1997.
27.6 Financial Data Schedule for the nine months ended September
30, 1997
27.7 Financial Data Schedule for the nine months ended September
30, 1996
(b) Reports on Forms 8-K
None.
</TABLE>
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
STONERIDGE, INC.
<S> <C> <C>
Date: November 21, 1997 /s/ CLOYD J. ABRUZZO
--------------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 21, 1997 /s/ KEVIN P. BAGBY
--------------------------------------
Kevin P. Bagby
Treasurer and Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
14
<PAGE> 16
STONERIDGE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C> <C>
10.11 Agreement for the Purchase and Sale of Quotas of P.S.T.
Industria Eletronica da Amazonia Ltda dated October 29,
1997.
10.12 Quotaholders' Agreement among Marcos Ferretti, Sergio De
Cerqueira Leite, Stoneridge, Inc. and P.S.T. Industria
Eletronica da Amazonia Ltda dated October 29, 1997.
27.6 Financial Data Schedule for the nine months ended September
30, 1997
27.7 Financial Data Schedule for the nine months ended September
30, 1996
</TABLE>
15
<PAGE> 1
Exhibit 10.11
AGREEMENT FOR THE PURCHASE AND SALE OF QUOTAS
OF P.S.T. INDUSTRIA ELETRONICA DA AMAZONIA LTDA.
The parties to this Agreement for the Purchase and Sale of Quotas (the
"Agreement"), as follows:
1) RICARDO RIBEIRO MACIEL, Brazilian citizen, married, accountant, resident and
domiciled at Alameda Procion, 548 - Condominio Morada das Estrelas, Aldeia da
Serra, Barueri,, State of Sao Paulo, holder of identification card RG/SP No.
32.798.056-4, Individual Taxpayers Registration No. 544.899.389-34 and ICHIRO
AOKI, Japanese citizen, married, electrical engineer, resident and domiciled at
Rua Joaquim Novaes, No. 250, apt. 61, Cambui, Campinas, State of Sao Paulo,
holder of Identity Card for Foreigners No. W482764-B, Individual Taxpayers
Registration Nbr 107.959.188-52, (each a "Seller" and collectively, the
"Sellers");
2) STONERIDGE, INC., an Ohio corporation, with headoffice at 9400 East Market
Street, in the city of Warren, State of Ohio, United States of America, in this
act represented by its attorney in fact, COARACI NOGUEIRA DO VALE, Brazilian
citizen, married, attorney-at-law and consultant, resident and domiciled in the
Capital City of the State of Sao Paulo, at Rua Tabapua, 821 - 8th floor, suite
96, holder of Identification Card No. 2.676.014-SSP/SP and Individual Taxpayers'
Registration No. 043.359.028-91, ("the Buyer");
3) MARCOS FERRETTI, Brazilian citizen, married, electrical engineer, resident
and domiciled at Rua Pedro Vieira da Silva, no. 64- Bl. 1, apt. 41, Jardim Santa
Genebra, Campinas, State of Sao Paulo, holder of identification card RG/SP No.
13.602.771, Individual Taxpayers Registration No. 061.910.648-45 and SERGIO DE
CERQUEIRA LEITE, Brazilian citizen, married, businessman, resident and domiciled
at Rua Joaquim Novaes, 250, ap. 62 - Cambui, Campinas, State of Sao Paulo,
holder of identification card RG/SP No. 15.307.343, Individual Taxpayers
Registration No. 102.104.068-10 (each a "Quotaholder" and collectively, the
"Quotaholders") and,
WHEREAS, the Sellers are the owners of an aggregate of 100,000 (one
hundred thousand) quotas of capital of P.S.T. Industria Eletronica da Amazonia
Ltda., a Brazilian limited liability commercial company with headoffice at the
city of Manaus, the state capital of the State of Amazonas, at Rua Sao Domingos,
86-B and 179, Aleixo, Federal Taxpayers' Registration No.
84.496.066/0001-04, with its Company Agreement recorded at the Commercial
Registry of the State of Amazonas, under Nbr. 13200.277.643 on August 27, 1993,
and subsequent amendments (the "Company"), representing 50% (fifty percent) of
the total quotas of capital of the Company ( the "Quotas");
1
<PAGE> 2
WHEREAS, the Quotaholders are the owners of an aggregate of 100,000
(one hundred thousand) quotas of the Company, representing 50% (fifty percent)
of the total quotas of capital of the Company;
WHEREAS, the Sellers wish to sell to the Buyer, and the Buyer wishes to
purchase from the Sellers, the Quotas pursuant to the terms and subject to the
conditions set forth herein.
Accordingly, the parties agree as follows:
1. Purchase and Sale of Quotas.
1.1 The Purchase and Sale. Subject to the terms and conditions hereof,
the Sellers hereby agree to sell, assign and transfer to the Buyer, and the
Buyer hereby agrees to purchase from the Sellers, on the date hereof, the
Quotas, free and clear of all liens, pledges, encumbrances, options, rights of
first refusal and all claims, whether judicial or not, of every kind whatsoever.
At the Closing, Buyer, Sellers and the Quotaholders shall sign an Amendment to
the Company Agreement of the Company effecting besides the assignment and
transfer of Quotas from Sellers to Buyer, other alterations mutually agreed upon
among Quotaholders and Buyer, as per Exhibit 1.1.
2. Purchase Price.
2.1 Payment of Purchase Price. As full consideration for the Quotas,
upon the terms and subject to the conditions of this Agreement, the Buyer agrees
to pay the Sellers an aggregate of US$ 17,500,000.00 (seventeen million five
hundred thousand US dollars) (the "Purchase Price"), payable as follows:
(a) US$ 1,000,000.00 (one million US dollars) being US$ 500,000.00
(five hundred thousand US dollars) to each Seller, which were transferred to the
Sellers bank account at Banco de Boston, branch 004, account nbr. 257833-05, who
having received said sums from Buyer, give to Buyer full and general releases
for the payment of this part of the price.
(b) R$ 9.080.445,00 (nine million eighty thousand four hundred
forty-five reais) equivalent to US$ 8,250,000.00 (eight million two hundred
fifty thousand US dollars), through a certified check No.188228, issued by the
Deutsche Bank, in favor of Coaraci Nogueira do Vale, and endorsed to Ricardo
Ribeiro Maciel, on the date hereof, and:
(c) R$ 9.080.445,00 (nine million eighty thousand four hundred
forty-five reais) equivalent to US$ 8,250,000.00 (eight million two hundred
fifty thousand US dollars), through a certified check No.188229, issued by the
Deutsche Bank, in favor of Coaraci Nogueira do Vale, and endorsed to Ichiro
Aoki, on the date hereof.
2
<PAGE> 3
3. Representations and Warranties of the Sellers. The Sellers jointly and
severally represent and warrant to the Buyer as follows:
3.1 Authority. The Company (a) is a limited liability commercial
company duly organized, validly existing, and in good corporate and tax standing
under the laws of Brazil, (b) has the full corporate powers and authority to own
or hold under lease or similar agreement the properties and assets which it now
owns or holds under such lease or agreement, and to carry on its business as it
is now being conducted, and (c) has obtained all the required licenses and
permits from relevant federal, state and municipal authorities for carrying on
its activities, and the undertaking of such activities does not violate any
treaty, statute, administrative law or regulation. Sellers have supplied to
Buyer's Legal Counsel copies of the Company Agreement for the organization of
the Company, the subsequent Amendments to the Company Agreement, including the
last Amendment to the Company Agreement currently in force, as filed with the
Commercial Registry of the State of Amazonas, Deliberations of the Quotaholders
and Certificate from the Commercial Registry of the State of Amazonas (the
"Organizational Documents"). Such copies are complete and correct. (Schedule
3.1)
3.2 No Conflicts. The execution of this Agreement do and did not, and
the consummation of the transactions contemplated hereby will not and did not,
(a) conflict with the Organizational Documents, (b) result in any violation of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit, including fiscal benefits, under, any note,
bond, mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement or arrangement to which the Company is a party or by which the Company
may be bound, or (c) violate any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or the Sellers. Except
as contemplated by Section 5.2, no material third party consent or approval,
authorization, license, permit or other action by, or filing with, any
governmental body, is required, with respect to the actions of the Sellers in
connection with the execution and delivery by the Sellers of this Agreement or
in order for the Sellers to consummate the transactions contemplated hereby.
3.3 Capitalization. The total capital of the Company consists solely of
200,000 (two hundred thousand) quotas of the unitary value of R$ 1,00 (one
real), all of which are evidenced in the last Amendment to the Company Agreement
dated June 30, 1997, which is currently in force, and are fully paid in. Except
as set forth on Schedule 3.3, to the best of Sellers knowledge , there are no
outstanding subscriptions, options, warrants, puts, calls, rights or other
agreements or commitments relating to the issuance, transfer, purchase or sale
of any Quota, voting securities or securities (including debt obligations)
convertible into or exchangeable for quotas of capital or voting securities (or
any such convertible or exchangeable securities) of the
3
<PAGE> 4
Company, or obligations to grant, extend or enter into any subscription,
warrant, right, convertible or exchangeable security or other similar agreement
or commitment. The Sellers are, in the aggregate, the lawful owners of the
Quotas, which represent 50% (fifty percent) of the Company's quotas of capital ,
with clear and unencumbered title thereto, free and clear of all liens, pledges,
encumbrances, options, rights of first refusal and other claims of any kind, and
have full right, power and authority required by law to sell, assign and
transfer the Quotas to the Buyer. The sale, assignment and transfer of the
Quotas to the Buyer pursuant to this Agreement will transfer to and vest in
Buyer clear and unencumbered title thereto, free and clear of all liens, pledges
encumbrances, options, rights of first refusal and other claims of any kind. The
Company is not, directly or indirectly, the record or beneficial owner of any
shares of capital stock or other equity interests of any corporation, company,
partnership or other entity.
3.4 Financial Statements. Schedule 3.4 sets forth the unaudited
consolidated balance sheet, income statement, statement of changes in
stockholders' equity and statement of cash flow of the Company (the "Interim
Financials") as of July 31, 1997 and December 31, 1996, for the 7 (seven) months
ended July 31st, 1997 and for the 12 (twelve) month period ended December 31,
1996, respectively (the "Interim Financial Statement Dates"), as prepared by
Arthur Andersen and the consolidated balance sheets and related income
statements of the Company of and for the years ended December 31, 1996, 1995 and
1994 (only balance sheet) and for the 7 (seven) months ended July 31, 1997
(together with the Interim Financials, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles in Brazil consistently applied, except as may be indicated
in the notes thereto. The Financial Statements fairly present, in all material
respects, the results of operations and financial condition of the Company for
the periods and at the dates presented. Schedule 3.4.1 sets forth documentation
referring to real estate owned by the company and to rights to intellectual
property. Schedule 3.4.2 sets forth income tax returns of the Company for years
ended December 31, 1993, 1994, 1995 and 1996.
3.5 Contracts. The Company is not in breach or default under any
contract or agreement, oral or written, to which the Company is bound. Likewise,
to the best of Sellers' knowledge, up through the date of signing of the present
agreement, there are no contracts or covenants with third party, oral or
written, whose nonperformance or renegotiation may have caused or will cause
losses to the Company. Schedule 3.5 sets forth outstanding contracts entered
into by the Company. Sellers shall not be responsible for the normal renewals
and normal renegotiations described in section 3.10 or for nonperformance which
results from the peculiarities of the operations of the Company, which are known
to, and accepted by, the Buyer.
3.6 Absence of Changes or Events. To the best of Sellers' knowledge,
since December 31, 1996, the commercial and financial business of the
4
<PAGE> 5
Company has been conducted in the ordinary course, and appropriate to the
peculiarities of the operations of the Company, as it is known to, and accepted
by, the Buyer, and no material adverse change, which could affect the business
of the Company through December 31, 1998 has taken place.
3.7 Absence of Claims. There is no unrecorded claim, obligation,
liability, litigation proceeding or governmental investigation pending or
threatened against the Company or its properties that could have a material
adverse effect on the Company, except for what is listed in Annex 3.7 hereto.
Neither of the Sellers, nor any entity controlled by either Seller, nor any
relative of either Seller, has any claim whatsoever against the Company.
Schedule 3.7.1 sets forth the list of employees of the Company on the date
hereof. Schedule 3.7.2 sets forth the notice from the Secretariat of Finance of
the State of Amazonas referring to current and on going tax inspection. Schedule
3..3 sets forth the guaranties offered by the Company to current creditors, of
which in certain contracts personal guaranties were offered by Sellers.
3.8 Compliance with Applicable Laws. The business and affairs of the
Company have been conducted in compliance with all applicable laws, orders,
ordinances, rules and regulations of any governmental authority, except to the
extent noncompliance would not have an adverse effect on the business or
financial condition of any such entity in an amount not to exceed reais
equivalent to US$ 100,000.00(one hundred thousand US dollars).
3.9 Binding Effect. This Agreement, upon execution and delivery by the
Sellers will constitute a legal, valid and binding obligation of the Sellers.
Neither the execution and delivery nor the performance by the Sellers of their
obligations under, nor the consummation of the transactions contemplated by,
this Agreement will, (i) violate, conflict with or result in a breach or
termination of, or otherwise give any other contracting party additional rights
or compensation under, or the right to terminate, or constitute a default under
the terms of, any agreement to which either Seller is a party or by which the
Sellers or any of their properties or assets are bound or subject, (ii) violate
any judicial order against, or binding upon, either of the Sellers or any of
their properties or assets, or (iii) constitute a violation by either of the
Sellers of any applicable law as such law relates to the Sellers or to the
properties or assets of the Sellers.
3.10 Suppliers and Customers -Since January 1, 1997, to the date
hereof, Sellers have no knowledge of any unusual condition or change external to
the company, relating to any current supplier or client of the company, that
could have a material adverse effect on the business of the company or on its
financial condition. For purposes of this Clause, an amount which would
negatively affect the earnings or the balance sheet up to the amount in reais
equivalent to US$ 100,000.00 (one hundred thousand US dollars) is not material.
For the legal effects of this Agreement and of this Clause, it is considered
that the normal changes of suppliers and clients, the
5
<PAGE> 6
normal renewal and renegotiation of financial and commercial conditions, and the
effects thereof, constitute normal operations of the Company resulting from
market conditions and opportunities, as known to, and agreed by, Stoneridge, so
that Sellers will not be responsible, under these circumstances, for any adverse
effect on the business or on the financial condition of the Company therefor.
3.11 Suframa - The Company has submitted to SUFRAMA (Superintendency of
the Manaus Free Trade Zone) 5 (five) projects aiming at obtaining tax benefits
a) from the Federal Government, comprising exemption of the IPI (Tax on
Industrialized Products) on manufactures products, the exemption and/or
reduction of the Importation Tax on capital goods and imported consumable items,
b) from the State Government of Amazonas, comprising the partial or total
restitution of the ICMS (Tax on the Circulation of Merchandise) and c) from
SUDAM (Superintendency for the Development of the Amazon Area), comprising the
exemption of the Corporate Income Tax and of the non-refundable additional
charges, said projects being: 1) Project for the Implantation of manufacture of
alarms, electrical locks and of the shift, sirens and automatic electrical
system for glass closure, dated August, 1993; 2) Project for Expansion and
Diversification, dated November, 1994; 3) Project for Diversification -
Assembled Printed Circuit Board - PCI, dated January, 1995; 4) Project for
Diversification - Audio Amplifier, dated February, 1996; 5) Project for
Revalidation of Fiscal Incentives, dated July, 1996. All projects were approved
and the tax benefits are available for the Company and in full force.
4. Representations and Warranties of the Quotaholders. The Quotaholders
jointly and severally represent and warrant to the Buyer as follows:
4.1 Authority. The Company (a) is a limited liability commercial
company duly organized, validly existing, and in good corporate and tax standing
under the laws of Brazil, (b) has the full corporate powers and authority to own
or hold under lease or similar agreement the properties and assets which it now
owns or holds under such lease or agreement, and to carry on its business as it
is now being conducted, and (c) has obtained all the required licenses and
permits from relevant federal, state and municipal authorities for carrying on
its activities, and the undertaking of such activities does not violate any
treaty, statute, administrative law or regulation. Buyer's Legal Counsel has
obtained copies of the Organizational Documents. To the best of the
Quotaholders' knowledge, such copies are complete and correct.
4.2 No Conflicts. The execution of this Agreement do and did not, and
the consummation of the transactions contemplated hereby will not and did not,
(a) conflict with the Organizational Documents, (b) result in any violation of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
6
<PAGE> 7
obligation or to loss of a material benefit, including fiscal benefits, under,
any note, bond, mortgage, indenture, deed of trust, license, lease, contract,
commitment, agreement or arrangement to which the Company is a party or by which
the Company may be bound, or (c) violate any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or the
Quotaholders. Except as contemplated by Section 5.2, no material third party
consent or approval, authorization, license, permit or other action by, or
filing with, any governmental body, is required, with respect to the actions of
the Quotaholders in connection with the execution and delivery by the
Quotaholders of this Agreement or in order for the Quotaholders to consummate
the transactions contemplated hereby.
4.3 Capitalization. The total capital of the Company consists solely of
200,000 (two hundred thousand) quotas of the unitary value of R$ 1,00 (one real)
all of which are evidenced in the last Amendment to the Company Agreement dated
June 30, 1997, which is currently in force, and are fully paid in. Except as set
forth on Schedule 3.3, to the knowledge of the Quotaholders, there are no
outstanding subscriptions, options, warrants, puts, calls, rights or other
agreements or commitments relating to the issuance, transfer, purchase or sale
of any quota, [voting securities or securities] (including debt obligations)
convertible into or exchangeable for quotas of capital or voting securities (or
any such convertible or exchangeable securities) of the Company, or obligations
to grant, extend or enter into any subscription, warrant, right, convertible or
exchangeable security or other similar agreement or commitment. The Quotaholders
are, in the aggregate, the lawful owners of 50% (fifty percent) of the Company's
quotas of capital , with clear and unencumbered title thereto, free and clear of
all liens, pledges, encumbrances, options, rights of first refusal and other
claims of any kind. The Company is not, directly or indirectly, the record or
beneficial owner of any shares of capital stock or other equity interests of any
corporation, company, partnership or other entity.
4.4 Financial Statements. Schedule 3.4 sets forth the Financial
Statements. The Financial Statements have been prepared in accordance with
generally accepted accounting principles in Brazil consistently applied. The
Financial Statements fairly present, in all material respects, the results of
operations and financial condition of the Company for the periods and at the
dates presented. Schedule 3.4.1 sets forth documentation referring to real
estate owned by the company and to rights to intellectual property. Schedule
3.4.2 sets forth income tax returns of the Company for years ended December 31,
1993, 1994, 1995 and 1996.
4.5 Contracts. The Company is not in breach or default under any
contract or agreement, oral or written, to which the Company is bound. Likewise,
to the best of Quotaholders' knowledge, up through the date of signing of the
present agreement, there are no contracts or covenants with third party, oral or
written, whose nonperformance or renegotiation may have caused or will cause
losses to the Company. Schedule 3.5 sets forth
7
<PAGE> 8
outstanding contracts entered into by the Company. Quotaholders shall not be
responsible for the normal renewals and normal renegotiations described in
section 4.10 or for nonperformance which results from the peculiarities of the
operations of the Company, which are known to, and accepted by, Buyer.
4.6 Absence of Changes or Events. To the best of Quotaholders'
knowledge, since December 31, 1996, the commercial and financial business of the
Company has been conducted in the ordinary course, and appropriate to the
peculiarities of the operations of the Company, as it is known to, and accepted
by, Stoneridge, and no material adverse change, which could affect the business
of the Company through December 31, 1998 has taken place.
4.7 Absence of Claims. There is no unrecorded claim, obligation,
liability, litigation proceeding or governmental investigation pending or
threatened against the Company or its properties that could have a material
adverse effect on the Company, except for what is listed in Annex 3.7 hereto.
Neither of the Quotaholders, nor any entity controlled by either Quotaholder,
nor any relative of either Quotaholder, has any claim whatsoever against the
Company. Schedule 3.7.1 sets forth the list of employees of the Company on the
date hereof. Schedule 3.7.2 sets forth the notice from the Secretariat of
Finance of the State of Amazonas referring to current and on going tax
inspection. Schedule 3.3 sets forth the guaranties offered by the Company to
current creditors.
4.8 Compliance with Applicable Laws. The business and affairs of the
Company have been conducted in compliance with all applicable laws, orders,
ordinances, rules and regulations of any governmental authority, except to the
extent noncompliance would not have an adverse effect on the business or
financial condition of any such entity, in an amount no to exceed reais
equivalent to US$ 100,000.00 (one hundred thousand US dollars).
4.9 Binding Effect. This Agreement and the Quotaholders Agreement among
the Buyer and the Quotaholders of even date herewith (the "Quotaholders
Agreement"), upon execution by the Quotaholders will constitute the legal, valid
and binding obligations of the Quotaholders. Neither the execution nor the
performance by the Quotaholders of their obligations under, nor the consummation
by each of the transactions contemplated by, this Agreement or the Quotaholders
Agreement will, (i) violate, conflict with or result in a breach or termination
of, or otherwise give any other contracting party additional rights or
compensation under, or the right to terminate, or constitute a default under the
terms of, any agreement to which either Quotaholder is a party or by which the
Quotaholders or any of their properties or assets are bound or subject, (ii)
violate any judicial order against, or binding upon, either of the Quotaholders
or any of their properties or assets, or (iii) constitute a violation by either
of the Quotaholders of any
8
<PAGE> 9
applicable law as such law relates to the Quotaholders or to the properties or
assets of the Quotaholders.
4.10 Suppliers and Customers - Since January 1, 1997, to the date
hereof, Quotaholders have no knowledge of any unusual condition or change
external to the company, relating to any current supplier or client of the
company, that could have a material adverse effect on the business of the
company or on its financial condition. For purposes of this Clause, an amount
which would negatively affect the earnings or the balance sheet up to the amount
in reais equivalent to US$ 100,000.00 (one hundred thousand US dollars) is not
material. For the legal effects of this Agreement and of this Clause, it is
considered that the normal changes of suppliers and clients, the normal renewal
and renegotiation of financial and commercial conditions, and the effects
thereof, constitute normal operations of the Company resulting from market
conditions and opportunities, as known to, and agreed by, Stoneridge, so that
Quotaholders will not be responsible, under these circumstances, for any adverse
effect on the business or on the financial condition of the Company therefor.
4.11 Suframa - The Company has submitted to SUFRAMA (Superintendency of
the Manaus Free Trade Zone) 5 (five) projects aiming at obtaining tax benefits
a) from the Federal Government, comprising exemption of the IPI (Tax on
Industrialized Products) on manufactures products, the exemption and/or
reduction of the Importation Tax on capital goods and imported consumable items,
b) from the State Government of Amazonas, comprising the partial or total
restitution of the ICMS (Tax on the Circulation of Merchandise) and c) from
SUDAM (Superintendency for the Development of the Amazon Area), comprising the
exemption of the Corporate Income Tax and of the non-refundable additional
charges, said projects being: 1) Project for the Implantation of manufacture of
alarms, electrical locks and of the shift, sirens and automatic electrical
system for glass closure, dated August, 1993; 2) Project for Expansion and
Diversification, dated November, 1994; 3) Project for Diversification -
Assembled Printed Circuit Board - PCI, dated January, 1995; 4) Project for
Diversification - Audio Amplifier, dated February, 1996; 5) Project for
Revalidation of Fiscal Incentives, dated July, 1996. All projects were approved
and the tax benefits are available for the Company and in full force.
5. Covenants.
5.1 - The Sellers, the Quotaholders and the Company shall maintain
Buyer fully protected, therefore, free and unencumbered, of any actions or
claims from any third party relative to the purchase of quotas object of this
Agreement, undertaking, consequently, to take all possible actions, whether
judicial or not, necessary for the protection of the rights of Buyer, provided
that such obligations result from facts originated before the date of signing of
the present agreement.
9
<PAGE> 10
5.2 SUFRAMA Authorization. Antitrust Notification: (a) Sellers, WITH
THE SUPPORT OF BUYER, SHALL OBTAIN FROM SUFRAMA WITHIN THE PERIOD DEFINED BY
THIS AGENCY, OR WITHIN THE PERIOD ESTIMATED AT 12 (TWELVE) MONTHS COUNTING FROM
THE DATE HEREOF, through timely communication to SUFRAMA pursuant to Resolution
SUFRAMA 143/87, the necessary authorization for the transfer of the Quotas sold
hereby, for the free ownership of Buyer; provided, that if in the future SUFRAMA
revokes or denies all or part of the benefits described in correspondence and
technical affidavits issued by the Secretariat of Industry, Commerce and Tourism
of the State of Amazonas (Annex 5.2) attributable to products object of the
above referred benefits, such products which are on the date of this agreement
in normal process of manufacturing and production, and such revocation or denial
resulting from any action or failure to act prior to the date hereof or
resulting from the transfer of Quotas pursuant to this Agreement, Sellers will
immediately return to Buyer the entire Purchase Price paid for the Quotas; (b)
Sellers and the Company also represent and warrant that they obtained from
SUFRAMA (SUDAM) the necessary approvals for their industrial projects referred
to in sections 3.11 and 4.11, which enable the Company to enjoy, among other
benefits, the exemption of the income tax for the period of 10 (ten) years
counting from December, 1995, pursuant to the documents included as Annex 5.2.1
hereto; (c) Sellers represent and warrant that the Department of Administration
of Fiscal Incentives of the Superintendency for the Development of Amazonia -
SUDAM has not issued the Declaratory Act which recognizes to the Company the
right for the exemption of the income tax, being certain, however, that once
said Declaratory Act is issued, which is expected to be issued until no later
than January 31, 1998, shall be effective retroactively, that is, it shall
benefit the Company since December, 1995; and (d) within the time period defined
by law, Sellers and the Buyer shall submit to the Administrative Council of
Economic Defense - CADE, with support, where required, from the Quotaholders and
from the Company, the purchase of the Quotas referred hereto, for purposes of
obtaining its approval. In the event that such authorities do not give their
clearance to the sale and purchase contemplated by this Agreement, the Buyer and
the Sellers undertake to negotiate in good faith with the relevant authorities
in order to obtain clearance and to take any measures required by the
authorities in order that the said sale and purchase will not be revoked.
Sole paragraph:- SELLERS SHALL NOT UNDERTAKE ANY RESPONSIBILITY FOR THE DELAY IN
THE AUTHORIZATION TO BE GRANTED BY SUFRAMA, IN CASE THE DELAY RESULT FROM
INACTION FROM SAID AGENCY.
5.3 Fees and Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement shall be
paid by the party incurring the cost or expense.
10
<PAGE> 11
5.4 Certain Other Agreements. Each of the Sellers and each of the
Quotaholders warrant and represent that there are no agreements other than those
expressly referred in the clauses and annexes to this Agreement.
5.5 Certain Restrictions.
(a) Covenant Not to Compete. Having in view (i) the reasonable
limitation in time of the restrictions described below on Sellers future
engagement in business activities and (ii) taking into account that from the
total price payable to each of the Sellers, that is, reais equivalent to US$
1,000,000.00 (one million US dollars) for each, represent an indemnification for
their acceptance of said restrictions, each of the Sellers agrees that he will
not, during the period commencing on the date hereof and ending on the second
anniversary of the date hereof engage in Brazil, directly or indirectly, whether
on his own account or as a quotaholder, partner, joint venturer, officer,
director, and/or agent, of any person, firm, corporation or other entity or
otherwise, in any or all of the following activities in which the Company is
engaged on the date hereof:
(i) enter into or engage in any business which competes with any
business conducted by the Company (such businesses, the "Applicable
Businesses");
(ii) solicit customers or business patronage which may result in
competition with any Applicable Business or may result in any customer ceasing
to be a customer of the Company with respect to any Applicable Business; or
(iii) promote or assist, financially or otherwise, any person, firm,
association, corporation or other entity engaged in any Applicable Business.
(b) Covenant Against Disclosure. Each of the Sellers agrees, from and
after the date hereof, and for a period of 2 (two) years from the date hereof,
not to (i) disclose to any person, association, firm, corporation or other
entity in any manner, directly or indirectly, any confidential information or
confidential data of the Company or the Buyer, whether of a technical or
commercial nature, or (ii) use, or permit or assist, by acquiescence or
otherwise, any person, association, firm, corporation or other entity to use, in
any manner, directly or indirectly, any such confidential information or data,
excepting only use of such data or information as is at the time generally known
to the public and which did not become generally known through any breach of
this Section 5.5(b) by such Seller.
(c) Covenant Against Hiring. Each of the Sellers agrees from and after
the date hereof that he shall not take any action which would, or is designed
to, induce any employee or representative of the Company not to continue as an
employee or representative of the Company.
11
<PAGE> 12
(d) Specific Performance. Each of the Sellers, Quotaholders and the
company understand and, above all, agree that BUYER has the indisputable right
to require judicially the full or partial performance of this Contract or of any
part, clause, section or condition of same pursuant to article 639 and following
articles of the Brazilian Civil Procedure Code. Furthermore, all obligations
assumed in this Contract may be the object of judicial claim, pursuant to art.
585, II of the same Brazilian Civil Procedure Code.
6. The Closing.
6.1 Deliveries at Closing.
(a) At the Closing, the Buyer shall deliver to the Sellers the balance
of the Purchase Price referred to in 2.1 (b) and 2.1 (c).
7. Amendment; Waiver
7.1 Amendment. This Agreement may not be amended, except by an
instrument in writing signed on behalf of all the parties.
7.2 Waiver. No delay on the part of a party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of a party of any right hereunder operate as a waiver of any
other right, power or privilege hereunder, nor shall any partial exercise of any
right, power or privilege hereunder preclude any other further exercise thereof
or the exercise of any other right, power or privilege hereunder.
8. Survival of Representations and Warranties; Indemnification.
8.1 Survival of Representations and Warranties. The representations and
warranties contained in this Agreement or in any certificate, document or
instrument delivered pursuant to this Agreement shall survive the Closing
without limitation. Any investigation by or on behalf of any party hereto shall
not constitute a waiver as to enforcement of any representation or warranty.
8.2 Indemnification. Sellers and Quotaholders shall indemnify the
Company and/or Buyer for all and any damages, losses or expenses which
effectively may occur as a consequence of the inaccuracy of the warrants and
representations included herein, including with regard to fines, interests,
monetary correction, legal fees, legal costs and other expenses, such as for:
(a) all obligations of the Company, independently of the legal cause
which might have originated said obligations, specially, but not limited to,
fiscal, social security and labor obligations, which until the date hereof may
not have been properly recorded in the Company's books or which may have
12
<PAGE> 13
been improperly recorded , or which may not have been described in Annexes to
this Contract; and,
(b) all titles or obligations of favour, of the Company's
responsibility to Sellers and/or third parties, which the Company is under the
obligation to perform and provided they were carried out to the date hereof.
8.3 Sellers shall always be assured of their right to defend themselves
in actions, claims or remedies against creditors which may require the
satisfaction of credits not recognized by Sellers, provided that adequate
guarantees are given to Buyer and/or to the Company that if such credits are
maintained, that they shall be fully satisfied by Sellers.
8.4 Buyer and the Company undertake to maintain Sellers free of any
claims from third party in regards to collateral provided by Sellers to guaranty
existing loans by the Company to third parties for the benefit of the Company,
further undertaking to indemnify eventual disbursements made by Sellers as a
result of said collaterals to the extent such disbursements are not related to
facts which are misrepresented in this Agreement.
9. Miscellaneous.
9.1 Irrevocability. This Agreement is irrevocable, obligating not only
the parties to this Agreement, but also their heirs and successors at any title.
9.2 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9.3 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
in two of the following mediums: personally delivered, sent by certified mail
(return receipt requested) or sent by facsimile (confirmation of receipt
requested) to the respective parties as follows:
if to the Buyer:
Stoneridge, Inc.
9400 East Market Street
Warren, Ohio 44484
Attention: Mr. Cloyd J. Abruzzo
with a copy to:
Baker & Hostetler LLP
13
<PAGE> 14
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Telecopier: (216) 696-0740
Attention: Mr. Avery S. Cohen
if to the Sellers:
Ricardo Ribeiro Maciel
Alameda Procion, 548
Condominio Morada das Estrelas,
Aldeia da Serra
Barueri, SP
Brasil
with a copy to:
Antonio Carlos Q. Ferreira
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
Ichiro Aoki
Rua Joaquim Novaes, No. 250 - apt. 61 - Cambui
13015-140 Campinas, SP
Brasil
with a copy to:
Antonio Carlos Q. Ferreira
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
if to the Quotaholders:
Sergio de Cerqueira Leite
Rua Joaquim Novaes, No. 250 - apt. 62 - Cambui
13015-140 Campinas, SP
Brasil
with a copy to:
14
<PAGE> 15
Marcelo Ribeiro de Almeida
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
Marcos Ferretti
Rua Pedro Vieira da Silva, No. 64
Bl. 1, apt. 41, Jardim Santa Genebra
01380-570 Campinas, SP
Brasil
with a copy to:
Marcelo Ribeiro de Almeida
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
if to P.S.T. Industria Eletronica da Amazonia Ltda.
Sergio de Cerqueira Leite
Marcos Ferretti
Rua Sao Domingos, 86-B and 179 - Aleixo
Manaus, AM
with a copy to:
Marcelo Ribeiro de Almeida
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change). Notices will be deemed to have been given
hereunder when delivered personally, 15 business days after deposit in the mail,
or when confirmation of receipt is received; provided, however, that delivery of
a notice will be deemed to occur only when the later of the two deliveries is
deemed to have been given.
15
<PAGE> 16
9.4 Governing Law; Dispute Resolution. This Agreement shall be governed
by the laws of Brazil.The Courts sitting in the City of Sao Paulo, State of Sao
Paulo, shall have exclusive jurisdiction over any questions regarding the
construction and interpretation or any controversy or claim arising out of or
relating to this Agreement, or the breach thereof or relationship created
thereby.
9.5 Headings. The headings in this Agreement are for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
9.6 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party to this Agreement, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature under or by reason of this Agreement.
9.7 Language; Counterparts. This Agreement is simultaneously executed
in English and Portuguese; in case of discrepancy between such languages, the
Portuguese language shall prevail. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
9.8 Press Releases. The Buyer and the Sellers shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this Agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
9.9 Absence of Finders' Fees. Each party represents and warrants to the
others that all negotiations relating to this Agreement and the transactions
contemplated herein have been carried on without the intervention of any person
acting on its/his behalf in such a manner as to give rise to any valid claim
from any brokerage commissions or finders' fees or similar compensation in
connection with the purchase and sale of the Quotas.
9.10 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to its subject matter and supersedes all other
prior agreements and understandings, both written and oral, among the parties
with respect to that subject matter. In the event of any dispute regarding this
Agreement, this PORTUGUESE version of this Agreement shall control.
And, being in agreement, the parties execute this instrument in 6 (six)
counterparts of one sole content and effect, in the presence of the undersigned
witnesses.
16
<PAGE> 17
AGREEMENT FOR THE PURCHASE AND SALE OF QUOTAS OF P.S.T. INDUSTRIA ELETRONICA DA
AMAZONIA LTDA.
Campinas October 29, 1997
/s/ RICARDO RIBEIBRO MACIEL
-----------------------------------
RICARDO RIBEIRO MACIEL
/s/ ICHIRO AOKI
-----------------------------------
ICHIRO AOKI
SELLERS
STONERIDGE, INC.
By: /s/ COARACI NOGUERIRA DO VALE
--------------------------------------
Name: Coaraci Nogueira do Vale
Attorney in fact
BUYER
/s/ SERGIO DE CERQUEIRA LEITE
--------------------------------------
SERGIO DE CERQUEIRA LEITE
/s/ MARCOS FERRETTI
--------------------------------------
MARCOS FERRETTI
QUOTAHOLDERS
17
<PAGE> 18
AGREEMENT FOR THE PURCHASE AND SALE OF QUOTAS OF P.S.T. INDUSTRIA ELETRONICA DA
AMAZONIA LTDA.
P.S.T. INDUSTRIA ELETRONICA DA AMAZONIA LTDA.
/s/ SERGIO DE CERQUEIRA LEITE
--------------------------------------
SERGIO DE CERQUEIRA LEITE
/s/ MARCOS FERRETTI
--------------------------------------
MARCOS FERRETTI
Witnesses:
- ---------------------------
- ---------------------------
18
<PAGE> 1
Exhibit 10.12
QUOTAHOLDERS' AGREEMENT
AMONG
MARCOS FERRETTI
SERGIO DE CERQUEIRA LEITE
STONERIDGE, INC.
AND
PST INDUSTRIA ELETRONICA DA AMAZONIA LTDA.
DATED OCTOBER 29, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I MANAGEMENT AND OPERATIONS OF THE COMPANY 2
ARTICLE II RESTRICTIONS ON ASSIGNMENT AND TRANSFERS
OF QUOTAS 7
ARTICLE III TERM AND TERMINATION 13
ARTICLE IV [INTENTIONALLY OMITTED] 15
ARTICLE V ADDITIONAL COVENANTS 15
ARTICLE VI MISCELLANEOUS 17
</TABLE>
<PAGE> 3
QUOTAHOLDERS' AGREEMENT
THIS QUOTAHOLDERS' AGREEMENT (this "Agreement"), is made and
entered into as of the 29TH day of October, 1997, by and among MARCOS FERRETTI,
Brazilian citizen , married, electrical engineer, resident and domiciled at Rua
Pedro Vieira da Silva, No. 64-Bl. 1, apt. 41, Jardim Santa Genebra, Campinas,
State of Sao Paulo, holder of identification card RG/SP No. 13.602.771,
Individual Taxpayers Registration No. 061.910.648-45 ("Ferretti"), SERGIO DE
CERQUEIRA LEITE, Brazilian citizen, married, businessman, resident and domiciled
at Rua Joaquim Novaes, 250, apt. 62 - Cambui, Campinas, State of Sao Paulo,
holder of identification card RG/SP No. 15.307.343, Individual Taxpayers
Registration No. 102.104.068-10("Leite"), STONERIDGE, INC., an Ohio corporation,
with head office at 9400 East Market Street, Warren, Ohio, United States of
America, in this act represented by its attorney in fact, Coaraci Nogueira do
Vale, Brazilian citizen, married, attorney-at-law and consultant, resident and
domiciled in the Capital City of the State of Sao Paulo, at Rua Tabapua, 821 -
8th floor, suite 96, holder of Identification Card No. 2.676.014-SSP/SP and
Individual Taxpayers' Registration No. 043.359.028-91;. ("Stoneridge"), and
P.S.T. Industria Eletronica da Amazonia Ltda., a Brazilian limited liability
commercial company with head office at the city of Manaus, the state capital of
the State of Amazonas, at Rua Sao Domingos, 86-B and 179, Aleixo, Federal
Taxpayers' Registration No. 84.496.066/0001-04, with its Company Agreement
recorded at the Commercial Registry of the State of Amazonas, under Nbr.
13200.277.643 on August 27, 1993, and subsequent amendments (the "Company").
Unless otherwise defined herein, capitalized terms used herein are defined in
Section 6 hereof.
W I T N E S S E T H :
WHEREAS, collectively the Quotaholders own 100% (one hundred
percent) of the quotas of the Company (the "Quotas," and each a "Quota").
WHEREAS, the Quotaholders wish to promote the business of
manufacturing and selling automotive keyless entry systems and other goods and
to expand the present business through a joint venture in the form of the
Company; and
WHEREAS, the Quotaholders understand and acknowledge the importance
of mutual trust and the strong spirit of partnership between them in conducting
a joint venture such as the one contemplated herein; and accordingly, the
Quotaholders agree to endeavor to make all material decisions with respect to
the operation of such company in the spirit of partnership and mutual trust.
NOW, THEREFORE, the Quotaholders hereto agree as follows:
<PAGE> 4
ARTICLE I
MANAGEMENT AND OPERATIONS OF THE COMPANY
1.1 PURPOSE. The purpose of the Company is to continue the conduct
of the present business of the Company in the territory of South America and to
expand the Company's business to include products to be agreed upon by the
Quotaholders by entering into agreements with divisions and Affiliates of
Stoneridge or otherwise, on terms to be agreed upon by the parties. It is also
contemplated that the Company will license to Stoneridge existing and future
technologies of the Company for applications outside of South America; provided
that Stoneridge will not compete worldwide with current Company technology and
products. The parties acknowledge that Stoneridge has purchased Quotas on the
basis that the Company will expand the business in this way and that all
Quotaholders will support and agree to such expansion.
1.2 THE MANAGEMENT; BUSINESS PLAN.
(a) The Management of the Company (the "Management") shall
consist of [four] directors and one President. The directors shall be
responsible for the following areas, pursuant to what is described currently in
the organizational chart of the Company: Commercial, Engineering, Industrial and
Financial and Administrative. The President, with the consent of the
Quotaholders, may accumulate the management of one of the areas. Initially, it
is defined that Leite shall be the president of the company. Each Quotaholder
holding at least 25% of the Company's equity interest shall be entitled to
appoint a manager for each 25% interest held by such Quotaholder. A manager
appointed by a Quotaholder may be at any time the Quotaholder himself that
appointed such manager. A Quotaholder shall have the right to fill a vacancy
created by the death, resignation or removal of a manager appointed by such
Quotaholder. The eventual non-appointment of a manager by any of the
Quotaholders who has the right to appoint said manager shall not prejudice
his/its right to appoint a manager pursuant to this Clause. Stoneridge shall
have the right to appoint a director who shall serve as the Administrative and
Chief Financial Officer of the Company, as well as a director for the industrial
area. The Quotaholders and the Company shall promptly take all corporate actions
which may be reasonably necessary to carry out the terms of this Section 1.2.
(b) The Quotaholders shall work together to establish a business
plan for the Company, which shall be supplemented and modified not less
frequently than annually and shall include a budget for capital investment for
expansion, a budget for capital and operating expenses in connection with
existing projects, and revenue projections. The Company's affairs shall be
conducted in a manner consistent with the highest standards of fair trade, fair
competition and
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<PAGE> 5
business ethics. The Company shall conduct its business and otherwise act in
compliance with all applicable laws and regulations.
1.3 DAY-TO-DAY MANAGEMENT. The day-to-day management of the Company
shall be the responsibility of the Management.
1.4 INSURANCE. The Company shall maintain at all times during the
term of this Agreement comprehensive general liability insurance in amounts
consistent with good business practices in Brazil [and naming each Quotaholder
as additional insureds]. Each policy of insurance purchased by the Company
pursuant to the preceding sentence shall be placed with a reputable insurance
company acceptable to the Quotaholders. The Quotaholders will work together in
good faith to coordinate insurance coverage for the Company and the respective
interests of the Quotaholders.
1.5 MEETINGS OF THE QUOTAHOLDERS. The Quotaholders shall hold at
least one meeting every three months. At least one of such meetings each year
shall be held at an office of Stoneridge in the United States or Mexico and at
least three of such meetings each year shall be held at the head office of the
Company in Brazil, or at such other locations as the Quotaholders may agree. The
expenses of such meetings, including the travel and other out-of-pocket expenses
of the Quotaholders, shall be borne by the Company. Unless otherwise agreed in
writing by all managers in respect of any Quotaholders' meeting, all
Quotaholders shall be given not less than 21 days notice of a Quotaholders
meeting, such notice to be in the Portuguese and English languages sent to each
Quotaholder together with an agenda of matters to be discussed or considered at
that Quotaholders' meeting.
1.6 ACTIONS REQUIRING AGREEMENT OF THE QUOTAHOLDERS.
(a) Notwithstanding the foregoing provisions of this Article
neither the Company nor any subsidiary of the Company shall take, or refrain
from taking, any of the following actions (x) without complying with all
applicable requirements of Brazilian law, and (y) without the prior consent of
all Quotaholders;
(i) deviate from the business of the Company;
(ii) sell, encumber or otherwise dispose of any real estate
owned by the Company or any subsidiary (or grant any option or
undertake any corresponding commitment); sell, encumber or otherwise
dispose of fixed assets of the Company or of any subsidiary (or grant
any option or undertake any corresponding commitment), with an
aggregate value higher than R$ 10.000,00 (ten thousand reais), said
amount monetarily corrected by the IGPM;
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<PAGE> 6
(iii) incur any indebtedness of the Company for borrowed
money in excess of R$ 100.000,00 (one hundred thousand reais) in
aggregate principal amount at any one time outstanding, said amount
monetarily corrected by the IGPM, except (A) as otherwise contemplated
by the annual budget and capital plan, (B) working capital needs, (C)
discount of accounts receivable and (D) import financing;
(iv) make any loan or advance to, or guarantee for the
benefit of, any person or entity, except for loans or advances in the
ordinary course of business;
(v) enter into, amend or grant a waiver with respect to any
arrangement between the Company, on the one hand, and any Quotaholder
or their respective Affiliates, directors, officers, employees and
other principals (or individuals related by blood or marriage to any
such person) or any entity in which any of the foregoing own equity
interests, on the other hand;
(vi) make any amendment to the Company Agreement;
(vii) liquidate, dissolve or effect a recapitalization of
the Company or any subsidiary in any form of transaction;
(viii) file a voluntary petition for bankruptcy;
(ix) merge, split or consolidate the Company or any
subsidiary with or into any other entity;
(x) incur any Lien upon any property, revenues or assets,
whether now owned or hereafter acquired of the Company, in an amount
in excess of R$ 10.000,00 (ten thousand reais), said amount monetarily
corrected by the IGPM, except for (a) Liens for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established, or (b) any
statutory Lien arising in the ordinary course of business by operation
of law with respect to a liability that is not yet due or delinquent;
(xi) enter into any material contract outside the ordinary
course of the Company's business;
-4-
<PAGE> 7
(xii) purchase fixed assets with an individual value higher
than R$ 50.000,00 (fifty thousand reais), said amount monetarily
corrected by the IGPM, in any fiscal year;
(xiii) form any subsidiary;
(xiv) acquire equity securities, or securities exchangeable
for or exercisable into, equity securities or notes, obligations,
instruments, stock or other securities of another entity or options or
commitments therefor, other than short-term investments of retained
earnings;
(xv) adopt or modify any annual budget and capital plan or
establish annual policies with respect to operational aspects of the
Company and its subsidiaries;
(xvi) establish or modify the compensation and benefits
packages for the key management personnel of the Company and its
subsidiaries;
(xvii) adopt, amend or terminate any employee compensation
and benefit plans or other material personnel practices or policies of
the Company or any subsidiary, except those arising from collective
bargaining;
(xviii) acquire another Person or assets outside the
ordinary course of business by the Company if the cost of such
acquisition or the effect thereof on the Company exceeds R$ 10.000,00
(ten thousand reais), said amount monetarily corrected by the IGPM; or
(xix) require or request any capital contribution or loan
from any Quotaholder.
(b) The Quotaholders acknowledge that certain Company actions
require the consent or approval of all Quotaholders represented in this
Agreement. In case of the death of one of the Quotaholders, the consent or
approval of quotaholders shall be determined by the remaining quotaholders. To
the extent the Company determines to take any such action, in accordance with
this Agreement and at all times subject to Section 1.6, the Quotaholders shall
take, and shall cause their nominee representatives to take, the respective
actions which may be required of Quotaholders to implement these actions.
-5-
<PAGE> 8
1.7 EARNINGS POLICY ON DISTRIBUTION OF EARNINGS.
The Quotaholders intend that a substantial portion of the earnings
of the Company be used to fund the growth and capital needs of the Company.
Accordingly, any distribution of earnings by the Company must be consented to in
writing by Quotaholders who hold the total Company capital; provided that the
Company will distribute a minimum of 25% of its annual earnings to the
Quotaholders.
1.8 ADDITIONAL FINANCING. The Company shall be financed through
capital increase by deliberation of all Quotaholders who represent the total
Company capital. The Company may also be financed through indebtedness pursuant
to provisions in item 1.6.
1.9 LICENSING. The Quotaholders intend for Stoneridge and the
Company to interchange certain intellectual property, technology and technical
assistance that may enhance the operations of each party, if all of the
Quotaholders can agree on the terms and conditions of the licensing
arrangements. All such arrangements shall be documented with appropriate written
license agreements containing compensation and other terms to be agreed upon by
the parties and to be duly approved by, and recorded at, the Industrial Property
National Institute ("INPI").
1.10 REPORTS. The Company will send to each Quotaholder full
information regarding the operations of the Company, providing, among others,
the following documents:
(a) Annually, by 60 days prior to the close of the corporate
year, the annual budget and capital plan for the succeeding year;
(b) Annually, by 90 days after the close of the corporate year,
the audited balance sheet of the Company and the related statements of income
and quotaholders' equity for the fiscal year then ended, accompanied by
explanatory notes, the report of the Management, and the Opinion of the
Independent Auditors;
(c) Revisions of the annual budget and capital plan, with notes
explanatory of the alterations occurring, when issued; and
(d) Monthly, by 15 days after the close of the prior calendar
month, the preliminary balance sheet and operating statement with a report
comparing actual financial and operating information to planned financial and
operating information. Other reports may be defined pursuant to the need of any
Quotaholder and shall be the object of approval by the Directors.
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<PAGE> 9
ARTICLE II
RESTRICTIONS ON ASSIGNMENT AND TRANSFERS OF QUOTAS
2.1 GENERAL PROHIBITION. No Quotaholder will pledge, mortgage, or
otherwise encumber, or sell, transfer, assign, or otherwise dispose of (each, a
"Transfer") any Quotas or any interest in any Quotas except with the written
consent of all Quotaholders, pursuant to an Exempt Transfer (as defined in
Section 2.2) or in accordance with the provisions of this Article II. Any
Transfer or series of related Transfers of Quotas by one or more Persons, the
effect of which is to directly or indirectly violate the restrictions contained
in this Agreement, or any transaction the primary purpose of which is to avoid
the restrictions contained in this Agreement, shall be deemed void and of no
force or effect.
2.2 EXEMPT TRANSFERS. The restrictions contained in Section 2.1
shall not apply to any Transfer (i) to which all Quotaholders have agreed in
writing, (ii) by a Quotaholder to its Affiliate, permitted by this Section 2.2
is referred to herein as an "Exempt Transfer."
2.3 RIGHT OF FIRST REFUSAL.
(a) INTENTION TO SELL. If a Quotaholder wishes to sell all or
any portion of the Quotas owned by such Quotaholder to a third party (other than
pursuant to an Exempt Transfer), a transferring Quotaholder (a "Selling
Quotaholder"), will deliver a written notice (the "Notice of Intention to Sell")
to the Company and all other Quotaholders. The Notice of Intention to Sell will
disclose in reasonable detail the specified purchaser, the number of Quotas
proposed to be transferred (as applicable, the "Offered Quotas"), the proposed
selling price per Quota (the "Offer Price"), the proposed purchaser(s), the
proposed sale, and the other principal terms and conditions of sale. Such Notice
of Intention to Sell will constitute an irrevocable offer to sell to the Company
and the other Quotaholders the Offered Quotas for the Offer Price and on the
other terms and conditions set forth in the Notice of Intention to Sell, subject
to the provisions of this Article II. Leite shall have the right of preference
to purchase the Quotas of Ferretti or his spouse or legal heirs, as well as
Ferretti shall have the right of preference to purchase the Quotas of Leite or
his spouse or legal heirs. The intent to purchase shall be effected in writing
by the preferential purchaser within 1 (one) week from the date of said
notification of the intention to sell. After the preferential quotaholder
expenses his contention, in case there is no interest in said purchase, the
Quotas shall be available for the Company and the other quotaholders for the
eventual purchase.
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<PAGE> 10
(b) ACCEPTANCE PERIOD. Upon receipt of a Notice of Intention to
Sell and for 20 business days from and after the date of such receipt (the
"Acceptance Period"), the Company, reciprocal preferential rights for the
purchase and sale of Quotas between Messrs. Leite and Ferretti foreseen in item
2.3(a) being observed, will have the right and option to elect to purchase all
of such Offered Quotas at the purchase price and on the terms stated in the
Notice of Intention to Sell. On or before the expiration of the Acceptance
Period, the Company reciprocal preferential rights for the purchase and sale of
quotas between Messrs. Leite and Ferretti foreseen in item 2.3(a) being
observed, may give the Selling Quotaholder written notice of the Company's
intention to exercise its rights to purchase Offered Quotas, subject to the
existence of free reserves.
(c) FAILURE OF COMPANY TO EXERCISE ITS OPTION TO PURCHASE. If
the Company fails to elect to purchase all of the Offered Quotas in accordance
with the provisions of Sections 2.3(a) and 2.3(b), the Company shall promptly,
and in any event within three days after the end of the Acceptance Period,
deliver to each Quotaholder other than the Selling Quotaholder (an "Eligible
Quotaholder") a copy of the Notice of Intention to Sell and a statement
indicating the number of Offered Quotas available for purchase by the other
Quotaholders, whereupon each Quotaholder shall have the right and option to
elect to purchase its Pro Rata Share of all such Offered Quotas, at the purchase
price and on the terms stated in the Notice of Intention to Sell, such election
to be made by giving written notice to the Company and the Selling Quotaholder
within 45 business days from the date of receipt by an Eligible Quotaholder of
the Notice of Intention to Sell (the "Eligible Quotaholder Acceptance Period").
(d) NOTICE OF ELECTION TO PURCHASE. If any Eligible Quotaholder
fails to elect to purchase on a timely basis, or elects in writing not to
purchase, all of such Quotaholder's Pro Rata Share of the Offered Quotas
pursuant to Section 2.3(c), then, within three business days after the earlier
to occur of (A) the expiration of the Eligible Quotaholder Acceptance Period and
(B) receipt by the Company of either written notices of election or non-election
from each Eligible Quotaholder, the Company shall give written notice to those
Eligible Quotaholders, if any, that have accepted such offer with respect to all
of their Pro Rata Share of such Offered Quotas, setting forth the number of
Offered Quotas available for purchase pursuant to the Notice of Intention to
Sell, and each such Eligible Quotaholder will then have the right and option to,
within five business days after receiving notice from the Company, elect to
purchase (i) all of such Offered Quotas so available (if there is only one
electing Eligible Quotaholder) or (ii) up to its Pro Rata Share of such Offered
Quotas so available (if there is more than one electing Eligible Quotaholder)
(provided, however, that in determining each such electing Eligible
Quotaholder's Pro Rata Share for this provision, the denominator of the Pro Rata
Share ratio described in the definition of Pro Rata
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<PAGE> 11
Share includes only Quotas held by Eligible Quotaholders electing to purchase
their full Pro Rata Share of the Offered Quotas under Section 2.3(c)) or (iii)
such Offered Quotas so available in such other proportions as such Eligible
Quotaholders may mutually agree, at the purchase price and on the terms stated
in the Notice of Intention to Sell. The Company promptly shall notify the
Selling Quotaholder in writing of each notice of election received from Eligible
Quotaholders.
(e) SELLING QUOTAHOLDER'S RIGHTS UPON FAILURE TO EXERCISE RIGHT
TO PURCHASE ALL OFFERED QUOTAS. If acceptances have not been received by the
Selling Quotaholder with respect to all of the Offered Quotas under Sections
2.3(a), 2.3(b), 2.3(c), and 2.3(d), then the Selling Quotaholder may sell all
(but not less than all) of the Offered Quotas to the purchaser specified in the
Notice of Intention to Sell at the price and upon the terms set forth in the
Notice of Intention to Sell, at any time within 20 business days after the last
date on which any Eligible Quotaholder shall be entitled to make any election
pursuant to the provisions of this Section 2.3. The purchaser(s) specified in
the Notice of Intention to Sell must, prior to purchasing the Offered Quotas,
agree in writing to become a party to, and to be bound by the provisions of,
this Agreement, and the Company will not recognize any Transfer to such
purchaser of Offered Quotas until such agreement has been executed and delivered
to the Company. If the Offered Quotas are not sold by the Selling Quotaholder
during 180 business-days , the right of the Selling Quotaholder to sell such
Offered Quotas will expire and such remaining Offered Quotas again will be
subject to the restrictions contained in this Agreement and will not thereafter
be Transferred except in compliance with this Agreement.
(f) PAYMENT FOR SELLING QUOTAHOLDER'S OFFERED QUOTAS. Payment by
the Company or the Eligible Quotaholders for the Selling Quotaholder's Offered
Quotas will be made in a manner that is in accordance with Brazilian law and
that is determined by the Selling Quotaholder, against delivery to the party
purchasing such Offered Quotas of (i) a signed Purchase and Sale of Quotas
Agreement with the obligation for signing a Company Agreement Amendment
effecting the assignment and transfer of said quotas, including the granting of
irrevocable powers through proper instruments, for the purchasing party or
its/his representative to represent the Selling Quotaholder in said Company
Agreement Amendment (ii) written representations and warranties of the
transferor to the effect that: (A) such Person is the record and beneficial
owner of the Quotas being purchased and sold, has good and marketable title
thereto and the absolute right to transfer the same to the purchaser, and the
same, upon transfer to the purchaser, will be free and clear of all claims,
liens, pledges, restrictions (other than restrictions imposed by this Agreement
and restrictions under applicable laws) or encumbrances of any nature
whatsoever; (B) such Person has full power and capacity to perform the terms of
this Agreement relating to such purchase and sale; and (C) any consent or
approval of any governmental
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authority, court or third person necessary to permit the Transfer of the Quotas
has been obtained.
(g) CLOSING DATE. The closing of the sale and assignment and
transfer of Offered Quotas being purchased and sold pursuant to this Section 2.3
to the Company or the Eligible Quotaholders, and payment for such Offered
Quotas, will be held at a time and place designated by the selling party as
follows:
(i) If the Company has elected to purchase all of the
Offered Quotas, on the tenth business day after the date on which the
Selling Quotaholder receives notification of the Company's intention
to so purchase; or
(ii) In all other cases, on the tenth business day after the
last day upon which Eligible Quotaholders can elect to purchase
Offered Quotas pursuant to this Section 2.3.
(h) NON-CASH CONSIDERATION. In the case of a Transfer for
consideration consisting in whole or in part of a form other than cash, the
Company or any Quotaholder who would be entitled to the rights in Section 2.3
may demand that the Appraised Value (as defined in the following sentence) of
the consideration be determined, whereupon the passage of time for acceptance of
an offer shall be suspended until the Appraised Value has been determined and
reported. "Appraised Value" shall be determined by agreement of the Selling
Quotaholder and the parties demanding the appraisal, or, if they are unable to
agree within ten days following the demand, such persons shall select an
appraiser by unanimous agreement, which appraiser shall determine such Appraised
Value within 30 (thirty) business days. If such parties are unable to agree upon
an appraiser, the Selling Quotaholder, on the one hand, and the parties
demanding appraisal, on the other hand, shall each select an appraiser, and the
two appraisers so selected shall select a third appraiser whose determination of
Appraised Value shall be final and binding on all parties. The reasonable costs
of this procedure shall be borne by the Company.
(i) RESTRICTIONS. Notwithstanding the foregoing provisions of
this Section 2.3 to the contrary, no Quotaholder has the right to sell any
Offered Quotas pursuant to a Notice of Intention to Sell if such Quotaholder did
not at the time of giving such Notice of Intention to Sell have a good faith
belief that the specified purchaser would purchase all of the Offered Quotas, at
the price and on the terms contained in the Notice of Intention to Sell.
(j) PRO RATA SHARE. For purposes of this Article II, a
Quotaholder's "Pro Rata Share" of Offered Quotas or of an Eligible Offering (as
defined in Section 2.3(c)), will be the proportion that the number of Quotas
held by
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such Quotaholder represents of the aggregate of all Quotas held by all
Quotaholders, electing to purchase Offered Quotas or to participate in the
Eligible Offering at that time.
2.4 DEATH/BANKRUPTCY OF QUOTAHOLDER.
(a) In the event of the death or dissolution of a Quotaholder,
or if a Quotaholder shall be judicially declared bankrupt or insolvent, make an
assignment for the benefit of, or enter into a compromise with, its creditors,
initiate bankruptcy or insolvency proceedings of any kind or proceedings for the
appointment of a receiver, manager, judicial manager or similar official with
respect to it or any of its assets or become a party to dissolution proceedings
(or have any such proceeding instituted against it which is not dismissed within
90 days of the filing thereof) (a "Triggering Event"), then such Quotaholder or
the representative of his estate (the "Withdrawn Quotaholder"), shall withdraw
from the Company and shall deliver a written notice (the "Death/Bankruptcy
Notice") to the Company and the other Quotaholders notifying them of such event.
The Company may elect to purchase all or any portion of the Quotas held by the
Withdrawn Quotaholder or his estate (the "Relinquished Quotas") for Fair Market
Value by delivering a written notice (an "Acceptance Notice") of such election
to the Withdrawn Quotaholder and each other Quotaholder within 15 business days
after the delivery of the Death/Bankruptcy Notice. Leite shall have the right of
preference in the purchase of Quotas held by Ferretti or his spouse or legal
heirs, as well as Ferretti shall have the right of preference in the purchase of
Quotas held by Leite or his spouse or legal heirs. For purposes of exercising
the preference established in this Section 2.4(a), in the circumstance of death,
the intention to purchase shall be effected in writing by the preferential buyer
within 1 (one) week counting from the knowledge of the intention to sell. After
a statement by the preferential buyer, in case there is no interest, the Quotas
shall be available for the Company and other Quotaholders for the eventual
purchase. The Relinquished Quotas the Company does not elect to purchase, if any
(the "First Remaining Relinquished Quotas"), will, as soon as possible after the
above 15 business-day period, be offered to the Quotaholders, who may elect to
purchase all or less than all of their Pro Rata Share of the First Remaining
Relinquished Quotas for Fair Market Value by delivering an Acceptance Notice of
such election to the Withdrawn Quotaholder within 30 business days after receipt
of the Death/Bankruptcy Notice.
(b) If any Quotaholder does not elect to purchase all of its Pro
Rata Share of the First Remaining Relinquished Quotas, such remaining
Relinquished Quotas (collectively, the "Second Remaining Relinquished Quotas")
will, as soon as possible after the 30 business-day period referred to in
Section 2.4(a), be offered to those Quotaholders that elected to purchase their
entire respective Pro Rata Share of the First Remaining Relinquished Quotas for
Fair
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<PAGE> 14
Market Value. Such Quotaholders may elect to purchase all or less than all of
their entire Pro Rata Share of the Second Remaining Relinquished Quotas, and any
remaining portion thereof will be reoffered to Quotaholders that continue to
elect to purchase their entire Pro Rata Share of the remaining Relinquished
Quotas until no such Quotaholder elects to purchase any additional Relinquished
Quotas; provided that a Quotaholder must elect to purchase Second Remaining
Relinquished Quotas by delivering an Acceptance Notice of such election within
45 business days after the delivery of the Death/Bankruptcy Notice.
(c) Any of the Relinquished Quotas that the Quotaholders do not
elect to purchase pursuant to clauses (a) and (b) of Section 2.4 will be
reoffered to the Company. The Company may elect to purchase such Relinquished
Quotas at Fair Market Value by delivering an Acceptance Notice of such election
to the Withdrawn Quotaholder within 65 business days after the delivery of the
Death/Bankruptcy Notice.
(d) If Acceptance Notices with respect to all Relinquished
Quotas are given within the time periods described above, the Death/Bankruptcy
Notice, together with the Acceptance Notice(s) related thereto, will constitute
a binding agreement between the parties thereto to buy and to sell the
Relinquished Quotas for Fair Market Value, the provisions established in Section
2.4(a) being observed at all times. All Transfers of Offered Quotas pursuant to
the foregoing provisions of this Article II will be consummated as soon as
practicable, but in any event within 75 business days after delivery of the
Death/Bankruptcy Notice; provided, however, that such 75 business-day period
shall be extended to the extent necessary to obtain as promptly as practicable
any governmental and/or other approvals required in connection with such
Transfer.
(e) If Acceptance Notices with respect to all Relinquished
Quotas are not given within the time periods described above, the Withdrawn
Quotaholder may, subject to Section 2.6, Transfer any number of the Relinquished
Quotas to one or more third parties.
2.5 COSTS. Except as otherwise provided in this Agreement, the
Quotaholder effecting a Transfer shall pay, or reimburse the Company for, all
reasonable costs incurred by the Company in connection with the Transfer
(including, without limitation, any legal fees incurred in connection with the
consideration of the implications thereof under applicable laws).
2.6 ADDITIONAL RESTRICTIONS. In addition to all other applicable
provisions of this Agreement, it shall be forbidden for any purported Transfer
to be made (i) within two years from the date of this Agreement, except pursuant
to Section 2.4 or Section 3.3, or (ii) unless and until the Company has received
a document executed by both the Quotaholder effecting the Transfer and the party
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<PAGE> 15
to which the Quotas are transferred containing the transferee's agreement to be
bound by this Agreement in respect of the Quotas being obtained.
ARTICLE III
TERM AND TERMINATION
3.1 TERM. This Agreement shall be deemed effective as of the date
hereof and, unless earlier terminated pursuant to Section 3.2, shall remain in
effect so long as the Company remains in existence.
3.2 TERMINATION.
(a) This Agreement may be terminated by Stoneridge, subject to
Section 3.6, or by Ferretti and Leite acting collectively, by giving written
notice to the other Quotaholder(s) within 30 days of the applicable event, if:
(i) the Alternate Quotaholder is in breach of this Agreement
(which breach, if not cured, would have a material adverse effect in
excess of R$ 100.000,00 (one hundred thousand reais), said amount
monetarily corrected by the IGPM, on the operations, property or
financial condition of a non-breaching Quotaholder or the Company) (a
"Material Breach"), and such breach is not cured within 60 days of
receiving written notice from a Quotaholder giving reasonable
particulars of such breach or, if such default cannot reasonably be
cured within such 60-day period, (A) the Quotaholder in breach fails
promptly to take and continue to take all reasonable steps to cure the
breach as promptly as practicable after receipt of such notice or (B)
at the end of such 60-day period it appears that the breaching
Quotaholder will not be able to cure the breach within a commercially
reasonable time (not to exceed an additional 60 days); or
(ii) a Triggering Event (as defined in Section 2.4(a))
occurs with respect to the Alternate Quotaholder
(b) This Agreement shall automatically be terminated upon:
(i) the written consent of all Quotaholders;
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<PAGE> 16
(ii) the consummation of the purchase and sale of Quotas
pursuant to Article IV.
3.3 BUYOUT RIGHTS. If Stoneridge, Ferretti or Leite desire to
terminate this Agreement pursuant to Section 3.2(a), the party entitled to
terminate this Agreement (the "Terminating Party") shall have the right (the
"Buy-out Right"), in addition to any other remedy that may be available, to
acquire all of the Quotas then owned by the Alternate Quotaholder (the "Called
Interest") for a cash price equal to (i) 95% of the Fair Market Value of the
Called Interest if this Agreement is terminated pursuant to Section 3.2(a)(i),
or (ii) 100% of the Fair Market Value of the Called Interest if this Agreement
is terminated pursuant to Section 3.2(a)(ii). The Buy-out Right may only be
exercised by the giving of written notice (the "Buy-out Notice") by the
Terminating Party to the Alternate Quotaholder within ten days after the end of
the cure period referred to in Section 3.2(a)(i). Delivery of the Buy-out Notice
shall constitute an irrevocable election by the Terminating Party to exercise
the Buy-out Right. The purchase and sale of the Called Interest shall be
consummated as soon as practicable following the determination of the Fair
Market Value of the Called Interest, but in no event more than 30 days
thereafter (subject to any extension necessary to comply with any applicable
regulatory requirement). In determining Fair Market Value for purposes of this
Section 3.3 following a Material Breach (as defined in Section 3.2), the effect,
if any, of the Material Breach on the Company shall be taken into account.
3.4 DISSOLUTION AND LIQUIDATION. Upon the termination of this
Agreement, unless one Quotaholder acquires all of the Quotas held by all other
Quotaholders and the other Quotaholders' Affiliates, the Quotaholders shall
cause the Company to be dissolved and liquidated in accordance with applicable
law and shall cooperate in good faith with each other for such purpose. Upon the
dissolution of the Company, for whatever reason, (i) the Quotaholders shall use
their reasonable best efforts to fulfill any customer requirements that remain
at such time, and (ii) all of the parties hereto shall receive a world-wide,
non-exclusive, paid-up, royalty free, license to use all technology owned by the
Company for any purpose (it being understood that technology licensed to the
Company will remain the property of the licensor).
3.5 EFFECT OF TERMINATION; SURVIVAL. The termination of this
Agreement for any reason shall not release any Quotaholder from its liability to
the Company or the other Quotaholders for accrued obligations and liabilities,
and the provisions of Sections 5.1 and 5.2 and Article VI shall survive such
termination.
3.6 PREEMPTION OF RIGHTS. If either of the events described in
Section 3.2(a) (i) or (ii) occurs with respect to either Ferretti or Leite (the
"Exiting Quotaholder") but not both, then the other individual Quotaholder shall
have the right to purchase the Quotas of the Exiting Quotaholder on the terms
set forth in
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Section 3.3 and if such Quotas are so purchased Stoneridge shall not have the
right to terminate this Agreement as provided in Section 3.2.
ARTICLE IV
[Intentionally omitted.]
ARTICLE V
ADDITIONAL COVENANTS
5.1 PROTECTION OF BUSINESS.
(a) Subject to the provisions of Section 5.1(f), for the period
commencing on the date hereof and ending, with respect to each Quotaholder, on
the date on which such Quotaholder ceases to own Quotas or on which this
Agreement is terminated, whichever is earlier, such party shall not in South
America directly or indirectly, whether for its own account or as Quotaholder,
partner, joint venturer, director, employee, consultant, agent or otherwise,
engage in the automotive security entry system business other than through the
Company.
(b) In the event that during the term of this Agreement
Stoneridge determines to conduct the automotive security entry system business
outside of South America, it will endeavor to use the technology of the Company
in this business, on terms that are mutually agreeable to all Quotaholders.
(c) If a Quotaholder sells all of his or its Quotas, such
Quotaholder agrees not to engage in the automotive security entry system
business in South America for two years from the date of such sale.
(d) If this Agreement is terminated, unless Stoneridge acquires
all of the outstanding Quotas, Stoneridge will not engage in the automotive
security entry system business in South America for two years from the date of
termination, except to service then current customers.
(e) License agreements to be entered into between the Company
and the Quotaholders will govern additional businesses of the Company and the
rights the parties will have to engage in these businesses if the Company is
dissolved or if this Agreement is terminated.
(f) The provisions of this Section 5.1 are not intended, and
shall
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not be deemed, to derogate from the obligations of the Quotaholder under or
referred to in Section 5.2.
5.2 CONFIDENTIALITY. License agreements relating to intellectual
property, technology and technology assistance shall contain appropriate
confidentiality provisions to which the parties thereto and all Quotaholders
shall agree.
5.3 COMPLIANCE with Foreign Corrupt Practices Act; Sensitive
Payments. The Company and its principals and agents will comply with the United
States Foreign Corrupt Practices Act ("FCPA") and shall adopt, if requested by
Stoneridge, any FCPA compliance program recommended by Stoneridge. Each
Quotaholder (the "Representing Quotaholder") represents and covenants to the
other Quotaholders that no Affiliate, employee, agent or other representative of
the Representing Quotaholder or of any Affiliate of the Representing Quotaholder
has given or received or shall give or receive any commission, fee, rebate,
gift, entertainment or other payment or remuneration of significant cost or
value to or from (i) the other Quotaholders, their respective Affiliates,
employees, agents or representatives or (ii) the government of Brazil or any
agency, political party or official thereof, in connection with the transactions
contemplated hereby, which would constitute an illegal act under applicable
Brazilian or United States law. Each Quotaholder (the "Notifying Quotaholder")
agrees to notify the other Quotaholders promptly in the event of any violation
of the foregoing by any Affiliate, employee, agent or representative of the
Notifying Quotaholder or any Affiliate thereof. In addition, each Quotaholder,
its Affiliates, employees, agents and representatives shall indemnify and hold
the other Quotaholders harmless from and against any and all costs, expenses,
fines, penalties and other sanctions imposed by any governmental entity as a
result of the inaccuracy of the foregoing representation or the breach of any of
the foregoing covenants.
5.4 COMPLIANCE WITH LAWS BY THE COMPANY. The Company shall conduct
its business and otherwise act in compliance with all applicable laws and
regulations.
5.5 PERFORMANCE BY THE COMPANY. The Quotaholders shall take all
reasonable steps to facilitate the implementation of the transactions
contemplated by this Agreement and to cause the Company to acknowledge and
perform the obligations on the Company's part to be performed by it hereunder.
5.6 ADDITIONAL COOPERATION. In the event that any Quotaholder
exercises any right under this Agreement to buy or sell, or to cause another
party to buy or sell, Quotas or assets of the Company (including, without
limitation, pursuant to Articles II or IV), each of the Quotaholders shall use
its reasonable best efforts to obtain all necessary approvals of the applicable
transaction.
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<PAGE> 19
ARTICLE VI
MISCELLANEOUS
6.1 CERTAIN TERMS AND DEFINITIONS. For the purpose of this
Agreement, the following terms shall have the following meanings:
"Affiliate" of another person shall mean any person directly or
indirectly controlling, controlled by, or under common control with, such other
person, or any officer or director of any such person or Affiliate thereof.
"Alternate Quotaholder" means, with respect to Stoneridge, either
Ferretti or Leite; and with respect to Ferretti and Leite, acting collectively,
Stoneridge.
"Fair Market Value" shall mean, with respect to Quotas, the
product of (i) the percentage of the equity of the Company represented by such
Quotas and
(ii) the Fair Market Value of the Company. The Fair Market Value of the Company
shall be the cash price that an unrelated party would pay for all of the
outstanding quotas of capital of the Company, in light of all relevant factors
in an arm's length transaction in which neither party is compelled to buy or
sell. The applicable Fair Market Value shall be determined pursuant to the
procedure set forth in the balance of this paragraph. The parties buying and
selling Quotas shall negotiate in good faith to determine the Fair Market Value
for a 30-day period beginning on the date of the occurrence of the event which
triggers the valuation. If the parties cannot agree on the Fair Market Value
within such 30-day period, the party or parties buying Quotas, on one hand, and
the party or parties selling Quotas, on the other hand, shall each appoint,
within ten days after the end of such period, an investment banking firm or
other firm with significant experience in the valuation of businesses, having
substantial experience in the valuation of Brazilian enterprises similar in size
and structure to the Company, other than the accountants or auditors of the
Company, of recognized standing, which firms shall be independent of the
Quotaholders (each such firm, an "Appraiser"). If either of the parties fails to
select an Appraiser within the 30-day period, the Fair Market Value shall be the
amount determined by the Appraiser selected by the other party. Each of the
Appraisers selected by the parties shall determine the Fair Market Value within
a period of 30 days from the date of their selection. In the event of a
difference of 10% or less between the Fair Market Value determined by each
Appraiser, the Fair Market Value shall be the average of the Fair Market Values
determined by the two Appraisers. In the event of a difference of more than 10%
between the
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<PAGE> 20
Fair Market Values determined by each Appraiser, then a third Appraiser shall be
selected by the Appraisers selected by each of the parties. Upon its selection,
the third Appraiser shall, within a period of 60 days from the date of its
selection, make its determination of the Fair Market Value, and the Fair Market
Value shall be the average of the Fair Market Values as determined by the three
appraisers. The Quotaholders shall share equally the costs of compensating all
of the foregoing Appraisers. The Company shall disclose and make available to
the Appraisers all of the information regarding the operations and financial
condition of the Company as may be reasonably requested by the Appraisers in
order to conduct and conclude their appraisals within the time periods set forth
herein.
"AIGPM" shall mean General Price Index-Market, published by the
Getulio Vargas Foundation.
"Quotaholder" shall mean a party to this Agreement and
"Quotaholders" shall mean the Quotaholders collectively.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company or any
subsidiary, any filing or agreement to file a financing or other statement as
debtor under the [Uniform Commercial Code] or any similar statute other than to
reflect ownership by a third party of property leased to the Company or any
subsidiary under a lease which is not in the nature of a conditional sale or
title retention agreement, or any subordination arrangement in favor of another
Person (other than any subordination arising in the ordinary course of
business).
"Person" means an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
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6.2 REFORMATION; SEVERABILITY.
(a) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is finally determined by a court of
competent jurisdiction to be unenforceable or invalid under applicable law, such
provision will be effective only to the extent of its enforceability or
validity, without affecting the enforceability or validity of the remainder of
this Agreement, and the Quotaholders agree that such court shall have
jurisdiction to reform this Agreement to the maximum extent permitted by law,
and the Quotaholders agree to abide by the court's determination. In the event
that any such provision of this Agreement cannot be reformed, such provision
will be deemed severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect.
(b) Without limiting the generality of the foregoing, if for any
reason any portion of the restrictions contained herein are held to be
unreasonable, arbitrary, or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary, or against
public policy. The Quotaholders hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary, or
against public policy, a court of competent jurisdiction shall construe and
interpret or reform such provision so that a lesser time period or geographical
area which is determined to be reasonable, non arbitrary, and not against public
policy may be enforced against the Quotaholders and the Company.
6.3 COUNTERPARTS; GOVERNING LAW, ARBITRATION AND LANGUAGE.
(a) This Agreement is simultaneously executed in English and
Portuguese; in case of discrepancy between such languages, the Portuguese
language shall prevail. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
(b) This Agreement shall be governed by the laws of Brazil. The
Courts sitting in the City of Sao Paulo, State of Sao Paulo, shall have
exclusive jurisdiction over any questions regarding the construction and
interpretation or any controversy or claim arising out of or relating to this
Agreement, or the breach thereof or relationship created thereby.
-19-
<PAGE> 22
6.4 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
in two of the following mediums: personally delivered, sent by certified mail
(return receipt requested) or sent by facsimile (confirmation of receipt
requested) to the respective parties as follows:
if to Stoneridge:
Stoneridge, Inc.
9400 East Market Street
Warren, Ohio, USA 44484
Attention: Mr. Cloyd J. Abruzzo
with a copy to:
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio, USA 44114-3485
Telecopier: (216) 696-0740
Attention: Mr. Avery S. Cohen
if to Marcos Ferretti:
Rua Pedro Vieira da Silva, No. 64
Bl. 1, apt. 41, Jardim Santa Genebra
01380-570 Campinas, SP
Brasil
with a copy to:
Marcelo Ribeiro de Almeida
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
-20-
<PAGE> 23
if to Sergio de Cerqueira Leite:
Rua Joaquim Novaes, No. 250
Apt.62 - Cambui
13015-140 Campinas, SP
Brasil
with a copy to:
Marcelo Ribeiro de Almeida
Ernst & Young
Condominio Sao Luiz - torre I - 7 degrees. andar
Av. Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo, SP
Brasil
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change). Notices will be deemed to have been given
hereunder when delivered personally, 15 business days after deposit in the mail,
or when confirmation of receipt is received; provided, however, that delivery of
a notice will be deemed to occur only when the later of the two deliveries is
deemed to have been given.
6.5 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon all of the Quotaholders and their respective permitted successors
and assigns, but, except as otherwise provided herein, neither the rights nor
the obligations of any Quotaholder hereunder may be voluntarily assigned, in
whole or in part, without the prior written consent of all of the other
Quotaholders, which consent may be withheld at such Quotaholders' sole
discretion.
6.6 WAIVERS AND AMENDMENTS; PRESERVATION OF REMEDIES. This
Agreement may be amended, modified, superseded, canceled, renewed or extended,
and the terms and conditions hereof may be waived only by a written instrument
signed by the Quotaholders or, in the case of a waiver, the Quotaholder waiving
compliance. No delay on the part of any Quotaholder in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any Quotaholder of any right, power or privilege
hereunder, nor any single or partial exercise of any right, power or privilege
hereunder, preclude any other exercise thereof hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which any Quotaholder may otherwise have at law or in equity. The
rights and remedies of
-21-
<PAGE> 24
any Quotaholder arising out of or otherwise in respect of any inaccuracy in or
breach of any material representation, warranty, covenant or agreement contained
in this Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claims of such inaccuracy or
breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the Quotaholders) as to which there is no inaccuracy or
breach.
6.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Quotaholders with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both oral and
written, between the Quotaholders hereto with respect to the subject matter
hereof.
6.8 HEADINGS. Descriptive headings in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
/s/ MARCOS FERRETTI
----------------------------------
MARCOS FERRETTI
/s/ SERGIO DE CERQUEIRA LEITE
---------------------------------------
SERGIO DE CERQUEIRA LEITE
STONERIDGE, INC.
By: /s/ COARACI NOGUEIRA DO VALE
--------------------------------------
Name: Coaraci Nogueira do Vale
Title: Attorney in fact
-22-
<PAGE> 25
P.S.T. INDUSTRIA ELETRONICA DA AMAZONIA LTDA.
/s/ MARRCOS FERRETTI /s/ SERGIO DE CERQUEIRA LEITE
--------------------------------------------------------
Marcos Ferretti Sergio de Cerqueira Leite
WITNESSES:
- ---------------------------------------
- ---------------------------------------
-23-
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONERIDGE,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 57,599
<ALLOWANCES> (287)
<INVENTORY> 32,793
<CURRENT-ASSETS> 98,978
<PP&E> 98,428
<DEPRECIATION> (43,619)
<TOTAL-ASSETS> 194,760
<CURRENT-LIABILITIES> 54,596
<BONDS> 36,642
0
0
<COMMON> 0
<OTHER-SE> 103,522
<TOTAL-LIABILITY-AND-EQUITY> 194,760
<SALES> 322,706
<TOTAL-REVENUES> 322,706
<CGS> 243,493
<TOTAL-COSTS> 243,493
<OTHER-EXPENSES> 37,256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,738
<INCOME-PRETAX> 39,219
<INCOME-TAX> 564
<INCOME-CONTINUING> 38,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,655
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONERIDGE,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 57,969
<ALLOWANCES> (265)
<INVENTORY> 31,936
<CURRENT-ASSETS> 96,634
<PP&E> 94,590
<DEPRECIATION> (34,207)
<TOTAL-ASSETS> 197,335
<CURRENT-LIABILITIES> 47,809
<BONDS> 68,090
0
0
<COMMON> 0
<OTHER-SE> 81,436
<TOTAL-LIABILITY-AND-EQUITY> 197,335
<SALES> 268,407
<TOTAL-REVENUES> 268,407
<CGS> 211,034
<TOTAL-COSTS> 211,034
<OTHER-EXPENSES> 37,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,910
<INCOME-PRETAX> 16,763
<INCOME-TAX> 405
<INCOME-CONTINUING> 16,358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0
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