<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 1999 Commission file number 001-13337
STONERIDGE, INC.
----------------
(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
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(Address of Principal Executive Offices) (Zip Code)
(330) 856-2443
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Registrant's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchange on Which Registered
------------------- ----------------------------
Common Shares, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 such 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 X __ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing price of March 17, 2000, the aggregate market value of
Common Shares held by nonaffiliates of the registrant was $143.1 million.
The number of Common Shares, without par value, outstanding as of March 17, 2000
was 22,397,311.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 8, 2000, into Part III, Items 10, 11, 12 and 13.
1
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<TABLE>
<CAPTION>
INDEX
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STONERIDGE, INC. - FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Page No.
<S> <C> <C>
Part I.
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results 12
of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements With Accountants on Accounting and 37
Financial Disclosure
Part III.
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management 38
Item 13. Certain Relationships and Related Transactions 38
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39
Signatures 41
</TABLE>
2
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Forward-Looking Statements
Portions of this report may contain "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995. These statements appear in a
number of places in this report and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things, the Company's (i) future product and
facility expansion, (ii) acquisition strategy, (iii) investments and new product
development and (iv) growth opportunities related to awarded business. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual events or results to differ materially from those
expressed in or implied by the statements. Factors which may cause actual
results to differ materially from those in the forward-looking statements
include, among other factors, the loss of a major customer, a decline in
automotive, medium and heavy-duty truck or agricultural vehicle production; the
failure to achieve successful integration of any acquired company or business,
including Hi-Stat Manufacturing Co., Inc., Delta Schoeller, Ltd. and TVI Europe,
Ltd.; or a decline in general economic conditions in any of the various
countries in which the Company operates. Further information concerning issues
that could materially affect financial performance is contained in the Company's
periodic filings with the Securities and Exchange Commission.
PART I.
ITEM 1. BUSINESS
The Company
The Company was founded in 1965 as a manufacturer of wire harnesses for the
agricultural vehicle market. The Company expanded as a contract manufacturer
primarily in the automotive market. In 1987, the Company began to transition
away from contract manufacturing into a value-added designer and manufacturer of
highly engineered products by developing internal engineering capabilities and
pursuing an acquisition program to expand product offerings. The Company
completed its initial public offering on October 10, 1997 (the Offering).
The Company is a leading independent designer and manufacturer of highly
engineered electrical and electronic components, modules and systems for the
automotive, medium and heavy-duty truck, and agricultural vehicle markets. The
Company's products interface with a vehicle's mechanical and electrical systems
to activate equipment and accessories, display and monitor vehicle performance,
and control and distribute electrical power and signals. The Company has a
leading market position in the design and manufacture of electrical and
electronic components, modules and systems for the medium and heavy-duty truck,
and agricultural vehicle markets. In the automotive market, the Company designs
and manufactures specially designed and engineered electrical and electronic
components and modules, typically on a sole-source basis.
Recent Acquisitions and Joint Ventures
In August 1999, the Company purchased all of the outstanding shares of TVI
Europe, Limited, a United Kingdom manufacturer of vehicle information and
management systems for the European commercial vehicle market. Cash
consideration paid by the Company with respect to this purchase was
approximately $20.7 million.
In March 1999, the Company purchased certain assets and assumed certain
liabilities of Delta Schoeller, Limited, a United Kingdom manufacturer of
switches for the automotive industry. Cash consideration paid by the Company
with respect to this purchase was approximately $12.2 million.
In December 1998, the Company purchased all of the outstanding common
shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat), a manufacturer of
engineered sensors, switches and solenoids for measuring speed, pressure,
temperature and fluid levels in vehicles. Hi-Stat primarily serves the
automotive industry. Cash consideration paid by the Company with respect to this
purchase was approximately $361.5 million.
In October 1997, the Company purchased 50% of the outstanding common stock
of PST Industria Eletronica da Amazonia Ltda. (PST), a Brazilian electronic
components business which specializes in electronic vehicle security devices.
Total cash consideration paid by the Company with respect to this investment was
$17.7 million.
3
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In August 1997, the Company entered into two joint venture agreements with
Connecto AB, a Swedish manufacturer of power distribution systems. Pursuant to
the terms of the agreements, the Company has a 60% interest in a Brazilian joint
venture and a 40% interest in a European joint venture. The Company incurred
costs of approximately $1,041 related to these joint ventures. These joint
ventures are establishing production facilities in Brazil and Europe for the
purpose of manufacturing and selling power distribution systems in South America
and Europe, respectively.
In April 1996, seeking to leverage its capabilities and diversify its OEM
customer base, the Company acquired approximately 45% of Berifors AB (Berfiors),
a Sweden-based manufacturer of electronic display panels and instrumentation for
the European commercial vehicle markets. In October 1997, the Company acquired
the remaining 55% of Berifors, in exchange for 757,063 Common Shares of the
Company.
Discontinuance of Certain Contract Manufacturing Business
During the second quarter of 1999, the Company completed the planned phase
out of its contract manufacturing business with a division of General Motors.
The Company's net sales under this arrangement totaled approximately $21.9
million, $84.1 million and $95.1 million for 1999, 1998 and for 1997,
respectively, or approximately 3.2%, 16.7% and 21.2% of total net sales for such
periods.
Products
The Company's products include vehicle electrical power and distribution
systems, electronic and electrical switch products, electronic instrumentation
and information display products, actuator products and sensor products.
The Company's principal product categories are:
Power and Distribution Systems. The Company designs and manufactures
electrical power and signal distribution components, modules and systems,
including fully integrated automotive and truck wiring systems and highly
engineered products, such as power distribution panels, for the automotive,
medium and heavy-duty truck, and agricultural vehicle markets. Power
distribution systems regulate, coordinate and direct the operation of the entire
electrical system within a vehicle or compartment.
Electronic and Electrical Switch Products. The Company designs and manufactures
integrated electronic and electromechanical switch products, which include
hidden switches and customer-activated switches. These switches transmit a
signal to a control device which activates specific functions. Hidden switches
are not typically seen by vehicle passengers but are used to activate or
deactivate selected functions such as brake lights, cruise control functions and
electronic safety features related to air bag, fuel and anti-lock braking
systems. Customer-activated switches are used by a vehicle's operator or
passengers to manually activate headlights, rear defrosters, heated seats and
other accessories. The Company sells these products principally to the
automotive market.
Electronic Instrumentation and Information Display Products. The Company designs
and manufactures electronic instrument clusters, driver message centers, power
conversion products, tachographs, multiplexed modules and electrical systems and
electronic switch modules. These products collect, store and display vehicle
information such as speed, pressure, maintenance data, trip information,
operator performance, temperature, distance traveled, and driver messages
related to vehicle performance. These products use state-of-the-art
hardware, software and multiplexing technology and are sold principally to the
medium and heavy-duty truck, and agricultural vehicle markets.
Actuator Products. The Company designs and manufactures electromechanical
actuator products that enable users to deploy power functions in a vehicle and
can be designed to integrate switching and control functions. These products
include power door lock and four-wheel-drive actuators and are sold principally
to the automotive market.
Sensor Products. The company designs and manufactures sensor products that
measure temperature, pressure, speed, and fluid levels. These products monitor
and measure the physical variables affecting the performance vehicle systems.
Sensor products are employed in most major vehicle systems, including the
emmissions, safety, powertrain, braking, climate control, steering and
suspension systems. The Company sells these products principally to the
automotive market.
4
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Production Materials
The principal production materials used in the Company's manufacturing
processes include wire, cable, plastic housings and certain electrical
components such as fuses, relays, and connectors. The Company generally
purchases such materials subject to annual contracts. Such materials are readily
available from multiple sources, but the Company generally establishes
collaborative relationships with a qualified supplier for each of its key
production materials in order to lower costs and enhance service and quality.
Patents and Intellectual Property
The Company maintains and has pending various U.S. and foreign patents and
other rights to intellectual property relating to its business, which it
believes are appropriate to protect the Company's interests in existing
products, new inventions, manufacturing processes and product developments. The
Company does not believe any single patent is material to its business, nor
would the expiration or invalidity of any patent have a material adverse effect
on its business or its ability to compete. The Company is not currently engaged
in any material infringement litigation, nor are there any material claims
pending by or against the Company.
Industry Cyclicality and Seasonality
The markets for the Company's products have historically been cyclical.
Because the Company's products are used principally in the production of
vehicles for the automotive, medium and heavy-duty truck, and agricultural
vehicle markets, its sales and therefore its results of operations are
significantly dependent on the general state of the economy and other factors
which affect these markets. A decline in automotive, medium and heavy-duty,
truck and agricultural vehicle production could adversely impact the Company.
Approximately 64%, 56% and 65% of the Company's net sales in 1999, 1998 and 1997
respectively, were made to the automotive market and approximately 36%, 44% and
35% of the net sales in 1999, 1998 and 1997 respectively, were derived from the
medium and heavy-duty, and agricultural vehicle markets.
Demand for the Company's products has been seasonal. The Company typically
experiences decreased sales during the third calendar quarter of each year due
to the impact of scheduled OEM plant shutdowns in July for vacations and new
model changeovers. The fourth quarter is similarly impacted by plant shutdowns
for the holidays.
Reliance on Major Customers
The Company is dependent on a small number of principal customers for a
significant percentage of its sales. The loss of any significant portion of its
sales to these customers or the loss of a significant customer would have a
material adverse impact on the financial condition and results of operations of
the Company. The Company supplies numerous different parts to each of its
principal customers. The contracts the Company has entered into with many of its
customers provide for supplying the customers' requirements for a particular
model, rather than for manufacturing a specific quantity of products. Such
contracts range from one year to the life of the model, which is generally three
to seven years. Therefore, the loss of a contract for a major model or a
significant decrease in demand for certain key models or group of related models
sold by any of the Company's major customers could have a material adverse
impact on the Company. The Company also competes to supply products for
successor models and is subject to the risk that the customer will not select
the Company to produce products on any such model, which could have a material
adverse impact on the financial condition and results of operations of the
Company.
5
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The following table presents the major customers, as a percentage of net sales,
of the Company for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
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1999 1998 1997
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<S> <C> <C> <C>
Customer
General Motors 21% 25% 32%
Ford 18 18 21
Daimler-Chrysler 11 5 4
Volvo 10 9 5
Navistar 9 10 5
Deere 5 9 10
Other 26 24 23
--- --- ---
Total 100% 100% 100%
</TABLE>
Global Presence
The Company strives to offer manufacturing and technical support to its
customers on a global basis through a combination of international wholly owned
facilities and by entering into joint ventures with foreign suppliers. The
Company's principal operations are conducted in the United States, Mexico,
Sweden, the United Kingdom and Brazil.
The Company's international operations are subject to the usual risks of
doing business in those countries, including currency fluctuations and changes
in social, political and economic environments. In management's opinion, the
Company's business is not materially dependent upon any one international
location involving significant risk.
The following table presents net sales and net assets for the primary
geographic areas in which the Company operates:
1999 1998 1997
---- ---- ----
Net sales:
North America $599,309 $456,813 $437,573
Europe and other 75,912 47,008 11,933
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Total $675,221 $503,821 $449,506
Net assets:
North America $172,893 $169,182 $137,052
Europe and other 58,735 21,360 20,158
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Total $231,628 $190,542 $157,210
Backlog
The majority of the Company's products are not on a backlog status. They
are produced from readily available materials such as wire, cable, housings and
electronic components and have a relatively short manufacturing cycle. Each
operating unit of the Company maintains its own inventories and production
schedules. Production capacity is adequate to handle current requirements and
will be expanded to handle increased growth where needed.
6
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Competition
Markets for the Company's products are highly competitive. Quality,
service, price, timely delivery, and technological innovation are the primary
elements of competition. The Company competes for new business both at the
beginning of the development of new models and upon the redesign of existing
models. New model development generally begins two to five years before the
marketing of such models to the public. Once a supplier has been selected to
provide parts for a new program, an OEM usually will continue to purchase those
parts from the selected supplier for the life of the program, although not
necessarily for any model redesigns.
Product Development
In order to increase its vehicle platform penetration, the Company has
invested, and intends to continue to invest, significant amounts in its
technology and design capabilities. The Company's product development
expenditures were $22.0 million, $17.4 million and $14.1 million for 1999, 1998
and 1997, respectively, or 3.4%, 4.1% and 4.0% of core product sales for these
periods. These development efforts have strengthened the Company's ability to
provide higher value-added products and systems, and have resulted in the
introduction of new products such as the four-wheel-drive actuator (shift on
demand), seat positioning switches and sensors (which interface with passive
restraint systems indicate occupant position prior to air bag deployment), fuel
shut off valve (explosion suspression) and the auto-stick (which enables a
driver to manually shift an automatic transmission using a unique electronic
switch). The Company's technical centers in Massachusetts, Michigan, Ohio,
Brazil, England, Mexico, Scotland and Sweden develop and test both new and
existing products and concepts. In addition, through its advanced technologies
group comprised of dedicated engineers, the Company concentrates on the
development of its next generation of products. To further increase vehicle
platform penetration, the Company has developed collaborative relationships with
the design and engineering departments of its key OEM customers. These
collaborative efforts have resulted both in the development of new and
complementary products and the enhancement of existing products.
Environmental and Other Regulations
The Company's operations are subject to various federal, state, local and
foreign laws and regulations governing, among other things, emissions to air,
discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that
its business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental and health and
safety laws and regulations, many of which provide for substantial fines and
criminal sanctions for violations.
Employees
As of December 31, 1999, the Company, had approximately 6,650 employees,
approximately 1,820 of whom were salaried and the balance of whom were paid on
an hourly basis. Except for certain employees located in Chihuahua, Mexico,
Orebro and Stockholm, Sweden, and Dundee, Scotland, the Company's employees are
not represented by a union. The Company believes that its relations with its
employees are excellent. The Company believes strongly in employee education and
sponsors a number of educational opportunities and programs for its employees.
7
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Executive Officers of the Registrant
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
D.M. Draime 66 Chairman of the Board of Directors, Assistant Secretary and
Director
Cloyd J. Abruzzo 49 President, Chief Executive Officer, Assistant Treasurer and
Director
Kevin P. Bagby 48 Vice President of the Company, Chief Financial Officer and
Treasurer
Sten Forseke 40 Vice President of the Company and Managing Director of
Berifors
Gerald V. Pisani 59 Vice President of the Company and President of Stoneridge
Engineered Products Group
Avery S. Cohen 63 Secretary and Director
</TABLE>
D.M. Draime, founder of the Company, has served as Chairman of the Board of
Directors of the Company and its predecessors since 1965 and as a director of
the Company since 1988.
Cloyd J. Abruzzo has served as President and Chief Executive Officer of the
Company or its predecessors since June 1993 and as a director of the Company
since 1990. From 1984 to June 1993, Mr. Abruzzo was the Vice President and Chief
Financial Officer of the Company or its predecessor. Mr. Abruzzo serves as a
director of Second National Bank of Warren.
Kevin P. Bagby has served as Vice President of the Company, Chief Financial
Officer and Treasurer since joining the Company in July 1995. Mr. Bagby was
employed by Kelsey-Hayes as Director of Business Analysis from June 1994 to July
1995 and as Director of Finance for the Foundation Brakes Business Unit from
January 1991 to June 1994.
Sten Forseke, a co-founder of Berifors, has served as Vice President of the
Company since the acquisition of Berifors in 1997 and Managing Director of
Berifors since 1988.
Gerald V. Pisani has served as Vice President of the Company since 1989 and
President of the Stoneridge Engineered Products Group since 1985.
Avery S. Cohen has served as Secretary and a director of the Company since
1988. He has been a partner in the law firm of Baker & Hostetler LLP since 1993.
8
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ITEM 2. PROPERTIES
The Company currently owns or leases 16 manufacturing facilities, which
together contain approximately 1.6 million square feet of manufacturing space.
The following table provides information regarding the Company's facilities:
<TABLE>
<CAPTION>
Owned/ Square
Location Use Leased Status Footage
-------- --- ------------- -------
<S> <C> <C> <C>
Bloomfield Hills, Michigan Sales Office Leased 1,000
Boston, Massachusetts Division Office & Manufacturing Owned 166,100
Canton, Massachusetts Division Office & Manufacturing Owned 126,500
Chicago, Illinois Sales/Engineering Office Leased 1,000
Cortland, Ohio Engineering Office Leased 11,400
El Paso, Texas Office/Warehouse Leased 22,400
Farmington Hills, Michigan Sales/Engineering Office Leased 4,200
Kent, Ohio (1) Manufacturing Owned 70,000
Lexington, Ohio Manufacturing Owned 155,000
Mansfield, Ohio Tool & Die Owned 4,000
Mebane, North Carolina Manufacturing Leased 51,000
Orwell, Ohio Manufacturing Owned 72,000
Portland, Indiana Manufacturing Owned 196,000
Sarasota. Florida Manufacturing/Division Office Owned 125,000
Warren, Ohio Corporate Office Owned 7,500
Warren, Ohio Division Office Leased 15,300
Cheltenham, England Manufacturing Leased 39,983
Dundee, Scotland Manufacturing Owned 148,500
Frankfurt, Germany Sales/Engineering Office Leased 100
Madrid, Spain Office/Warehouse Leased 14,370
Munich, Germany Sales/Engineering Office Leased 1,000
Northampton, England Manufacturing Leased 40,667
Orebro, Sweden Manufacturing Leased 56,000
Paris, France Sales Office Leased 2,799
Stockholm, Sweden Division Office & Engineering Leased 16,100
Stuttgart, Germany Sales/Engineering Office Leased 1,000
Tallinn, Estonia Manufacturing Leased 5,380
Chihuahua, Mexico Manufacturing Owned 133,000
Indaiatuba, Brazil Manufacturing Leased 27,000
Juarez, Mexico Manufacturing Owned 178,000
Sao Paulo, Brazil Sales/Engineering Office Leased 200
</TABLE>
(1) Plant idled in fourth quarter of 1999.
Positron, a 50% equity investment of the Company, leases a production
facility in Manaus, Brazil, and owns a sales office in Campinas, Brazil.
ITEM 3. LEGAL PROCEEDINGS
The Company has no pending litigation which it believes will have a
material adverse impact upon the Company. The Company is subject to the risk of
exposure to product liability claims in the event that the failure of any of its
products causes personal injury or death to users of the Company's products and
there can be no assurance that the company will not experience any material
product liability losses in the future. In addition, if any of the Company's
products proves to be defective, the Company may be required to participate in a
government-imposed or OEM-instituted recall involving such products. The Company
maintains insurance against such liability claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
9
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
On March 22, 2000, the Company had 22,397,311 Common Shares without par
value, issued and outstanding, which were owned by 100 shareholders of record,
including Common Shares held in "streetname" by nominees who are recordholders
and approximately 1,800 beneficial owners.
The Company has neither paid nor declared dividends on its Common Shares
since its Offering, except for the payment or declaration of S-corporation
distributions of $85,600,000 to pre-Offering shareholders. The Company currently
intends to retain earnings for acquisitions, working capital, capital
expenditures, general corporate purposes and reduction in outstanding
indebtedness. Accordingly, the Company does not expect to pay cash dividends in
the foreseeable future.
High and low sales prices (as reported on the New York Stock Exchange
"NYSE" composite tape) for the Common Shares for each quarter during 1998 and
1999.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C> <C>
1998 March 31 20 14 7/8
June 30 23 1/16 18 1/4
September 30 21 7/8 14 5/8
December 31 22 7/8 13 7/8
1999 March 31 22 1/2 12 15/16
June 30 16 13/16 13 11/16
September 30 18 3/4 14 1/8
December 31 16 15/16 12
</TABLE>
The Company's Common Shares are traded on the NYSE under the symbol SRI.
The Company did not sell any registered or unregistered securities in 1999.
10
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma financial
data for the Company and should be read in conjunction with the consolidated
financial statements and notes related thereto and other financial information
included elsewhere herein. The selected historical data was derived from the
Company's consolidated financial statements, which were audited by Arthur
Andersen LLP, the Company's independent accountants.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $675,221 $503,821 $449,506 $363,748 $278,043
Gross profit 187,872 124,239 108,192 75,606 66,331
Operating income 97,305 56,722 52,366 28,912 28,822
Income before income taxes 67,022 56,036 50,895 24,595 26,808
Net income $ 41,172 $ 33,400 $ 46,964 $ 24,071 $ 26,154
=====================================================
Basic and diluted net income per share $ 1.84 $ 1.49 $ 2.92 $ 1.73 $ 1.88
=====================================================
Pro Forma Data (Unaudited):
Income before income taxes $ 67,022 $ 56,036 $ 50,895 $ 24,595 $ 26,808
Provision for income taxes 25,850 22,636 21,181 10,295 10,991
-----------------------------------------------------
Pro forma net income $ 41,172 $ 33,400 $ 29,714 $ 14,300 $ 15,817
=====================================================
Pro forma basic and diluted net income per
share $ 1.84 $ 1.49 $ 1.36 $ 0.66 $ 0.73
=====================================================
Other Data:
Product development expenses $ 21,976 $ 17,418 $ 14,114 $ 9,263 $ 6,664
Capital expenditures 17,589 10,919 12,256 14,083 14,767
Depreciation and amortization 27,850 14,422 13,237 9,966 7,979
Balance Sheet Data:
Working capital $ 77,112 $ 42,184 $ 44,856 $ 39,957 $ 34,851
Total assets 698,309 638,116 235,073 178,487 172,298
Long-term debt, less current portion 331,898 322,724 9,139 51,156 47,999
Shareholders' equity 231,628 190,542 157,210 84,633 73,720
</TABLE>
11
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
- ---------------------------------------------------------------------
Net Sales. Net sales for the year ended December 31, 1999 increased by
$171.4 million, or 34.0%, to $675.2 million from $503.8 million for the same
period in 1998. Sales of core products increased by $233.6 million, or 55.7%, to
$653.3 million during 1999 compared to $419.7 million for the same period of
1998. Sales of core products from the recent acquisitions of Hi-Stat
Manufacturing Company, Inc. (Hi-Stat), Delta Schoeller, Ltd. (Delta) and TVI
Europe, Ltd. (TVI) accounted for $206.2 million of the increase, while sales of
existing core products increased by $27.4 million, or 6.5%, compared to the same
period in 1998. Sales revenues for 1999 were favorably impacted by strong OEM
production volumes in both the automotive and the commercial vehicle markets,
which were offset by lower production volumes in the agricultural vehicle
market.
Sales for the year ended December 31, 1999 for North America increased by
$142.5 million to $599.3 million from $456.8 million for the same period in
1998. North American sales accounted for 88.8% of total sales for the year ended
December 31, 1999 compared with 90.7% for the same period in 1998. Sales for the
year ended December 31, 1999 outside North America increased by $28.9 million to
$75.9 million from $47.0 million for the same period in 1998. Sales outside
North America accounted for 11.2% of total sales for the year ended December 31,
1999 compared with 9.3% for the same period in 1998.
During the second quarter of 1999, the Company completed the planned phase
out of its contract manufacturing business. As expected, contract manufacturing
sales for the year ended December 31, 1999 declined by $62.2 million to $21.9
million, or 3.2% of the Company's total sales revenue, compared with $84.1
million, or 16.7% of total sales revenue for the same period in 1998.
Cost of Goods Sold. Cost of goods sold for the year ended December 31, 1999
increased by $107.7 million, or 28.4%, to $487.3 million from $379.6 million for
the same period in 1998. As a percentage of sales, cost of goods sold decreased
to 72.2% for the year ended December 31, 1999 from 75.3% for the same period in
1998. The decrease in cost of goods sold as a percent of sales was due primarily
to improved leveraging of fixed costs, a shift in product mix to higher
value-added electrical and electronic core products, and a decrease in
lower-margin contract manufacturing sales.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased by $23.1 million to $90.6 million for
the year ended December 31, 1999 from $67.5 million for the same period in 1998.
As a percentage of sales, SG&A expenses were 13.4% for the years ended December
31, 1999 and 1998. The increase of $23.1 million was primarily attributable to
additional costs of the newly acquired businesses.
Interest Expense, net. Interest expense, net for the year ended December
31, 1999 was $30.7 million compared with $0.7 million for the same period in
1998. Average outstanding indebtedness was $343.8 million and $7.4 million for
the years ended December 31, 1999 and 1998, respectively. The increase in
average outstanding indebtedness was primarily due to borrowings to finance the
acquisitions of Hi-Stat in December 1998, Delta in March 1999 and TVI in August
1999.
Other Income. Other income for the year ended December 31, 1999 was $0.5
million, which primarily represented equity earnings of unconsolidated
subsidiaries.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes increased by $11.0 million for the year ended December 31, 1999 to
$67.0 million from $56.0 million for the same period in 1998.
Provision for Income Taxes. The Company recognized provisions for income
taxes of $25.9 million and $22.6 million for the years ended December 31, 1999
and 1998, respectively. The effective income tax rate decreased to 38.6% for
1999 compared to 40.4% in 1998. The reduced rate was due to an increase in
foreign income, which is taxed at rates below the U.S. statutory rate, and
domestic tax initiatives pursued in 1999.
12
<PAGE>
Net Income. As a result of the foregoing, net income increased by $7.8
million, or 23.4%, to $41.2 million for the year ended December 31, 1999 from
$33.4 million for the same period in 1998.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
- ---------------------------------------------------------------------
Net Sales. Net sales for the year ended December 31, 1998 increased by
$54.3 million, or 12.1%, to $503.8 million from $449.5 million for the same
period in 1997. Sales of core products increased by $65.3 million, or 18.4%, to
$419.7 million for 1998 compared with $354.4 million for the same period in
1997. Sales related to the Berifors AB acquisition that was completed
concurrently with the Company's initial public offering in October 1997,
accounted for $32.6 million of the $65.3 million increase in 1998. Excluding the
impact of the Berifors AB acquisition, sales revenue of core products increased
by $32.7 million, or 9.2%, compared with the same period in 1997.
Sales for the year ended December 31, 1998 for North America increased
$19.2 million to $456.8 million from $437.6 million for the same period in 1997.
North American sales accounted for 90.7% of total sales for the year ended
December 31, 1998 compared with 97.4% for the same period in 1997. Sales outside
North America increased $35.1 million to $47.0 million from $11.9 million for
the same period in 1997. This increase was due primarily to the Berifors
acquisition. Sales outside North America accounted for 9.3% of total sales for
the year ended December 31, 1998 compared with 2.6% for the same period in 1997.
Sales of contract manufacturing wire harnesses of $84.1 million were $11.0
million, or 11.6%, lower than 1997, reflecting declining customer production
levels. As expected, contract manufacturing sales declined to 16.7% of the
Company's total sales revenue for the year 1998 compared with 21.2% of total
sales for the same period in 1997.
Cost of Goods Sold. Cost of goods sold for the year 1998 increased by $38.3
million, or 11.2%, to $379.6 million from $341.3 million in the year 1997. As a
percentage of sales, cost of goods sold decreased to 75.3% in 1998 from 75.9% in
1997.
Selling, General and Administrative Expenses. SG&A expenses for the year of
1998 increased by $11.7 million, or 20.9%, to $67.5 million from $55.8 million
in the same period in 1997. As a percentage of sales, SG&A expenses increased to
13.4% for 1998 from 12.4% in 1997. The increase reflected the consolidation of
Berifors AB, which accounted for $2.3 million of the increase. In addition, the
Company increased its investment in product development by $3.3 million.
Interest Expense, net. Interest expense, net for the year 1998 decreased by
$2.5 million, or 78.1%, to $0.7 million from $3.2 million in the year 1997. The
decrease was primarily due to a lower average outstanding indebtedness.
Other Income. Other income for 1997 was $1.7 million, which represented a
gain on the sale of equipment.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes increased by $5.1 million for the year 1998 to $56.0 million from
$50.9 million in 1997. Excluding the one-time gain on sale of equipment, the
increase in income before taxes would have been $6.8 million or 13.4%.
Provision for Income Taxes. The Company recognized provisions for income
taxes of $22.6 million and $5.1 million for federal, state and foreign income
taxes for the years 1998 and 1997, respectively. This increase in the tax
provision was due to the change in tax status from an S corporation to a C
corporation in October 1997. Accordingly, had the Company been subject to
federal and state income taxes at the corporate level for all of 1997, the
Company would have recorded a provision for income taxes of approximately $21.2
million for the year ended December 31, 1997.
Net Income. Net income decreased by $13.6 million to $33.4 million in the
year 1998 from $47.0 million in the year 1997 due to the change in tax status
from an S corporation to a C corporation. Had the Company been subject to
federal and state income taxes at the corporate level, the Company's pro forma
net income would have been $29.7 million for the year ended December 31, 1997.
13
<PAGE>
Liquidity and Capital Resources
Net cash from operating activities was $44.2 million and $46.0 million for
the years ended December 31, 1999 and 1998, respectively. The decrease in net
cash from operating activities of $1.8 million was primarily due to an increase
in working capital of $33.6 million to support higher levels of manufacturing
activity in December 1999, which was partially offset by increases in net
income, depreciation and amortization, and deferred income taxes of $7.8
million, $13.4 million and $10.6 million, respectively. The increase in
depreciation and amortization was primarily attributable to the increase in
fixed assets and intangible assets as a result of the Hi-Stat acquisition. The
increase in deferred income taxes was primarily due to the goodwill recognized
from the Hi-Stat acquisition being amortized over a shorter life for tax
reporting compared to financial reporting.
Net cash used for investing activities was $51.8 million and $368.7 million
for the years ended December 31, 1999 and 1998, respectively. The decrease in
cash used for investing activities of $316.9 million was primarily the result of
a reduction in cash paid for acquisitions. In 1999, the Company purchased Delta
and TVI for approximately $20.7 million and $12.2 million in cash, respectively.
On December 31, 1998, the Company purchased Hi-Stat for approximately $361.5
million. Approximately $312.6 million of goodwill was recorded in conjunction
with the Hi-Stat acquisition. Management believes that anticipated favorable
business prospects and purchase structure justify the purchase price of Hi-Stat.
Each of the aforementioned acquisitions was financed by a combination of
existing cash from Stoneridge together with funds from the $425.0 million credit
agreement. Offsetting the reduction in cash paid for acquisitions was an
increase in net capital expenditures of $10.4 million. The increase in net
capital expenditures was primarily the result of expenditures for newly acquired
businesses and proceeds on the sale of equipment of $3.8 million in 1998.
Net cash provided by financing activities was $9.7 million and $323.3
million for the years ended December 31, 1999 and 1998, respectively. For the
year ended December 31, 1999, long-term debt increased $9.6 million. The
acquisitions of TVI and Delta were financed mainly from cash provided by 1999
operating activities. For the year ended December 31, 1998, long-term debt
increased $334.5 million primarily due to the Hi-Stat acquisition.
The Company has a $425.0 million credit agreement (of which effectively
$346.9 million was outstanding at December 31, 1999) with a bank group. The
credit agreement has three components: a $100.0 million revolving facility (of
which $58.0 million is currently available), a $150.0 million term facility, and
a $175.0 million term facility. The $100.0 million revolving facility and the
$150.0 million term facility expire on December 31, 2003 and require a
commitment fee of 0.37% to 0.50% on the unused balance. Interest is payable
quarterly at either (i) the prime rate plus a margin of 0.00% to 1.00% or (ii)
LIBOR plus a margin of 1.25% to 2.50%, depending upon the Company's ratio of
consolidated total debt to consolidated earnings before interest, taxes,
depreciation and amortization, as defined. The $175.0 million term facility
expires on December 31, 2005. Interest is payable quarterly at either (i) the
prime rate plus a margin of 2.00% or (ii) LIBOR plus a margin of 3.50%.
The Company has entered into four interest rate swap agreements with a
total notional amount of $300.1 million. The interest rate swap agreements
exchange variable interest rates on the Company's credit agreement for fixed
interest rates. The Company does not use derivatives for speculative or
profit-motivated purposes. To the extent that the notional amount of the swap
agreements exceeds the carrying value of the underlying debt, a mark-to-market
adjustment is reflected in the financial statements.
Management believes that cash flows from operations and the availability of
funds from the Company's credit agreement will provide sufficient liquidity to
meet the Company's growth and operating needs.
Inflation and International Presence
Management believes that the Company's operations have not been adversely
affected by inflation. By operating internationally, the Company is affected by
the economic conditions of certain countries. Based on the current economic
conditions in these countries, management believes the Company is not
significantly exposed to adverse economic conditions.
14
<PAGE>
Recently Issued Accounting Standards
The Company is required to adopt Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes new accounting and reporting standards for
derivatives and hedging activities. This standard was effective for fiscal years
beginning after June 15, 1999, with earlier adoption permitted. The Financial
Accounting Standards Board (FASB) has since issued Statement of Financial
Accounting Standards No. 137 (SFAS 137), "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." This pronouncement amended SFAS 133 to defer its effective date to fiscal
years beginning after June 15, 2000. The Company has not yet evaluated the
financial accounting and reporting impact of SFAS 133.
The Company is required to adopt Emerging Issues Task Force Issue No. 99-5
(EITF 99-5), "Accounting for Pre-Production Costs Related to Long-Term Supply
Arrangements," for its fiscal year ending 2000. EITF 99-5 establishes new
accounting rules for costs related to the design and development of products and
for costs incurred to develop molds, dies and other tools to be used to produce
products that will be sold under long-term supply agreements. The Company
believes that the adoption of EITF 99-5 could have a material impact on its
financial statements. Upon adoption, the Company will be required to expense as
incurred certain costs that were previously capitalized. Management is currently
assessing the specifics of EITF 99-5 and will incorporate the EITF 99- 5
accounting rules in the Company's consolidated financial statements for the
quarter ended March 31, 2000.
Year 2000 Initiative
The Company had conducted an evaluation of the actions necessary in order
to gain assurance that its information and non-information technology systems
would be able to function without disruption with respect to the application of
dating systems in the Year 2000. As a result of this evaluation, the Company
upgraded, replaced and tested its information systems, computer applications and
other systems to ensure they would be able to operate without disruption due to
Year 2000 issues. The Company completed these remedial actions by December 31,
1999.
Historical Year 2000 expenditures through December 31, 1999 were
approximately $4.2 million. Year 2000 expenditures related to modifying
software, purchasing new software and hardware, and replacing non-compliant
software and hardware. These costs included both internal and external personnel
costs related to the assessment process, as well as the cost of purchasing
certain hardware and software. Year 2000 expenditures anticipated to be incurred
subsequent to December 31, 1999 are not expected to be significant.
The Company has not experienced any material disruptions or costs related
to Year 2000 problems with internal or third-party information and
non-information technology systems. In addition, the Company has not identified
any significant contingencies related to Year 2000 problems. However, no
assurance can be given that a currently unknown material Year 2000 problem will
not arise in the future. Such an event could have a material adverse affect on
the Company's financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks, primarily resulting from
the effects of changes in interest rates. To reduce exposures to market risks
resulting from fluctuations in interest rates, the Company uses derivative
financial instruments. Specifically, the Company uses interest rate swap
agreements to mitigate the effects of interest rate fluctuations on net income
by changing the floating interest rates on certain portions of the Company's
debt to fixed interest rates. The effect of changes in interest rates on the
Company's net income generally has been small relative to other factors that
also affect net income, such as sales and operating margins. Management believes
that its use of these financial instruments to reduce risk is in the Company's
best interest. The Company does not enter into financial instruments for trading
purposes.
The Company's risks related to commodity price and foreign currency
exchange risks have historically not been material. The Company does not expect
the effects of these risks to be material based on current operating and
economic conditions in the countries and markets in which it operates.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Consolidated Financial Statements: Page
- --------------------------------- ----
<S> <C>
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of December 31, 1999 and 1998 18
Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 19
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 20
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 21
Notes to Consolidated Financial Statements 22
Financial Statement Schedule:
- -----------------------------
Report of Independent Public Accountants 35
Schedule II--Valuation and Qualifying Accounts 36
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Stoneridge, Inc.:
We have audited the accompanying consolidated balance sheets of Stoneridge,
Inc. (an Ohio corporation) and Subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stoneridge, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
January 26, 2000.
17
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(in thousands)
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents........................................... $ 3,924 $ 1,876
Accounts receivable, less allowance for doubtful accounts
of $1,549 and $1,006............................................... 98,744 84,655
Inventories......................................................... 65,701 53,273
Prepaid expenses and other.......................................... 13,383 5,983
Deferred income taxes............................................... 10,564 11,679
-------- --------
Total current assets............................................... 192,316 157,466
-------- --------
Property, Plant and Equipment, net.................................... 106,163 94,770
Other Assets:
Goodwill and other intangibles, net................................. 369,265 355,429
Investments and other............................................... 30,565 30,451
-------- --------
Total Assets.......................................................... $698,309 $638,116
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt................................... $ 25,753 $ 21,213
Accounts payable.................................................... 42,337 45,835
Accrued expenses and other.......................................... 47,114 48,234
-------- --------
Total current liabilities.......................................... 115,204 115,282
-------- --------
Long-Term Debt, net of current portion................................ 331,898 322,724
Deferred Income Taxes................................................. 15,985 8,088
Other................................................................. 3,594 1,480
-------- --------
Total long-term liabilities........................................ 351,477 332,292
-------- --------
Shareholders' Equity:
Preferred shares, without par value, 5,000 authorized, none issued.. -- --
Common shares, without par value, 60,000 authorized, 22,397 issued
and outstanding at December 31, 1999 and 1998, stated at........... -- --
Additional paid-in capital.......................................... 141,506 141,506
Retained earnings................................................... 90,502 49,330
Accumulated other comprehensive income.............................. (380) (294)
-------- --------
Total shareholders' equity......................................... 231,628 190,542
-------- --------
Total Liabilities and Shareholders' Equity............................ $698,309 $638,116
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
18
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended
December 31,
------------
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net Sales......................................... $675,221 $503,821 $449,506
Costs and Expenses:
Cost of goods sold............................ 487,349 379,582 341,314
Selling, general and administrative expenses.. 90,567 67,517 55,826
-------- -------- --------
Operating Income................................. 97,305 56,722 52,366
Interest expense, net......................... 30,741 686 3,204
Other income, net............................. (458) -- (1,733)
-------- -------- --------
Income Before Income Taxes........................ 67,022 56,036 50,895
Provision for income taxes.................... 25,850 22,636 5,098
Income tax benefit from the reinstatement of
deferred income taxes...................... -- -- (1,167)
-------- -------- --------
Net Income........................................ $ 41,172 $ 33,400 $ 46,964
======== ======== ========
Basic and Diluted Net Income per Share............ $1.84 $1.49 $2.92
======== ======== ========
Weighted Average Shares Outstanding............... 22,397 22,397 16,073
======== ======== ========
Pro Forma Income Data (Unaudited):
Income before income taxes........................ $ 67,022 $ 56,036 $ 50,895
Pro forma adjustment--provision for income taxes.. 25,850 22,636 21,181
-------- -------- --------
Pro forma net income.............................. $ 41,172 $ 33,400 $ 29,714
======== ======== ========
Pro forma basic and diluted net income per share.. $1.84 $1.49 $1.36
======== ======== ========
Pro forma weighted average shares outstanding..... 22,397 22,397 21,830
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
19
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------------
1999 1998 1997
--------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income....................................................................... $ 41,172 $ 33,400 $ 46,964
Adjustments to reconcile net income to net cash from operating activities--
Depreciation and amortization................................................ 27,850 14,422 13,237
Deferred income taxes........................................................ 8,900 (1,702) (1,087)
Gain on sale of fixed assets................................................. -- -- (1,733)
Compensation expense for share options....................................... -- -- 450
Income tax benefit from the reinstatement of deferred income taxes........... -- -- (1,167)
Changes in operating assets and liabilities--
Accounts receivable, net.................................................. (5,213) (7,162) (5,521)
Inventories............................................................... (3,615) (1,918) (4,036)
Prepaid expenses and other................................................ (6,937) 1,761 (1,564)
Other assets, net......................................................... (1,015) (3,854) (466)
Accounts payable.......................................................... (8,793) 4,004 6,526
Accrued expenses and other................................................ (8,181) 7,037 12,228
-------- --------- ---------
Net cash from operating activities................................... 44,168 45,988 63,831
-------- --------- ---------
Investing Activities:
Capital expenditures............................................................. (17,589) (10,919) (12,256)
Proceeds from sale of fixed assets............................................... -- 3,758 2,300
Equity investments............................................................... -- -- (17,722)
Business acquisitions............................................................ (34,209) (361,520) --
-------- --------- ---------
Net cash from investing activities................................... (51,798) (368,681) (27,678)
-------- --------- ---------
Financing Activities:
Shareholder distributions paid................................................... -- (2,600) (104,972)
Proceeds from long-term debt..................................................... 5,114 1,286 789
Repayments of long-term debt..................................................... (168) (8,469) (3,072)
Net borrowings (repayments) under credit agreement............................... 4,712 341,729 (47,449)
Debt issuance costs.............................................................. -- (8,615) --
Share options exercised, net..................................................... -- -- 2,513
Proceeds from issuance of common shares, net..................................... -- -- 117,019
-------- --------- ---------
Net cash from financing activities................................... 9,658 323,331 (35,172)
-------- --------- ---------
Effect of exchange rates changes on cash and cash equivalents.................... 20 (100) --
-------- --------- ---------
Net change in cash and cash equivalents.......................................... 2,048 538 981
Cash and cash equivalents at beginning of period................................. 1,876 1,338 357
-------- --------- ---------
Cash and cash equivalents at end of period....................................... $ 3,924 $ 1,876 $ 1,338
======== ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................................... $ 29,967 $ 952 $ 3,281
======== ========= =========
Cash paid for income taxes....................................................... $ 16,180 $ 22,979 $ 591
======== ========= =========
Noncash investing and financing activities:
Common shares issued for acquisition of Berifors AB.............................. $ -- $ -- $ 12,329
======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
20
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Number Additional Retained Comprehensive Comprehensive
of Shares Paid-In Capital Earnings Income Income
--------- --------------- -------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996....................... 13,964 $ 9,195 $ 75,438 $ --
Net income....................................... -- -- 46,964 -- $ 46,964
Other comprehensive income
Currency translation adjustments, net of tax... -- -- -- (226) (226)
---------
Comprehensive income......................... $ 46,738
=========
Exercise of share options........................ 438 2,513 -- --
Compensation expense from
share option plans........................... -- 450 -- --
Issuance of shares in public offering, net....... 6,728 108,693 -- --
Issuance of shares to Company
management................................... 510 8,326 -- --
Acquisition of Berifors AB....................... 757 12,329 -- --
Distributions declared........................... -- -- (106,472) --
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 22,397 41,506 15,930 (226)
Net income....................................... -- -- 33,400 -- $ 33,400
Other comprehensive income:
Currency translation adjustments, net of tax.... -- -- -- (68) (68)
--------- --------- --------- --------- ---------
Comprehensive income......................... $ 33,332
=========
BALANCE, DECEMBER 31, 1998 22,397 141,506 49,330 (294)
Net income....................................... -- -- 41,172 -- $ 41,172
Other comprehensive income:
Currency translation adjustments, net of tax.... -- -- -- (86) (86)
--------- --------- --------- --------- ---------
Comprehensive income......................... $ 41,086
=========
BALANCE, DECEMBER 31, 1999 22,397 $ 141,506 $ 90,502 $ (380)
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
21
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
1. Organization and Nature of Business
Stoneridge, Inc. (Stoneridge) and its subsidiaries are independent
designers and manufacturers of engineered electrical and electronic components,
modules and systems for the automotive, medium and heavy-duty truck, and
agricultural vehicle markets.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Stoneridge and its wholly-owned and majority-owned subsidiaries (collectively,
the Company). All significant intercompany transactions and balances have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates fair value.
Accounts Receivable Concentrations
Revenues are principally generated from the automotive, medium and
heavy-duty truck, and agricultural vehicle markets. Due to the nature of these
industries, a significant portion of sales and related accounts receivable are
concentrated in a relatively low number of customers. In 1999, three customers
accounted for approximately 21%, 18% and 10% of net sales, while the top five
customers accounted for 69% of net sales. Three customers accounted for
approximately 25%, 18% and 10% of the Company's 1998 net sales, and its top five
customers accounted for approximately 72% of its 1998 net sales. Accounts
receivable from the Company's five largest customers aggregated approximately
$58,685 and $51,927 at December 31, 1999, and 1998, respectively.
Inventories
Cost is determined by the last-in, first-out (LIFO) method for
approximately 88% and 76% of the Company's inventories at December 31, 1999 and
1998, respectively, and by the first-in, first-out (FIFO) method for all other
inventories. Inventory cost includes material, labor and overhead. Inventories
consist of the following at December 31:
1999 1998
---- ----
Raw materials $42,876 $32,453
Work in progress 9,636 10,673
Finished goods 13,400 12,379
Less: LIFO reserve (211) (2,232)
------- -------
Total $65,701 $53,273
======= =======
22
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and land improvements $ 5,816 $ 5,355
Buildings and improvements 44,719 42,345
Machinery and equipment 73,131 63,012
Office furniture and fixtures 17,303 16,444
Tooling 31,613 22,663
Vehicles 1,125 477
Leasehold improvements 1,043 818
--------- -------
174,750 151,114
Less: Accumulated depreciation and
amortization 68,587 56,344
--------- --------
$106,163 $ 94,770
========= ========
</TABLE>
Depreciation is provided by both the straight-line and accelerated methods
over the estimated useful lives of the assets. Depreciation expense for the
years ended December 31, 1999, 1998 and 1997 was $17,057, $11,779 and $11,273,
respectively. Depreciable lives within each property classification are as
follows:
Buildings and improvements 10-40 years
Machinery and equipment 5-10 years
Office furniture and fixtures 3-10 years
Tooling 2-5 years
Vehicles 3-5 years
Leasehold improvements 3-8 years
Maintenance and repair expenditures that are not considered betterments and
do not extend the useful life of property are charged to expense as incurred.
Expenditures for improvements and major renewals are capitalized. When assets
are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on the
disposition is credited or charged to income.
Goodwill and Other Intangibles
Goodwill and other intangibles, net, which result principally from
acquisitions, consist of the following at December 31:
<TABLE>
<CAPTION>
Estimated
Useful Life 1999 1998
----------- ---- ----
<S> <C> <C> <C>
Goodwill 40 years $365,845 $351,501
Patents 6-13 years 2,975 3,338
Non-compete agreements 2 years 445 590
-------- --------
$369,265 $355,429
======== ========
</TABLE>
23
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Goodwill and other intangibles are presented net of accumulated
amortization of $18,191 and $8,422 as of December 31, 1999 and 1998,
respectively. Goodwill and other intangible asset amortization expense totaled
approximately $9,769, $1,453 and $1,495 in 1999, 1998 and 1997, respectively.
The Company regularly evaluates its accounting for goodwill and other intangible
assets. Impairment would be recognized when events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
Measurement of the amount of impairment would be based on appraisal, market
value of similar assets or estimated discounted future cash flows resulting from
the use and ultimate disposition of the asset.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at
December 31:
1999 1998
---- ----
Compensation-related obligations $13,861 $14,717
Insurance-related obligations 7,441 7,241
Income taxes 3,401 2,012
Other 22,411 24,264
------- -------
$47,114 $48,234
======= =======
Income Taxes
Prior to the initial public offering (Offering) discussed in Note 3, the
Company was an S corporation. As an S corporation, the Company's profits were
taxed directly to its shareholders for federal income tax and certain state
income tax purposes. Certain state taxes were paid directly by the Company.
Concurrent with the Offering, the Company terminated its S corporation status,
making it subject to federal, state and foreign income taxes.
The Company accounts for income taxes, using the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred
income taxes reflect the tax consequences on future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts.
Future tax benefits are recognized to the extent that realization of such
benefits is more likely than not.
Currency Translation Adjustment
The financial statements of foreign subsidiaries, where the local currency
is the functional currency, are translated into U.S. dollars using exchange
rates in effect at the period end for assets and liabilities and average
exchange rates during each reporting period for results of operations.
Adjustments resulting from translation of financial statements are reflected as
accumulated other comprehensive income.
The financial statements of foreign subsidiaries, where the U.S. dollar is
the functional currency and which have certain transactions denominated in a
local currency, are remeasured as if the functional currency were the U.S.
dollar. The remeasurement of local currencies into U.S. dollars creates
translation adjustments which are included in net income. All translation and
transaction activities were insignificant in 1999, 1998 and 1997.
Revenue Recognition
The Company recognizes revenues from the sale of products at the point of
passage of title, which is generally at the time of shipment.
24
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Product Development Expenses
Expenses associated with the development of new products and changes to
existing products are charged to expense as incurred. The costs amounted to
$21,976, $17,418 and $14,114 in 1999, 1998 and 1997, respectively.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee share options. Since the exercise
price of the Company's employee share options equals the market price of the
shares on the date of grant, no compensation expense is recorded. The Company
has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."
Financial Instruments and Derivative Financial Instruments
Financial instruments held by the Company include cash and cash
equivalents, accounts receivable, accounts payable, long-term debt and interest
rate swap agreements. The carrying value of cash and cash equivalents, accounts
receivable and accounts payable is considered to be representative of fair value
because of the short maturity of these instruments. The fair values of
borrowings under the long-term debt facilities are based on rates available to
the Company for debt with comparable terms and maturities.
The interest rate swap agreements convert floating-rate debt under the
Company's credit agreement to fixed-rate debt. As the outstanding balance on the
Company's credit agreement was less than the notional amount of the interest
rate swap agreements, the market value attributable to the difference was
recognized in interest expense in 1998 and 1997.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
including certain self- insured risks and liabilities, and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Since actual results could differ from those estimates, the
Company revises its estimates and assumptions as new information becomes
available.
Net Income Per Share
Net income per share amounts for all periods are presented in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
which requires the presentation of basic net income per share and diluted net
income per share. Basic net income per share is computed by dividing net income
by the weighted average number of common shares outstanding. Diluted net income
per share is calculated by dividing net income by the weighted average of all
potentially dilutive common shares that were outstanding during the period.
Potentially dilutive securities are not significant and do not create
differences between reported basic and diluted net income per share for all
periods presented.
Impairment of Assets
The Company reviews its long-lived assets and identifiable intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Measurement of the
amount of impairment may be based on appraisal, market values of similar assets
or estimated undiscounted future cash flows resulting from the use and ultimate
disposition of the asset.
25
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Comprehensive Income
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which established standards
for the reporting and display of comprehensive income and its components.
Comprehensive income is defined as all changes in a company's net assets except
changes resulting from transactions with shareholders. Comprehensive income
differs from net income in that certain items currently recorded directly to
shareholders' equity are included in comprehensive income.
Accounting Standards
The Company is required to adopt Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes new accounting and reporting standards for
derivatives and hedging activities. This standard was effective for fiscal years
beginning after June 15, 1999, with earlier adoption permitted. The Financial
Accounting Standards Board (FASB) has since issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." This
pronouncement amended SFAS 133 to defer its effective date to fiscal years
beginning after June 15, 2000. The Company has not yet evaluated the financial
accounting and reporting impact of SFAS 133.
The Company is required to adopt Emerging Issues Task Force Issue No. 99-5
(EITF 99-5), "Accounting for Pre-Production Costs Related to Long-Term Supply
Arrangements," for its fiscal year ending 2000. EITF 99-5 establishes new
accounting rules for costs related to the design and development of products and
for costs incurred to develop molds, dies and other tools to be used to produce
products that will be sold under long-term supply agreements. The Company
believes that the adoption of EITF 99-5 could have a material impact on its
financial statements. Upon adoption, the Company will be required to expense as
incurred certain costs that were previously capitalized. Management is currently
assessing the specifics of EITF 99-5 and will incorporate the EITF 99- 5
accounting rules in the Company's consolidated financial statements for the
quarter ended March 31, 2000.
Reclassifications
Certain prior year amounts have been reclassified to conform to their 1999
presentation in the financial statements.
3. Offering of Common Shares
On October 10, 1997, the Company completed its Offering of 6,727,500 Common
Shares, resulting in net proceeds of $108,693. Net proceeds from the Offering
were used to pay an $83,000 S corporation distribution, and the remaining
proceeds were used to repay net borrowings under the credit agreement discussed
in Note 6. Concurrent with the Offering, certain officers and management of the
Company purchased 510,181 Common Shares (Management Reinvestment), resulting in
net proceeds of $8,326.
In connection with the Offering, the Company amended its Articles of
Incorporation to change the authorized share capital of the Company from 37,724
shares of Class A Common, voting, without par value, and 87,276 shares of Class
B Common, non-voting, without par value, to 60,000,000 Common Shares, without
par value and 5,000,000 shares of voting Preferred Shares, without par value.
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 have been adjusted accordingly in these
financial statements.
26
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
4. Acquisitions
On August 27, 1999, the Company purchased all the outstanding shares of TVI
Europe, Limited (TVI) for approximately $20,700. TVI is a United Kingdom
manufacturer of vehicle information and management systems for the European
commercial vehicle market. The transaction was accounted for as a purchase. The
excess of the purchase price over the fair value of assets acquired, totaling
approximately $17,400 is being amortized over 40 years on a straight-line basis.
The purchase price has been allocated based on preliminary appraisals and
evaluations and is subject to further review and refinement. The purchase price
was funded with proceeds from the credit agreement discussed in Note 6. The
results of operations of TVI are included in the accompanying financial
statements from the date of acquisition.
On March 6, 1999, the Company purchased certain assets and assumed certain
liabilities of Delta Schoeller, Limited (Delta) for approximately $12,200. Delta
is a United Kingdom manufacturer of switches for the automotive industry. The
transaction was accounted for as a purchase. The purchase price has been
allocated based on preliminary appraisals and evaluations and is subject to
further review and refinement. The purchase price was funded with proceeds from
the credit agreement discussed in Note 6. The results of operations of Delta are
included in the accompanying financial statements from the date of acquisition.
On December 31, 1998, the Company purchased all of the outstanding common
shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat) for approximately
$361,500. Hi- Stat manufactures engineered sensors, switches and solenoids for
the automotive industry. The transaction was accounted for as a purchase.
Accordingly, the assets acquired and liabilities assumed of Hi-Stat were
included in the consolidated balance sheet as of December 31, 1998. The purchase
price was funded with cash on hand and with proceeds from the credit agreement
discussed in Note 6. All assets acquired and liabilities assumed were stated at
fair value. The purchase price paid in excess of identifiable net assets was
allocated to goodwill. The components of intangible assets included in the
allocation of purchase price, along with the related straight-line amortization
periods, are:
Amortization
Amount Period (years)
Non-compete agreements $ 590 2
Patents 2,580 6-13
Goodwill 312,616 40
The results of operations of Hi-Stat are included in the accompanying
financial statements from the date of acquisition.
The unaudited pro forma consolidated results of operations as though
Hi-Stat had been acquired at the beginning of fiscal 1998 is as follows:
1998
----
Net sales $659,151
Operating income $ 73,269
Net income $ 24,736
Basic and diluted net income per $ 1.10
share
The pro forma data do not purport to be indicative of the results that
would have been obtained had these events actually occurred at the beginning of
the periods presented and is not intended to be a projection of future results.
The pro forma amounts reflect the results of operations for the Company, Hi-Stat
and the pertinent purchase accounting and other adjustments for the periods
presented.
27
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
In April 1996, the Company purchased 45% of the outstanding common stock of
Berifors AB (Berifors), a Sweden-based manufacturer of electronic
instrumentation and information displays for the European truck and commercial
vehicle markets, for approximately $8,834. The investment was accounted for
under the equity method of accounting. The excess of the amount paid over the
fair value of the assets acquired, totaling $7,200, is being amortized over 40
years on a straight-line basis. On October 10, 1997, the Company acquired the
remaining 55% of Berifors, in exchange for 757,063 Common Shares. The
transaction was accounted for as a purchase. The excess of the purchase price
over the fair value of assets acquired, totaling $10,439, is being amortized
over 40 years on a straight-line basis. The results of operations of Berifors
are consolidated in the accompanying financial statements from October 1997.
5. Investments
In October 1997, the Company purchased 50% of the outstanding common stock
of PST Industria Eletronica da Amazonia Ltda. (PST), a Brazilian electronic
components business that specializes in electronic vehicle security devices. The
investment is accounted for under the equity method of accounting. Total cash
consideration paid by the Company with respect to this investment was $17,722,
including fees and expenses. The allocation of purchase price resulted in
intangibles, primarily non-compete agreements and goodwill of $2,000 and
$12,622, respectively, which are being amortized over periods of two and 40
years, respectively. Amortization expense was $1,024, $1,190 and $469 in 1999,
1998 and 1997, respectively. The acquisition was financed with borrowings under
the credit agreement discussed in Note 6. In 1998, the Company loaned PST
$5,000, which was used for the repayment of existing debt. The note is secured
by certain assets of PST.
In August 1997, the Company entered into two joint venture agreements with
Connecto AB, a Swedish manufacturer of power distribution systems. Pursuant to
the terms of the agreements, the Company has a 60% interest in a Brazilian joint
venture and a 40% interest in a European joint venture. The Brazilian joint
venture is consolidated with the results of the Company and the European joint
venture is accounted for under the equity method of accounting. As of December
31, 1999, the Company incurred costs of approximately $1,041 related to these
joint ventures. The joint ventures are establishing production facilities in
Brazil and Europe for the purpose of manufacturing and selling power
distribution systems in South America and Europe, respectively. The Company
finances its investments in the joint ventures through borrowings under the
credit agreement discussed in Note 6.
6. Long-Term Debt
The Company has a $425,000 credit agreement with a bank group. The credit
agreement has three components: a $100,000 revolving credit facility, a $150,000
term facility and a $175,000 term facility. The $100,000 revolving facility and
the $150,000 term facility expire on December 31, 2003 and require a commitment
fee of 0.37% to 0.50% on the unused balance. Interest is payable quarterly at
either (i) the prime rate plus a margin of 0.00% to 1.00% or (ii) LIBOR plus a
margin of 1.25% to 2.50%, depending upon the Company's ratio of consolidated
total debt to consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA), as defined. The $175,000 term facility expires on
December 31, 2005. Interest is payable quarterly at either (i) the prime rate
plus a margin of 2.00% or (ii) LIBOR plus a margin of 3.50%.
The weighted average interest rate in effect for the years ended December
31, 1999, 1998 and 1997 was approximately 8.4%, 7.1% and 7.1%, respectively,
including the effects of the interest rate swap agreements.
Long-term debt consists of the following at December 31:
1999 1998
---- ----
Borrowings under credit agreement $346,862 $342,150
Borrowings payable to foreign banks 7,917 1,552
Other 2,872 235
-------- --------
357,651 343,937
Less: Current portion 25,753 21,213
-------- --------
$331,898 $322,724
======== ========
28
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
The credit agreement contains various covenants that require, among other
things, the maintenance of certain minimum amounts of consolidated net worth and
consolidated EBITDA and certain specified ratios of consolidated total debt, to
consolidated EBITDA, interest coverage and fixed charge coverage. Restrictions
also include limits on capital expenditures and dividends. The Company was in
compliance with these covenants at December 31, 1999.
Future maturities of long-term debt as of December 31, 1999 are as follows:
2000 $ 25,753
2001 33,671
2002 41,371
2003 89,821
2004 45,785
Thereafter 121,250
Certain contractual mandatory prepayment clauses exist in the credit
agreement upon the achievement of defined levels of EBITDA.
7. Income Taxes
The provisions for income taxes included in the accompanying financial
statements represent federal, state and foreign income taxes for fiscal 1999,
1998 and the period October 9, 1997 to December 31, 1997, and state income taxes
for certain states for the period January 1, 1997, to October 8, 1997. The
provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $12,281 $20,414 $ 4,441
State and foreign 3,966 3,924 1,744
------- ------- -------
16,247 24,338 6,185
Deferred:
Federal 8,618 (1,489) (983)
State and foreign 985 (213) (104)
9,603 (1,702) (1,087)
------- ------- -------
Total $25,850 $22,636 $ 5,098
======= ======= =======
</TABLE>
A reconciliation of the Company's effective income tax rate to the
statutory federal tax rate for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory federal income tax rate 35.0% 35.0%
State income taxes, net of federal tax 3.0 4.7
benefit
Goodwill amortization 0.7 0.8
Foreign sales corporation (1.4) (1.0)
Other items 1.3 0.9
---- ----
Effective income tax rate 38.6% 40.4%
==== ====
</TABLE>
A reconciliation of the Company's effective income tax rate to the
statutory federal tax rate has been omitted for 1997, as presentation of such
information is not meaningful.
29
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Unremitted earnings of foreign subsidiaries are $7,713 as of December 31,
1999. Because these earnings have been indefinitely reinvested in foreign
operations, no provision has been made for U.S. income taxes. It is
impracticable to determine the amount of unrecognized deferred taxes with
respect to these earnings; however, foreign tax credits would be available to
reduce U.S. income taxes in the event of a distribution.
As a result of the Company's conversion to C corporation status on October
9, 1997, current deferred income tax assets and noncurrent deferred income tax
liabilities of approximately $4,073 and $2,906, respectively, were recorded,
offsetting a cumulative effect benefit of $1,167.
Deferred tax assets and liabilities consist of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories $ 2,001 $ 1,632
Employee benefits 2,468 1,806
Insurance 3,134 2,834
Other nondeductible reserves 6,884 7,710
------- -------
Gross deferred tax assets 14,487 13,982
Deferred tax liabilities:
Depreciation and amortization 16,614 7,953
Other 3,294 2,438
------- -------
Gross deferred tax liabilities 19,908 10,391
------- -------
Net deferred tax (liability) asset ($ 5,421) $ 3,591
======== =======
</TABLE>
8. Operating Lease Commitments
The Company leases equipment, vehicles and buildings from third parties
under operating lease agreements.
The Company also leases some of its facilities from certain related
parties. The leases are accounted for as operating leases and are for various
terms with additional renewal options. The Company is generally responsible for
repairs and maintenance, taxes and insurance.
For the years ended December 31, 1999, 1998 and 1997, lease expense totaled
$3,620, $3,015 and $2,313, under these agreements including related party lease
expense of $465, $451 and $451, respectively.
Future minimum operating lease commitments at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Third Related
Party Party
----- -------
<S> <C> <C>
2000 $2,991 $554
2001 2,361 467
2002 1,550 451
2003 1,307 451
2004 71 380
Thereafter -- 891
</TABLE>
30
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
9. Share Option Plans
In June 1996, the Company granted 438,119 options to directors and key
executives to purchase Common Shares at $5.74 per share. The options were
exercised prior to the Offering. The Company recorded compensation expense of
$450 in 1997 relative to these options.
In October 1997, the Company adopted a Long-Term Incentive Plan (Incentive
Plan). The Company has reserved 1,000,000 Common Shares for issuance under the
Incentive Plan. Under the Incentive Plan, the Company has granted cumulative
options to purchase 601,000 Common Shares to management with exercise prices
equal to the fair market value of the Company's Common Shares at the date of
grant. The options vest from one to five years after the date of grant.
Information relating to the Company's outstanding options is as follows:
<TABLE>
<CAPTION>
Weighted
Share Excercise Average
Options Prices Exercise Price
------------- -------------- -----------------
<S> <C> <C> <C>
Outstanding at -- $ -- $ --
December 31, 1996
Granted in 1997 498,000 16.44-17.50 17.48
-------
Outstanding at
December 31, 1997 498,000 16.44-17.50 17.48
Forfeited in 1998 (6,000) 17.50 17.50
-------
Outstanding at
December 31, 1998 492,000 16.44-17.50 17.48
Granted in 1999 103,000 14.72 14.72
Forfeited in 1999 (14,000) 14.72-17.50 16.31
-------
Outstanding at
December 31, 1999 581,000 14.72-17.50 17.02
=======
</TABLE>
Of the outstanding options issued and outstanding under the Incentive Plan,
484,000 are currently exercisable as of December 31, 1999.
The following pro forma information regarding net income and net income per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its share options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Risk-free interest rate 5.29-5.32% 5.97-6.16%
Expected dividend yield 0.00% 0.00%
Expected lives 7.5 - 8.5 years 7.5 years
Expected volatility 33.90% 33.19%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected share price
volatility. Because the Company's share options have characteristics
significantly different from traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its share options.
31
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net earnings per share were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income - as reported $41,172 $33,400 $46,964
Net income - pro forma $39,302 $31,236 $46,485
Basic and diluted net income per share - as reported $ 1.84 $ 1.49 $ 2.92
Basic and diluted net income per share - pro forma $ 1.75 $ 1.39 $ 2.89
</TABLE>
10. Employee Benefit Plans
The Company has certain defined contribution profit sharing and 401(k)
plans covering substantially all of the employees. Company contributions are
generally discretionary; however, a portion of these contributions are based
upon a percentage of employee compensation, as defined in the plans. The
Company's policy is to fund all benefit costs accrued. There are no unfunded
prior service costs. For the years ended December 31, 1999, 1998 and 1997,
contributions amounted to $6,310, $3,149 and $3,274, respectively.
The Company does not provide any other material retirement,
postretirement or postemployment benefits to its employees.
11. Fair Value of Financial Instruments
A financial instrument is cash or a contract that imposes an obligation
to deliver, or conveys a right to receive cash or another financial instrument.
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are considered to be representative of fair value because of
the short maturity of these instruments. In management's opinion, the estimated
fair value of the Company's long-term debt approximates book value, as under the
terms of the borrowing arrangements, a significant portion of the obligations
are subject to fluctuating market rates of interest.
The Company uses derivative financial instruments to reduce exposures to
market risks resulting from fluctuations in interest rates. The Company does not
enter into financial instruments for trading purposes. Management believes that
its use of these instruments to reduce risk is in the Company's best interest.
Derivative financial instruments as of December 31, 1999, and 1998,
include the following interest rate swap agreements:
Expected
Notional Amount Fixed Rate Maturity
1999 1998 Paid Date
---- ---- ---- ----
-- 25,000 6.55-7.80 Feb. 01, 1999
-- 20,000 7.03-9.28 Aug 01, 1999
63,425 75,000 6.50-7.75 Dec. 29, 2000
63,425 75,000 6.50-7.75 Dec. 29, 2000
86,625 87,500 8.15 Dec. 31, 2000
86,625 87,500 8.15 Dec. 31, 2000
The fair market value of these interest rate swap agreements, which was
estimated based on quoted market sources, approximated a net asset of $4,025 and
a net liability of $220, at December 31, 1999 and 1998, respectively.
32
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
The interest rate swap agreements require the Company to pay a fixed
interest rate to counterparties while receiving a floating interest rate based
on LIBOR. The fixed rate paid to the counterparties is dependent on the
Company's ratio of consolidated total debt to consolidated EBITDA as defined by
the Company's $425,000 credit agreement discussed in Note 6. The counterparties
to each of the interest rate swap agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
12. Unaudited Pro Forma Information
The unaudited pro forma net income in the consolidated statement of
income for the year ended December 31, 1997, assumes that the Company was
subject to income taxes as a C corporation.
Unaudited pro forma net income per share for the year ended December 31,
1997, has been calculated by dividing pro forma net income by the weighted
average number of Common Shares outstanding, the number of Common Shares issued
in connection with the Offering discussed in Note 3 (6,727,500), the number of
Common Shares issued in connection with the exercise of share options as
discussed in Note 9 (438,119), and the number of Common Shares issued in
connection with the Management Reinvestment discussed in Note 3 (510,181).
13. Commitments and Contingencies
In the ordinary course of business, the Company is involved in various
legal proceedings, workers' compensation and product liability disputes. The
Company is of the opinion that the ultimate resolution of these matters will not
have a material adverse effect on the results of operations or the financial
position of the Company.
14. Geographic Areas
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires the financial statement
disclosures for operating segments, products and services, and geographic areas.
The Company operates in one business segment based on the criteria set forth in
SFAS 131.
The following table presents net sales and noncurrent assets for each of
the geographic areas in which the Company operates:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Net sales:
<S> <C> <C> <C>
North America $599,309 $456,813 $437,573
Europe and other 75,912 47,008 11,933
-------- -------- --------
Total $675,221 $503,821 $449,506
Noncurrent assets:
North America $452,774 $458,679 $103,315
Europe and other 53,219 21,971 21,282
-------- -------- --------
Total $505,993 $480,650 $124,597
</TABLE>
33
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
15. Unaudited Quarterly Financial Data
The following is a condensed summary of actual quarterly results of
operations for 1999 and 1998:
<TABLE>
<CAPTION>
Quarter Ended,
--------------------------------------------------
Dec. 31 Sep. 30 June 30 Mar. 31
---------- ------------ ------------ ----------
(in millions, except per share data)
<S> <C> <C> <C> <C>
1999
Net sales $ 162.5 $ 157.0 $ 178.0 $ 177.7
Gross profit 44.6 44.0 49.8 49.5
Operating income 23.9 21.5 25.7 26.2
Net income $ 10.5 $ 8.7 $ 11.2 $ 10.8
==================================================
Basic and diluted net income per $ 0.47 $ 0.39 $ 0.50 $ 0.48
share ==================================================
1998
Net sales $ 132.6 $ 118.2 $ 121.8 $ 131.2
Gross profit 33.7 29.2 29.6 31.7
Operating income 13.8 12.2 14.7 16.0
Net income $ 8.0 $ 7.2 $ 8.8 $ 9.4
==================================================
Basic and diluted net income per
share $ 0.36 $ 0.32 $ 0.39 $ 0.42
==================================================
</TABLE>
Results reflect the acquisitions of Hi-Stat effective January 1, 1999,
Delta effective March 6, 1999 and TVI effective August 27, 1999.
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Stoneridge, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Stoneridge, Inc. and
Subsidiaries included in this Form 10-K, and have issued our report thereon
dated January 26, 2000. Our audits were made for the purpose of forming an
opinion on those financial statements taken as a whole. The schedule on page 36
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
January 26, 2000.
35
<PAGE>
<TABLE>
<CAPTION>
STONERIDGE, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Liabilities
Balance at Charged to Assumed in Balance at
Beginning Costs and Purchase End of
of Period Expenses Accounting Write-offs Period
--------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
(in thousands)
Allowance for doubtful accounts:
Year ended December 31, 1997 $ 265 $ 20 $ -- $ 54 $ 231
Year ended December 31, 1998 231 254 545 24 1,006
Year ended December 31, 1999 1,006 728 125 310 1,549
</TABLE>
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no disagreement between the management of the Company and the
Company's accountants on any matter of accounting principles or practices of
financial statement disclosures.
37
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to
the information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Company's Proxy
Statement in connection with its Annual Meeting of Shareholders to be held on
May 8, 2000, and the information under the heading "Executive Officers" in Part
I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information under the heading "Executive Compensation" contained in the
Company's Proxy Statement in connection with its Annual Meeting of Shareholders
to be held on May 8, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
the information under the heading "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's Proxy Statement in connection
with its Annual Meeting of Shareholders to be held on May 8, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to
the information under the heading "Certain Relationships and Related
Transactions" contained in the Company's Proxy Statement in connection with its
Annual Meeting of Shareholders to be held on May 8, 2000.
38
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K.
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
1. Consolidated Financial Statements:
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of December 31, 1999 and 1998 18
Consolidated Statements of Income for the years ended December 31, 1999, 1998 19
and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 20
1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended December 31, 21
1999, 1998, and 1997
Notes to Consolidated Financial Statements 22
2. Financial Statement Schedules:
Report of Independent Public Accountants 35
Schedule II - Valuation and Qualifying Accounts 36
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(b) The following reports on Form 8-K were filed during the quarter
ended December 31, 1999.
None.
(c) The exhibits listed on the Index to Exhibits on page 40 are filed
with this Form 10-K or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules.
None.
39
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ --------
3.1 Proposed Form of Second Amended and Restated Articles of
Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1 (No. 333-
33285)).
3.2 Proposed Form of Amended and Restated Code of Regulations of the
Company (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (No. 333-33285)).
4.1 Common Share Certificate, (incorporated by reference to Exhibit 4.1
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.1 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-1 (No. 333-
33285)).
10.2 Lease dated October 1, 1993 between D.M. Draime and Alphabet, Inc.
(the Company's predecessor) with respect to the Company's Greenwood,
South Carolina facility (incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1 (No. 333-
33285)).
10.3 Lease Agreement between Industrial Development Associates and the
Alphabet Division, with respect to the Company's Mebane, North
Carolina facility, filed herewith.
10.4 Lease Agreement between Stoneridge, Inc. and Alphabet, Inc., with
respect to the Company's division headquarters for the Alphabet
Division, filed herewith.
10.5 Contract Manufacturing Agreement dated January 3, 1993 with a
division of General Motors (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1 (No.
333-33285)).
10.6 Share Exchange Agreement relating to the Berifors Acquisition
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (No. 333-33285)).
10.7 Joint Venture and Shareholders' Agreements and Cooperation Agreement
with Connecto AB (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (No. 333-33285)).
10.8 Credit Agreement dated as of December 30, 1998 among Stoneridge,
Inc., as Borrower, the Lending Institutions Named Therein, as
Lenders, DLJ Capital Funding, Inc., as Syndication Agent, National
City Bank, as Administrative Agent and Collateral Agent, PNC Bank,
NA as Documentation Agent (incorporated by reference to Exhibit 10.8
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.9 Agreement with DAV (Labinal) dated June 9, 1994 (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement on
Form S-1 (No. 333-33285)).
10.10 Proposed Form of Tax Indemnification Agreement (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-1 (No. 333-33285)).
10.11 Agreement for the Purchase and Sale of Quotas of P.S.T. Industria
Eletronica da Amazonia Ltda dated October 29, 1997(incorporated by
reference to Exhibit 10.11 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 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 (incorporated by reference to Exhibit
10.12 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
10.13 Stock Purchase Agreement by and among Stoneridge, Inc. and the
Shareholders of Hi-Stat Manufacturing Co., Inc., dated as of
December 7, 1998 (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K as of December 31, 1998).
10.14 Form of Change in Control Agreement (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).
10.15 Lease Agreement between Industrial Development Associates and
Stoneridge, Alphabet Division, with respect to the Company's Mebane,
North Carolina facility, filed herewith.
21.1 Subsidiaries and Affiliates of the Company, filed herewith.
27.1 Financial Data Schedule for the year ended December 31, 1999, filed
herewith.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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.
STONERIDGE, INC.
Date: March 28, 2000 /s/ KEVIN P. BAGBY
------------------------
Kevin P. Bagby
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
Date: March 28, 2000 /s/ D.M. DRAIME
-------------------------------------
D.M. Draime
Chairman of the Board of Directors
Date: March 28, 2000 /s/ CLOYD J. ABRUZZO
-------------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 28, 2000 /s/ AVERY S. COHEN
-------------------------------------
Avery S. Cohen
Secretary and Director
Date: March 28, 2000 /s/ RICHARD E. CHENEY
-------------------------------------
Richard E. Cheney
Director
Date: March 28, 2000 /s/ SHELDON J. EPSTEIN
-------------------------------------
Sheldon J. Epstein
Director
Date: March 28, 2000 /s/ CHARLES J. HIRE
-------------------------------------
Charles J. Hire
Director
Date: March 28, 2000 /s/ RICHARD G. LEFAUVE
-------------------------------------
Richard G. LeFauve
Director
Date: March 28, 2000 /s/ EARL L. LINEHAN
-------------------------------------
Earl L. Linehan
Director
41
<PAGE>
EXHIBIT 10.3
LEASE
BETWEEN
INDUSTRIAL DEVELOPMENT ASSOCIATES
AND
ALPHABET, INC.
Carolina Central Industrial Center
Mebane, North Carolina
<PAGE>
INDUSTRIAL DEVELOPMENT ASSOCIATES
LEASE SUMMARY FORM
Date: June 11, 1985
TENANT: MCR, INC.
-------------------------------------------------------------------------
UNIT LEASED: Building I 1400 Dogwood, Square Feet: 50,998
----------------------------- --------------------------
LEASE DATE: October 28, 1978
------------------------------
EFFECTIVE DATE: March 31, 1979 ADJUSTMENT DATE: October 28, 2003
------------------------- -----------------------
SECURITY DEPOSIT: $7,863.00
-----------------------
TENANT IMPROVEMENTS BY LANDLORD: COST:
--------------- ------------------------
ORIGINAL TERM: 25 years RENEWALS: 3 addl. terms at 5 years each
----------------------- --------------------------------
BASIC RENT:1st Yr. 1983=$11,360/mo. 2nd Yr. 1984= $11,701/mo.
------------------------ -------------------------
3rd Yr.1985=$12,500/mo 4th Yr. 3% CPI (for utilities) 5th Yr. 3% CPI
- ---------------------- ------------------------------ ---------------
RENEWAL RENT BASE: 1st: , 2nd:
-----------------------
ADDITIONAL RENT:
UTILITIES: Landlord pays utilities
--------------------------------------
OPERATING PASS THRU: Insurance and taxes
----------------------------------
C.P.I.: 3% annual
-----------------------------------------
OTHER: Pro rata share of common area
------------------------------------------
PARKING: Included
------------------------------------------------
FIRST RIGHT OF REFUSAL:
---------------------------------
OTHER: Renewal notice 180 days prior to term. (10/28/03
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
COMMENTS: Original Rent $7,863.00 $1.85 sq.ft.
----------------------------------------------------------------------
1985 approx. $2.85 sq.ft./Landlord pays utilities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RENEWAL DATE: October 28, 2003 EXERCISED:
------------------- ----------------------
LEASE EXPIRATION DATE: October 28, 2028
-----------------------------------------
(Including renewals)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Premises and Construction
-------------------------
Section 1.1. Premises .................................................. 1
Section 1.2. Construction of Improvements .............................. 1
Section 1.3. Work to Be Performed by
Landlord for Tenant at
Tenant's Expense .......................................... 2
ARTICLE II
Lease Term
----------
Section 2.1. Term ...................................................... 3
Section 2.2. Renewal Option ............................................ 4
ARTICLE III
Rent
----
Section 3.1. Annual Rent ............................................... 5
Section 3.2. Impositions ............................................... 5
Section 3.3. Utilities ................................................. 6
Section 3.4. Expenses .................................................. 6
Section 3.5. Security Deposit .......................................... 7
ARTICLE IV
Occupancy
---------
Section 4.1. Quiet Enjoyment ........................................... 7
Section 4.2. Use of Premises ........................................... 8
Section 4.3. Compliance with Law ....................................... 8
Section 4.4. Covenants ................................................. 8
-i-
<PAGE>
Page
ARTICLE V
Transfers
---------
Section 5.1. Subletting ................................................. 9
ARTICLE VI
Parking
-------
Section 6.1. Parking .................................................... 9
ARTICLE VII
Maintenance, Alterations
------------------------
and Additional Space
---------------------
Section 7.1. Maintenance and Repair .................................... 10
Section 7.2. Common Area Maintenance. . . ............................. 11
Section 7.3. Alterations by Tenant ..................................... 11
ARTICLE VIII
Surrender of Leased Premises
----------------------------
Section 8.1. Surrender ................................................. 12
Section 8.2. Tenant Equipment Excepted ................................. 12
ARTICLE IX
Mechanic's Liens
----------------
Section 9.1. Mechanic's Liens .......................................... 13
ARTICLE X
Insurance and Indemnity
-----------------------
Section 10.1. Casualty Insurance ........................................ 13
Section 10.2. Indemnity ................................................. 14
Section 10.3. Public Liability Insurance ................................ 15
Section 10.4. Revision of Insurance
Coverage .................................................. 15
-ii-
<PAGE>
Page
ARTICLE XI
Eminent Domain
--------------
Section 11.1. Total Taking ............................................ 16
Section 11.2. Partial Taking .......................................... 16
Section 11.3. Damages ................................................. 17
Section 11.4. Rent .................................................... 17
ARTICLE XII
Damage and Destruction
----------------------
Section 12.1. Restoration of Damaged
or Destroyed Leased
Premises ................................................ 17
Section 12.2. No Abatement ............................................ 18
ARTICLE XIII
Default by Tenant
-----------------
Section 13.1. Tenant's Default ........................................ 18
Section 13.2. Remedies Not Exclusive;
No Waiver ............................................... 21
Section 13.3. Cure by Landlord ........................................ 22
ARTICLE XIV
Bankruptcy
----------
Section 14.1. Effect of Bankruptcy or
Other Proceedings ....................................... 22
-iii-
<PAGE>
Page
ARTICLE XV
Miscellaneous
-------------
Section 15.1. Recording .................................................. 23
Section 15.2. Estoppel Certificates ...................................... 23
Section 15.3. Right to Enter ............................................. 24
Section 15.4. Conditions and Termination ................................. 24
Section 15.5. Laws of North Carolina ..................................... 25
Section 15.6. Severability ............................................... 25
Section 15.7. Headings ................................................... 25
Section 15.8. Notices .................................................... 25
Section 15.9. Force Majeure .............................................. 25
Section 15.10. Successors ................................................. 26
Section 15.11. Subordination .............................................. 26
Section 15.12. Assignment of Landlord's
Interest ................................................... 26
Section 15.13. Transfer by Landlord ....................................... 26
Section 15.14. Time of Essence ............................................ 27
-iv-
<PAGE>
CAROLINA CENTRAL INDUSTRIAL CENTER
LEASE
THIS AGREEMENT OF LEASE is made as of this 24th day of October, 1978,
by and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited
partnership, having a place of business c/o MSC Corporation at 21 West Road,
Towson, Maryland 21204 ("Landlord"), as landlord, and ALPHABET, INC.
, a Ohio corporation having a place of business
at P. O. Box 308, Orwell, Ohio 44076 ("Tenant"), as tenant.
Article I
---------
Premises and Construction
-------------------------
1.1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the premises described in Exhibit A to this Lease
consisting of approximately 50,998 square feet of space (the "Leased Premises")
in the building constructed or to be constructed (the "Building") on the
property described in Exhibit B to this Lease (the "Property") located at the
Carolina Central Industrial Center, Mebane, Alamance County, North Carolina,
together with necessary access, parking and utility easements to serve the
Leased Premises, upon the terms and conditions stated in this Lease.
1.2. CONSTRUCTION OF IMPROVEMENTS. Landlord intends to construct or has
constructed on the Property the Building described in the plans and
specifications referred to in Exhibit C to this Lease (the "Landlord's Plans").
Landlord expects to complete construction of the Building and the Leased
Premises on or before March 31, 1979 in a manner ready for Tenant to install
Tenant's own improvements.
<PAGE>
1.3. WORK TO BE PERFORMED BY LANDLORD FOR TENANT AT TENANT'S EXPENSE.
Landlord, at Tenant's cost and expense shall perform and complete such work on
the interior of the Leased Premises as set forth in the plans and specifications
for Tenant's improvements ("Tenant's Plans") attached as Exhibit D to this
Lease. Tenant's Plans shall include, but shall not be limited to, all necessary
partitions, interior walls, interior doors, acoustical ceilings, lights,
switches, wiring, exterior and interior wall finishes, finished floors, sinks,
toilets, and installation of all fixtures and equipment necessary for the
completion of first-class office and manufacturing facilities suitable for
Tenant's needs. Upon submission of a bill therefor from Landlord, Tenant shall
pay Landlord the costs of all work performed by Landlord pursuant to this
Section 1.3.
During the period Landlord is performing work on the Leased Premises
pursuant to Section 1.2 and this Section 1.3, Tenant shall have the right to
enter upon the Leased Premises to install its fixtures, equipment, and other
property so long as Tenant does not interfere with Landlord in the performance
of Landlord's work.
Upon completion of construction as set forth in Section 1.2 and in this
Section 1.3, Landlord shall deliver to Tenant (a) a certificate of completion by
the architect who supervised the construction, which shall state that all work
performed by Landlord has been completed in accordance with Landlord's Plans and
Tenant's Plans and (b) a certificate of occupancy or any equivalent permit or
certificate which may be required by any governmental authority prior to the
commencement of business on the Leased Premises.
Page 2
<PAGE>
Landlord shall notify Tenant in writing as soon as the Leased Premises
are substantially completed in accordance with Landlord's Plans and Tenant's
Plans and ready for Tenant to take occupancy. Taking of possession by Tenant
shall be deemed to establish that the Building on the Property is completed in
accordance with Landlord's Plans and Tenant's Plans and that the Leased Premises
are in good and satisfactory condition as of and when possession is taken,
except for punch list items for the Leased Premises specified by the parties at
the time Tenant takes possession and for faulty materials or workmanship
warranted by Landlord. Landlord hereby warrants the materials and workmanship
for the work performed by Landlord for a period of one year commencing on the
date Tenant takes possession of the Leased Premises to install Tenant's
improvements, provided that Tenant gives Landlord written notice of any defect
promptly as it appears and within such one-year period.
ARTICLE II
----------
Lease Term
----------
2.1. TERM. The term of this Lease shall begin on the Commencement Date
and shall end on the last day of the month in which the twenty-fifth (25th)
annual anniversary of the Commencement Date shall occur, unless sooner
terminated as provided in this Lease (such term as it may be extended pursuant
to this Lease is called the "Term"). "Commencement Date" shall be the date that
Landlord gives notice to Tenant pursuant to Section 1.3 that Tenant may take
possession of the Leased Premises.
If the Commencement Date falls on the first day of a calendar month,
the twenty five year Term shall begin to run (25) from that date. If that date
falls on other than the first
Page 3
<PAGE>
day of a month, the Term shall commence on the first day of the month next
following. Upon the request of Landlord, Tenant shall execute a written
agreement, in recordable form if requested, acknowledging the Commencement Date
of the Term.
2.2. RENEWAL OPTION. Provided that this Lease shall be in good standing
and in full force and effect and shall not theretofore have been terminated and
that Tenant shall not be in default under any of the terms or conditions of this
Lease, Tenant shall have the option to renew this Lease for three (3) additional
terms of five (5) years each by notifying Landlord of Tenant's election not less
than one hundred eighty (180) days before the expiration of the initial twenty-
five (25) year term of this Lease or the immediately preceding renewal term, as
the case may be. Each such renewal shall be on the same terms and conditions set
forth in this Lease, except (a) that the annual rent payable during the first
renewal term of this Lease shall be the sum of Ninety-four thousand three
hundred forty-six Dollars ($94,346.00 ) multiplied by a fraction the numerator
of which shall be the 1978 Revised Consumer Price Index for Urban Wage Earners
and Clerical Workers (1967=100) issued by the Bureau of Labor Statistics of the
United States Department of Labor (or the most nearly comparable successor
index) (the "Index") as of the last day of the initial twenty-five (25)
year term and the denominator of which shall be the Index as of the date of this
Lease, and (b) that the annual rent payable during the second renewal term of
this Lease shall be the amount of annual rent calculated in subsection 2.2(a)
multiplied by a fraction the numerator of which shall be the Index as of the
last day of the first renewal term and the denominator of which shall be the
Index as of the first day of the first renewal term. Rent shall be payable in
monthly
Page 4
<PAGE>
installments of one-twelfth (1/12th) of the annual rent, in
advance, on the first day of each and every month during such
extended Term. The annual rent shall not be adjusted, however,
below Ninety-four thousand three hundred forty-six -- Dollars
($94,346.00) for either renewal period.
ARTICLE III
-----------
Rent
----
3.1. ANNUAL RENT. Beginning on the Commencement Date, or on the first
day of the month next following if the Commencement Date falls on other than the
first day of a month, Tenant shall pay to Landlord annual rent of Ninety-four
thousand three hundred forty-six - Dollars ($94,346.00), payable to Landlord in
equal monthly installments at the rate of Seven thousand eight hundred
sixty-three Dollars ($7,663.00), without demand or set-off, in legal tender,
and in advance on the first day of each and every month in each year during the
Term. If the Commencement Date shall fall on a day other than the first day of a
calendar month, then Tenant shall pay to Landlord for the month in which the
Commencement Date shall occur an additional rental of an amount calculated by
prorating the monthly rent payment. Tenant shall make all rental payments to
Landlord c/o , attention: Richard Bechtold or at such other address
designated by Landlord.
3.2. IMPOSITIONS. If the annual real estate or other taxes and special
assessments imposed on or with respect to the land and improvements on the
assessed unit of which the Leased Premises are a part (including, without
limitation, front foot or benefit assessments for sewerage, water, or paving and
any rent or occupancy tax which may be imposed) (collectively the "Impositions")
for any tax year
Page 5
<PAGE>
during the term of this Lease shall exceed the amount of such taxes and
assessments for the first full tax assessment year commencing after the sixth
(6th) calendar month after the Commencement Date, then Tenant shall pay
Landlord, upon receipt of a bill therefor from Landlord, as part of additional
rent for the Leased Premises, the amount of such excess. Tenant shall not be
obligated to pay any installment of any special assessment levied or assessed
during the Term but not due until after termination of this Lease. Impositions
shall be based on a square foot proportional basis as to any assessed unit of
which the Leased Premises are a part.
Unless otherwise required by Landlord, Tenant shall pay its share of
Impositions directly to the Landlord. Upon the request of Tenant, the Landlord
shall deliver copies of Imposition bills and notices to Tenant following their
receipt by Landlord.
3.3. UTILITIES. Beginning on the date Landlord gives notice to Tenant
that Tenant may take possession of the Leased Premises, Tenant shall pay when
due, as part of additional rent, all charges for gas, electricity, water,
sewer, telephone, and all other utilities used or consumed at the Leased
Premises. Landlord shall provide that gas, electricity, and water be separately
metered for the Leased Premises. Tenant shall pay all such bills directly to
the billing entity, and, upon request of Landlord, shall forward to Landlord a
receipt or other appropriate evidence that all such bills are paid.
3.4. EXPENSES. Unless expressly otherwise provided in this Lease,
Tenant shall pay all costs, expenses and obligations of every kind relating to
the Leased Premises which may arise during the Term except (a) municipal, state
or federal
Page 6
<PAGE>
income taxes or estate, succession, inheritance or gift taxes, or corporation
franchise taxes assessed against Landlord, (b) costs, expenses, and obligations
incurred by Landlord in connection with the sale or mortgaging of the Leased
Premises, and (c) costs of maintenance and repairs for which Landlord is
responsible under the terms of this Lease.
3.5. SECURITY DEPOSIT. Tenant shall pay to Landlord upon the
execution of this Lease the amount of Seven thousand eight hundred sixty-three
Dollars ($7,863.00) as a security deposit for the faithful performance by
Tenant of all the terms and covenants of this Lease. If any amount owed by
Tenant to Landlord as rent, additional rent or otherwise shall be in arrears,
Landlord may apply the security deposit toward such obligation and Tenant agrees
to re-establish the full amount of security deposit by paying such additional
amount along with the next monthly installment of rent. Provided Tenant shall
not be in default under this Lease, Landlord shall return the security deposit
to Tenant upon the termination of this Lease, less all costs incurred by
Landlord in correcting or satisfying any default by Tenant under this Lease or
in returning the Leased Premises to the same condition as existed at the time
Tenant took possession of the Leased Premises, reasonable wear and tear
excepted. No right or remedy available to Landlord under this Section 3.5 shall
be deemed to preclude any other right or remedy to which Landlord might
otherwise be entitled by this Lease or law.
ARTICLE IV
----------
Occupancy
---------
4.1. QUIET ENJOYMENT. Upon payment of the rent as required under this
Lease and performance by Tenant of all of the covenants and provisions of this
Lease to be performed by
Page 7
<PAGE>
Tenant, Tenant shall have during the Lease Term peaceful and quiet use and
possession of the Leased Premises without hindrance on the part of Landlord.
4.2. USE OF PREMISES. Tenant may use the Leased Premises only for the
purpose of
4.3. COMPLIANCE WITH LAW. Tenant shall at all times during the Term, at
its own expense, conform to and comply with all laws, regulations, orders and
other governmental requirements, or requirements of the Board of Fire
Underwriters, now or hereafter in force, affecting the use or occupancy of all
or any part of the Leased Premises. At all times during the Term and for any
period that Tenant enters the Leased Premises prior to the Commencement Date to
make its installations, Tenant indemnifies Landlord against and agrees to save
Landlord harmless from all expenses, liability, and penalty, imposed or incurred
for or because of any violation of any law, regulation, order or other
governmental requirement occasioned by the neglect or omission, or willful act
of Tenant, its customers, employees, visitors, or invitees, independent
contractors, or any person on the Leased Premises by permission or holding under
Tenant unless such violation results solely from an act or omission on the part
of Landlord or an agent or employee of Landlord. Following notice to Landlord,
Tenant, by appropriate proceedings conducted with due diligence at Tenant's
expense in Tenant's name, may contest in good faith the validity or enforcement
of any applicable governmental requirement provided that Landlord is not
subjected to any fine or penalty.
4.4 COVENANTS. At all times during the Term, Tenant shall comply with,
perform, and be bound by, all the terms, provisions, conditions, restrictions,
and covenants set
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forth in the covenants with respect to the Carolina Central Industrial Center
recorded, or intended to be recorded, among the land records of Alamance County,
North Carolina (the "Covenants") substantially in the form attached as Exhibit
E to this Lease. For the purposes of this Lease, the word "Developer" as used in
the Covenants shall be deemed to mean the Landlord, and the words "Owner" and
"lot owner" as used in the Covenants shall be deemed to mean the Tenant
provided, however, that Tenant shall not be deemed an owner for purposes of the
Article of the Covenants entitled "Duration and Modification of Restrictions";
and, provided further, that no amendment or revocation of the Covenants shall
serve to reduce or revoke Tenant's obligation to Landlord to perform and be
bound by the Covenants as set forth in Exhibit E without Landlord's written
agreement to the contrary delivered to Tenant.
ARTICLE V
---------
Transfers
---------
5.1. SUBLETTING. Tenant shall not have the right to sublet the Leased
Premises, or any portion thereof, or to assign Tenant's interest in this Lease,
or any portion thereof, without the prior consent of Landlord. Subletting or
assignment shall not relieve Tenant of its obligations to Landlord under this
Lease.
ARTICLE VI
Parking
-------
6.1. PARKING. Subject to such reasonable rules, regulations, or
conditions as Landlord may impose, Tenant shall be entitled to the non-exclusive
use in common with others of automobile parking areas, driveways, access roads,
footways, and loading facilities as may be constructed by
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Landlord for the common use by other tenants of the Building.
ARTICLE VII
Maintenance and Alterations
---------------------------
7.1. MAINTENANCE AND REPAIR. Except as provided in this Section 7.1
and except as provided in Section 1.2, Tenant at its sole cost and expense, at
all times during the Term, shall maintain and keep in an orderly condition and
in a good state of repair the Leased Premises and every part thereof, including,
but not by way of limitation, all interior walls, windows, roof, plumbing and
sewerage facilities, air-conditioning system, heating system, electrical
facilities and equipment, exterior lighting, and all other fixtures, equipment
and appliances of every kind and nature, reasonable use and wear thereof
excepted, provided, however, that if any part of the Building of which the
Leased Premises are a part is leased by Landlord to one or more entities other
than Tenant, Landlord, provided Landlord is given written notice of the
necessity therefor, shall perform all such maintenance and repair with respect
to such Building except those items which relate solely to the interior of the
Leased Premises and other interior parts of the Building leased to other
tenants. Landlord shall charge the cost therefor to Tenant and to such other
tenants, and shall apportion such cost according to a square foot proportional
basis as each area so leased to Tenant or other tenants bears to the total area
of the Building. Tenant shall pay such charge as additional rent upon receipt of
a bill therefor from Landlord. The cost of maintenance and repair shall include
all costs allocable to such maintenance and repair in accordance with generally
accepted accounting principles.
Landlord shall maintain all exterior walls, foundations, and
structural parts of the Building of which the
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Leased Premises are a part. Tenant waives all right to make repairs at the
expense of Landlord as provided by any provision of law now or hereafter in
effect. Except as expressly provided in this Lease, Landlord shall not be called
upon or obligated to make or pay for any repairs, replacements, restorations,
improvements, alterations, or additions whatsoever in or about the Leased
Premises.
7.2 COMMON AREA MAINTENANCE. For each year during the Term and all
renewal periods, Tenant shall pay as additional rent upon receipt of a bill
therefor from Landlord, a common area maintenance charge representing Tenant's
proportionate share of the cost to Landlord of operating, maintaining,
repairing and replacing the parking areas and exterior grounds in and around the
Property of which the Leased Premises are a part. Such charge shall be for
repair of the parking areas and for keeping them clear of snow, debris, and
other rubbish and for maintenance of all exterior grounds, grass, landscaping
and related areas. Tenant's proportionate share shall be the amount determined
by multiplying the total annual expense to the Landlord for so maintaining the
parking areas and exterior grounds by a fraction, the numerator of which is
_________, representing the number of square feet of the Leased Premises, and
the denominator of which shall be the floor area of the other buildings on the
Property of which the Leased Premises are a part. The cost of maintenance shall
include all costs and expenses of operating, maintaining, repairing and
replacing such areas allocable thereto in accordance with generally accepted
accounting principles.
7.3. ALTERATIONS BY TENANT. Tenant, without the prior written consent
of Landlord, shall not make any interior alterations, structural alterations,
changes to the exterior
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appearance of the Leased Premises, additions, or other improvements to the
Leased Premises, except for maintenance and repair required of Tenant.
ARTICLE VIII
Surrender of Leased Premises
----------------------------
8.1. SURRENDER. Upon termination of the Term, or any earlier
termination of this Lease, Tenant shall surrender to Landlord the Leased
Premises, including all alterations, improvements and other additions, in good
order and repair, reasonable wear and tear excepted.
8.2. TENANT EQUIPMENT EXCEPTED. If Tenant is not in default under this
Lease, Tenant shall be entitled to (or, at Landlord's request, must) remove from
the Leased Premises at the end of the Term Tenant's office, trade and
manufacturing fixtures, furniture, equipment and signs, which Tenant has
installed on the Leased Premises prior to or during the Term at the cost of
Tenant and which are not an integral part or necessary to the operation of the
Leased Premises as are plumbing, heating, ventilating, air-conditioning, and
other similar equipment. Tenant shall at its own cost and expense repair any and
all damage to the Leased Premises resulting from or caused by such removal, and
shall restore the Leased Premises to good order and condition, reasonable wear
and tear excepted. Tenant shall have thirty (30) days after termination of
this Lease for any reason whatsoever to effect such removal, repair and
restoration, except that no such fixtures or equipment placed on or in the
Leased Premises by Tenant, and which remain the property of Tenant, may be
removed at a time when Tenant is in default in payment of rent or any other
money payable hereunder, or in the performance of any other covenant under this
Lease.
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ARTICLE IX
Mechanic's Liens
----------------
9.1. MECHANIC'S LIENS. Prior to approving any construction on the
Leased Premises by Tenant, Landlord shall have the right to require Tenant, or
Tenant's contractor for such construction, to furnish a bond in an amount equal
to the estimated cost of such construction with corporate surety approved by
Landlord for (a) completion of such construction and (b) indemnifying Landlord
and Tenant, as their interests may appear, against liens for labor and
materials, which bond shall be furnished before any work is begun or any
materials delivered. Landlord shall also have the right at any time before,
during or after such construction to require Tenant to furnish such other
assurances against mechanic's liens as may be reasonable including, but not
limited to, releases of liens signed by all contractors, subcontractors and
suppliers, and affidavits executed by Tenant, Tenant's contractor or architect,
that all labor and materials theretofore furnished have been paid.
ARTICLE X
Insurance and Indemnity
-----------------------
10.1. CASUALTY INSURANCE. Beginning on the date of this Lease and
continuing during the entire Term, Landlord, at its expense, shall keep the
Building on the Leased Premises insured against loss or damage by fire,
vandalism and other casualty to the extent now or hereafter covered under
standard extended coverage, provided, however, that if the premiums for such
insurance for any year during the Term exceed the amount of such premiums for
the first full calendar year commencing after the Commencement Date, Tenant
shall pay Landlord as additional rent upon receipt of a bill therefor from
Landlord
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the amount of such excess. Such payment by Tenant shall be based on a square
foot proportional basis as to the total area of any Building of which the Leased
Premises are a part.
Tenant shall at all times during the Term maintain at its own cost and
expense such casualty insurance against loss, damage, or destruction to all
signs, trade fixtures, improvements, equipment, furniture and other
installations and property installed by Tenant on the Leased Premises, and
shall, upon Landlord's request, provide Landlord with certificates of insurance
evidencing that such policies are in force or copies of such policies.
10.2. INDEMNITY. At all times after Tenant takes possession of the
Leased Premises and for any period that Tenant enters the Leased Premises prior
to the Commencement Date to make its installations, Tenant shall protect,
indemnify, and save the Landlord harmless of, from and against any and all
actions liabilities, damages, costs, expenses, fees, demands or claims of any
nature whatsoever arising from (a) any work or thing done in or about the Leased
Premises, and the improvements now or hereafter constructed thereon, or any part
thereof, by Tenant or its agents or employees or independent contractors hired
by Tenant, (b) injury to or death of persons or damage to property on the Leased
Premises or the improvements now or hereafter constructed thereon, and (c) any
negligent act or omission on the part of the Tenant, or its employees or
invitees or independent contractors arising out of the occupancy or use of the
Leased Premises and the improvements now or hereafter constructed thereon,
except that Tenant shall not be required to save and hold Landlord harmless or
to indemnify Landlord if the injury or loss is due to the negligence of the
Landlord or its agents or employees.
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10.3. PUBLIC LIABILITY INSURANCE. During all periods of construction
or reconstruction work performed by Tenant on the Leased Premises, Tenant, at
its own expense, shall keep in force, by advance payments of premiums, workmen's
compensation and builder's risk insurance reasonably acceptable to Landlord.
Beginning on the date of commencement of Tenant's entry upon the Leased
Premises and continuing during the entire Term, Tenant, at Tenant's expense,
shall keep in force, by advance payments of premiums, public liability
insurance in an amount of not less than three million dollars ($3,000,000.00)
for personal injury or death and not less than two hundred thousand dollars
($200,000.00) for damage to property, insuring against any liability that may
accrue on account of any occurrences in or about the Leased Premises or in
consequence of Tenant's occupancy of the Leased Premises. Such insurance shall
protect and indemnify not only against any and all such liability, but also
against all loss, expense and damage of any and every sort and kind, including
costs of investigation and attorney's fees and other costs of defense. All such
insurance shall be with insurers approved by Landlord, and all policies shall
name Landlord and Tenant as beneficiary as their respective interests may
appear. Such policies shall provide that notwithstanding any act or negligence
of Tenant which might otherwise result in a forfeiture, such policies shall not
be cancelled without at least ten (10) days' prior written notice to each
insured. Tenant shall furnish Landlord with a copy of all such policies or a
certificate that such policies are in effect.
10.4. REVISION OF INSURANCE COVERAGE. As of January 1, and January 1 of
each fifth (5th) year thereafter,
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the parties shall review whether the insurance minimums stated in Section 10.3
provide for sound and prudent coverage in relation to liability risks as of each
such date. As of each date, the parties shall mutually agree on appropriate
liability insurance minimums. If within fifteen (15) days following each date
the parties are unable to agree on liability insurance minimums, the Landlord
may procure the required insurance and charge the cost thereof to Tenant as
additional rent.
Within thirty (30) days following establishment of any required
adjustment, Tenant shall forward to Landlord certificates of insurance
indicating that insurance in no less than the required adjustment amounts is in
full force and effect.
ARTICLE XI
Eminent Domain
--------------
11.1. TOTAL TAKING. If the entire Leased Premises be taken under
the power of eminent domain or by purchase in lieu thereof (herein together
called "Eminent Domain"), this Lease shall terminate as of the date possession
is taken.
11.2. PARTIAL TAKING. If any portion of the Leased Premises shall be
taken under the power of Eminent Domain, and the portion not so taken would
not, in the reasonable judgment of Tenant which shall be communicated in
writing to Landlord stating the reasons therefor within sixty (60) days
following the date on which Tenant receives notice of the condemning
authority's intention to take such property, be adequate for the continued
operation of Tenant's business, either unrestored or restored, or if Landlord
deems such restoration to be impractical, this Lease shall be deemed to have
terminated as of the date of taking of possession. If this Lease is not
terminated pursuant to this Section 11.2, Landlord, im-
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mediately following the taking, to the extent of condemnation proceeds made
available to Landlord, shall proceed to restore such part of the Leased
Premises as is not taken to as near the former condition of the original Leased
Premises, less all signs, trade fixtures, improvements, furniture, and other
installations and property installed by Tenant, as the circumstances will
permit, and Tenant shall continue to pay rent in full and to utilize the Leased
Premises for the operation of its business.
11.3. DAMAGES. All damages awarded for any such taking under the
power of Eminent Domain shall be paid to the Landlord, except for Tenant's
fixtures and equipment used in operation of the Leased Premises.
11.4. RENT. If this Lease is terminated as provided in this Article XI,
all rent shall be paid up to the date that possession is taken by the condemning
authority, and Landlord shall make a proportional refund to Tenant of any rent
or other amounts paid by Tenant which are applicable to any period after that
date and not yet earned.
ARTICLE XII
Damage and Destruction.
-----------------------
12.1. RESTORATION OF DAMAGED OR DESTROYED LEASED PREMISES. If the
Leased Premises, or any other portion of the Building, shall, through no fault
of Tenant or Tenant's agents, servants, employees, customers, contractors,
visitors or licensees, be damaged by fire, the elements, unavoidable accident
or other casualty, but the Leased Premises are not thereby rendered
untenantable, or are thereby rendered only partially untenantable, Landlord
shall promptly at its own expense cause such damage to be repaired to the
extent of insurance proceeds made available to Landlord. If by reason of such
occurrence
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the Leased Premises shall be rendered wholly untenantable, Landlord shall
promptly at its own expense cause such damage to be repaired, unless within
sixty (60) days after such occurrence Landlord shall give Tenant written notice
that it has elected not to reconstruct the destroyed premises in which event,
this Lease and the tenancy hereby created shall cease as of the date of such
occurrence, the rental to be adjusted as of such date. Any repair or
reconstructions performed by Landlord pursuant to this Section shall not
include any and all signs, trade fixtures, improvements, equipment, furniture,
or other installations and property installed by Tenant. Such items shall be
restored or replaced by Tenant at Tenant's sole cost and expense. All of the
above notwithstanding, if Landlord, in its absolute discretion, shall desire,
within a reasonable time after the occurrence of any such accident or casualty,
(even though the Leased Premises may not have been affected by the same) to
demolish the Building, then, upon written notice from Landlord to Tenant, this
Lease shall terminate on a date to be specified in such notice, and all rent
payable hereunder shall be adjusted as of the time of the occurrence of any
such accident or casualty.
12.2. NO ABATEMENT. Tenant shall not be entitled to any abatement or
diminution of rent during any period because of any casualty damage. Tenant at
all times shall maintain business interruption insurance with respect to the
business operated on the Leased Premises and rent abatement insurance in such
amounts as the Landlord shall reasonably request.
ARTICLE XIII
Default by Tenant
-----------------
13.1. TENANT'S DEFAULT. If Tenant (a) shall fail to pay any rent or
other sum of money due hereunder within
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ten (10) days after receipt of written notice that such payment has not been
made when due, (b) shall fail to perform any other of the terms, conditions, or
covenants of this Lease to be observed or performed by Tenant for more than
thirty (30) days after written notice of such default as shall have been mailed
to Tenant, unless such default is of a nature that it cannot practically be
cured within such thirty (30) day period and Tenant is proceeding with due
diligence to cure such default, or (c) shall abandon the Leased Premises, then
at Landlord's option and without limiting Landlord in the exercise of any other
right or remedy Landlord may have in law or equity on account of such default,
and without any further demand or notice, Landlord may
(i) Re-enter the Leased Premises with or without process
of law, take possession of all Improvements, additions, alterations,
equipment and fixtures thereon, eject all parties in possession thereof
therefrom, and, without terminating this Lease, at any time and from
time to time relet the Leased Premises or any part or parts thereof for
the account of Tenant or otherwise, receive and collect the rents
therefor, applying the rents first to the payment of such expenses as
Landlord may have paid, assumed or incurred in recovering possession of
the Leased Premises, including costs, expenses and attorney's fees, and
for placing the Leased Premises in good order and condition or
preparing or altering the same for reletting, and all other expenses,
commission and charges paid, assumed or incurred by Landlord in or in
connection with reletting the Leased Premises, and then
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to the fulfillment of the covenants of Tenant. Any such reletting may
be for the remainder of the Term of this Lease or for a longer or
shorter period. Landlord may execute any lease made pursuant to the
terms hereof either in Landlord's name or in the name of Tenant, as
Landlord may see fit, and the subtenant therein shall be under no
obligation whatsoever for the application by Landlord of any rent
collected by Landlord from such subtenant to any and all sums, due
and owing or which may become due and owing under the provisions of
this Lease. Nor shall Tenant have any right or authority to collect any
rent from subtenant. In any case and whether or not the Leased Premises
or any part thereof be relet, Tenant shall pay to Landlord all sums
required to be paid by Tenant up to the time of re-entry by Landlord.
Thereafter Tenant, if required by Landlord, shall pay to Landlord,
until the end of the Term of this Lease, the equivalent of the amount
of all rent and other charges required to be paid by Tenant under the
terms of this Lease, less the proceeds of such reletting during the
Term of this Lease, if any, after payment of the expenses of Landlord.
Such rent shall be due and payable on the several rent days herein
specified, and Landlord need not wait until the termination of this
Lease to recover any rent by legal action or otherwise. Re-entry by
Landlord shall not constitute an election to terminate this Lease
unless Landlord gives Tenant
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notice of Landlord's election to terminate.
(ii) Declare this Lease at an end, reenter the Leased Premises
with or without process of law, eject all parties in possession
thereof therefrom and repossess and enjoy the Leased Premises
together with all Improvements thereto, and Landlord shall thereupon
be entitled to recover from Tenant the worth, at the time of such
termination, of the amount of rent and charges equivalent to rent
reserved in this Lease for the balance of the Term. For the purpose
of this sub-paragraph (ii), all Impositions and contributions to
expenses and other items paid by Tenant shall be projected over the
term of the Lease at an average increase of such items as may have
occurred since the date of this Lease to the date of default.
13.2. REMEDIES NOT EXCLUSIVE; NO WAIVER. The remedies of Landlord set
forth in this Lease are cumulative and are in addition to and not exclusive of
any other remedy of Landlord herein given or which may be permitted by law, and
if any breach or threatened breach by Tenant of this Lease occurs, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right and remedy allowed by law or in equity or by statute
or otherwise in addition to rights set forth in this Lease. Tenant shall
permit any re-entry as provided for in this Article XIII without hindrance to
Landlord, and Landlord shall not be liable in damages or guilty of trespass
because of such re-entry. The failure of Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease or to
exer-
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cise any option contained herein, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option. A receipt by Landlord
of rent with knowledge of breach of any covenant of this Lease shall not be
deemed a waiver of such breach. No waiver by Landlord of any provision of this
Lease shall be deemed to have been made unless expressed in writing and signed
by Landlord. If Tenant fails to make any payments when due and payable as
provided in this Lease and Landlord sends notice to Tenant more than twice in
any one calendar year, then Tenant shall be deemed in default, and Landlord
shall have all rights and remedies provided in this Lease for default by Tenant.
13.3 Cure by Landlord. If Tenant at any time defaults in making any
-----------------
payment or in performing any other obligation under this Lease within the time
required allowing notice, Landlord may cure such default by payment of the
amount due or performance of such obligation and Landlord may collect from
Tenant as additional rent the costs thereof, together with interest at the rate
of ten per cent (10%) per annum from the date of payment until reimbursement by
Tenant.
ARTICLE XIV
-----------
Bankruptcy
----------
14.1. Effect of Bankruptcy or Other Proceedings.
------------------------------------------
If at any time any bankruptcy or any reorganization proceeding is instituted by
or against Tenant either in the State or Federal Courts, or if a receiver is
appointed under Chapter X or XI of the Bankruptcy Act, for its business or
property on or in the Leased Premises, or if any lien is assessed against Tenant
or its property on or in the Leased Premises, or if Tenant shall make an
assignment for the benefit of creditors or voluntarily or involuntarily take
advantage of any debtor relief proceedings under present or future law, Landlord
in
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addition to any other remedies provided Landlord in the event of Tenant's
default as set forth in this Lease or under any applicable law, shall have the
option, to be exercised by written notice given to Tenant, to declare this Lease
terminated at any time after the expiration of twenty (20) days following the
commencement of such proceeding or the assertion of such lien, unless the
proceeding is dismissed or the lien discharged and unless all payments of rent
and other payments required by this Lease to be made by Tenant to Landlord are
paid promptly during such period of twenty (20) days. Landlord shall under no
circumstances be required to permit a receiver or any person claiming through or
under Tenant to retain possession of the Leased Premises. Landlord need not
lease the Leased Premises to such receiver or person, and Landlord shall be
entitled to immediate possession of the Leased Premises. Any repossession or
termination hereunder shall not operate in any way to prejudice or affect the
right of Landlord for recovery of rent or other charges theretofore accrued,
thereafter accruing or to any other damages, nor shall any such termination or
repossession ever be construed as a waiver of or an election not to claim future
damages on account of such breach, but all such damages, including all future
rentals, shall be fully recoverable by Landlord.
ARTICLE XV
Miscellaneous
-------------
15.1. RECORDING. Landlord reserves the right at any time to require
this Lease, or a short form thereof, to be recorded at Landlord's expense among
the Land Records of Alamance County, North Carolina.
15.2. ESTOPPEL CERTIFICATES. Each party agrees at reasonable intervals
and from time to time upon not less than five (5) days' prior written notice by
the other to execute,
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acknowledge and deliver a statement in writing certifying (i) that this Lease
is unmodified and in full force and effect (or if there have been
modifications, that the Lease is in full force and effect as modified and
stating the modifications), (ii) the dates to which the rent and other charges
have been paid in advance, if any, and (iii) stating whether or not to the best
knowledge of the signer of such certificate the signing party is in default in
performance of any covenant, agreement or condition contained in this Lease
and, if so, specifying each such default of which the signer may have
knowledge. Each party acknowledges that any such statement delivered under this
Lease may be relied upon by third parties not a party to this Lease.
15.3. RIGHT TO ENTER. Landlord and its agents shall have the right to
enter the Leased Premises at reasonable hours, and at any time if any emergency
exists, to examine the Leased Premises, or to make such repairs and alterations
as shall be reasonably necessary for the safety and preservation of the Leased
Premises, or during the last twelve (12) months of the Term to show both the
interior and exterior of the Leased Premises to prospective tenants or
purchasers and to place "For Rent" or "For Sale" signs thereon.
15.4. CONDITIONS AND TERMINATION. At Landlord's option this Lease shall
become void and all parties shall be relieved of all obligations imposed
hereunder (a) if, by December 31, 1978, Landlord has not yet obtained (i) water
and sewer connection permits, (ii) building permits, and (iii) all other
governmental approvals necessary to permit the construction of the Building on
the Leased Premises or (b) if Landlord has not completed construction of the
Building by December 31, 1979.
If this Lease terminates pursuant to this Section
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15.4, Landlord shall refund to Tenant the amount of all security deposits made
by Tenant to Landlord under this Lease.
15.5. LAWS OF NORTH CAROLINA. This Lease shall be construed and applied
in accordance with the laws of the State of North Carolina.
15.6. SEVERABILITY. Any provision or provisions of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect or impair or
invalidate any other provision, and the remaining provision shall remain
in full force and effect.
15.7. HEADINGS. The headings of the various Articles and Sections of
this Lease are inserted for reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Lease.
15.8. NOTICES. Any notice, request, demand, approval, or consent to be
given under this Lease shall be in writing and shall be deemed to have been
received when mailed by United States, registered or certified mail, postage
prepaid, addressed to the other party at the addresses set forth in the first
paragraph of this Lease.
Either party may at any time change its address by mailing a notice, as
specified in this Section 15.8, that such change is desired and setting forth
the new address.
15.9. FORCE MAJEURE. In no event shall Landlord be liable for, nor
shall Tenant have the right to terminate this Lease for, delays in the
prosecution of Landlord's share of construction beyond Landlord's control
("Force Majeure") , including (but not limited to) delays caused directly or
indirectly by strikes, lockouts, the unavailability of labor or materials, Acts
of God, acts of any Federal, State, or local governmental agency or authority,
war, insurrection, rebellion, riot, civil disorder, fire, explosion, windstorm,
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hail, snow, extreme cold, rain, flood, damage from aircraft, vehicles, or smoke,
or by any other casualty of a substantial enough nature to cause delay.
15.10. SUCCESSORS. This Lease shall be binding upon and inure to the
benefit, as the case may require, of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
15.11. SUBORDINATION. This Lease shall be subject to and subordinate at
all times to the Covenants (whether recorded before or after the date of this
Lease) and to the lien of any mortgages or deeds of trust now or hereafter made
by Landlord on the Leased Premises and to all advances made or hereafter to be
made thereunder. Although this subordination provision shall be self-operative
and no further instrument of subordination shall be required, Tenant will,
nevertheless, execute and deliver such further instruments confirming such
subordination or status of this Lease as may be required by the Landlord for
financing or refinancing the Leased Premises.
15.12. ASSIGNMENT OF LANDLORD'S INTEREST. If Landlord should ever
assign this Lease or the rents hereunder to a creditor as security for a debt,
Tenant shall, after notice of such assignment and upon demand by Landlord or the
assignee, pay all suns thereafter becoming due Landlord hereunder to the
assignee and give all notices required to be given Landlord hereunder both to
Landlord and the assignee.
15.13. TRANSFER BY LANDLORD. If Landlord sells, leases or in any manner
transfers title to the Leased Premises, including foreclosure sale by judicial
proceeding or otherwise the Landlord shall be relieved of all covenants and
obligations arising hereunder, provided the Landlord is not then in default
hereunder and that such transferee shall agree to assume all
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covenants and obligations of the Landlord hereunder. Tenant agrees that it will
attorn to such transferee, provided such transferee has assumed Landlord's
covenants and obligations hereunder, and Tenant shall continue to perform all of
the terms, covenants, and conditions, and obligations of this Lease.
If Tenant obtains a money judgment against Landlord, any of its
partners or its successors or assigns under any provisions of, or with respect
to this Lease or on account of any matter, condition or circumstance arising out
of the relationship of the parties under this Lease, or of Tenant's occupancy of
the Property, Tenant shall be entitled to have execution upon such judgment only
upon Landlord's estate in the Leased Premises, and not out of any other assets
of Landlord, any of its partners, or its successors or assigns; and Landlord
shall be entitled to have any such judgment so qualified as to constitute a
lien only on the fee simple estate subject to any liens antedating any such
judgment except that this limitation shall not apply to the extent that any such
judgment against Landlord is covered by insurance.
15.14. TIME OF ESSENCE. Time is of the essence in this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
ATTEST: LANDLORD
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
/s/ Mary L. Farrell
- ------------------------------ By /s/ Michael J. Batza
Mary L. Farrell --------------------------------
Michael J. Batza, Jr.,
Vice President
ATTEST: TENANT
ALPHABET, INC.
/s/ Charles L. Thompson
- ------------------------------ By /s/ David M. Draime
Charles L. Thompson --------------------------------
David M. Draime
Page 27
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, to wit:
I HEREBY CERTIFY that on this day of 197 before me, the
subscriber, a notary public of the State of Maryland, personally appeared
Michael J. Batza, Jr., Vice President of MSC Corporation, a Maryland
corporation and general partner of Industrial Development Associates, a
Maryland limited partnership, and on behalf of such limited partnership
executed the foregoing instrument and acknowledged such execution of such
instrument as the act and deed of such limited partnership.
IN WITNESS WHEREOF, I have affixed my official seal.
--------------------------------------
[Seal] Notary Public
My Commission Expires:
STATE OF OHIO, COUNTY OF , to wit:
I HEREBY CERTIFY that on this 24th day of October, 1978 before me, the
subscriber, a notary public of the State of Ohio, personally appeared David
M. Draime, President of Alphabet Inc., and on behalf of such corporation
executed the foregoing instrument and acknowledged such execution of such
instrument as the act and deed of such corporation.
IN WITNESS WHEREOF, I have affixed my official seal.
--------------------------------------
[Seal] Notary Public
My Commission Expires: 11-14-82
Page 28
<PAGE>
SCHEDULE OF EXHIBITS
1. Exhibit A - Description of the Leased Premises
2. Exhibit B - Description of the Property
3. Exhibit C - Landlord's Plans
4. Exhibit D - Tenant's Plans
5. Exhibit E - Covenants
Page 29
<PAGE>
Exhibit A to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Description of Leased Premises
The description of Leased Premises shall consist of final plans and
specifications known as the CMS, Inc. Manufacturing Plant, as prepared by Alley,
Williams, Carmen & King, Inc., engineers ard architects, dated 19 May 1978.
Sheets 1-A, 1-B, 2, 3, 4, 5, 6, 7, 8, and 9 inclusive.
<PAGE>
Exhibit B to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Property On Which The Building Is Located
Shall consist of site plan and survey as it appears on Sheet 2 of Final
Plans and Specifications for the CMS, Inc. Manufacturing Plant, dated 19, May
1978, as prepared by Alley, Williams, Carmen & King.
<PAGE>
Exhibit C to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Landlord's Plans
<PAGE>
Exhibit E to
Carolina Central
Industrial Center
Lease
CAROLINA CENTRAL INDUSTRIAL CENTER
Declaration of
Covenants and Restrictions
This Declaration is made this day of 1978 by INDUSTRIAL
DEVELOPMENT ASSOCIATES, a Maryland limited partnership ("Developer").
RECITALS
--------
A. Developer is the owner of a parcel of land located in Alamance
County, North Carolina (the "Property") described in Exhibit A to this
Declaration, as may be amended.
B. Developer has caused the Property to be subdivided for use as an
industrial center and desires to subject Property to certain covenants,
agreements, and restrictions (the "Restrictions") as hereinafter set forth.
THEREFORE, Developer hereby declares that the Property shall be subject
to the Restrictions as set forth in this Declaration.
ARTICLE I
The Property
------------
The Property subject hereto is situated in Alamance County, North
Carolina and is more particularly described in Exhibit A attached hereto and
made part hereof. Additional lands may be annexed to the Property, and thereby
subject to the Restrictions, as set forth herein.
Page 1
<PAGE>
ARTICLE II
Definition of Terms
-------------------
Wherever used in this Declaration, the following terms shall have the
following meanings:
"Occupant" shall mean and refer to persons or entities in actual
possession of any parcel on the Property.
"Owner" shall mean and refer to the owner of any parcel on the
Property.
"Restrictions" shall mean and refer to the covenants and restrictions
contained herein or as the same may be modified in accordance with the
provisions of Article III hereof.
"Person" shall mean artificial persons as well as natural persons and
includes the plural.
"Property" shall mean and refer to that certain property described in
Exhibit A attached hereto and made part hereof and, from and after any
annexation, such additional property as may be annexed in the manner described
herein.
"Street" shall mean any street, highway or other thoroughfare within
the Property and shown on any recorded subdivision plat, whether designated
thereon as street, boulevard, place, drive, road, terrace, way, lane, circle or
otherwise.
"Structure" shall mean and refer to any thing or device the placement
of which upon the Property might affect the physical appearance thereof,
including, by way of illustration and not limitation, buildings, sheds, covered
patios, fountains, swimming, wading or other pools, trees, shrubbery, paving,
curbing, landscaping or fences or walls more than three (3) feet in height or
any sign or signboard. "Structure" shall also mean any excavation or fill, the
volume of which exceeds ten (10) cubic yards; or any excavation, fill, ditch,
diversion dam or other thing or device which affects or alters the natural flow
of surface waters upon or across the Property or which affects or alters the
Page 2
<PAGE>
flow of any water in any natural or artificial stream, wash or drainage channel
upon or across the Property.
ARTICLE III
Duration and Modification of Restrictions
-----------------------------------------
1. DURATION. These Restrictions shall continue from the date of this
Declaration until January 1, 2010, subject to modification pursuant to Article
III, Section 2, and thereafter shall be automatically extended for successive
periods of ten years, unless and until terminated pursuant to Article III,
Section 2 below.
2. MODIFICATION OR TERMINATION. These Restrictions may at any time
after the date hereof be modified in any particular, or terminated in their
entirety, by the recording among the Land Records of Alamance County, North
Carolina, of an agreement of modification or termination executed jointly by
the Developer (so long as the Developer or its successor pursuant to Article IX
exists) and the Owners (excluding mortgagees, holders of security devices who
are not in possession, lessees and tenants) of a majority of the acreage in the
Property, provided that no such modification shall affect any plans,
specifications, or use theretofore approved by the Developer pursuant to these
Restrictions or any improvements theretofore or thereafter made pursuant to
such approval.
3. ANNEXATION. Developer may, from time to time, annex additional lands
to the Property, and thereby subject the same to the Restrictions, by the
execution and filing for recordation among the Land Records of Alamance County
of an instrument expressly stating an intention so to annex and describing such
additional lands (and the interests and estates therein) to be so annexed.
ARTICLE IV
Use of Property; Restrictions
-----------------------------
1. NO RESIDENCES. No building or other Structure on the Property shall
be used, temporarily or permanently, as a residence .
2. BUILDING HEIGHT LIMITATION. All buildings shall be limited to a
height of fifty (50) feet above finished grade elevation; except that this
height limitation may be exceeded, with written approval of the Developer.
3. PARKING. All present and future vehicle parking, including trucks,
trailers, employee and visitor parking, shall
Page 3
<PAGE>
be provided on the Property and shall comply with all provisions of the
applicable governmental requirements. All parking areas are to be paved to
provide dustfree all-weather surfaces with macadam, concrete or any approved
material other than gravel. No parking area will be permitted within building
set back lines (fifty (50) feet on primary roads and thirty (30) feet on
secondary roads) except that lots bounded by more than one road may have parking
areas within the set-back lines along roads other than the one on which the
building fronts if, in the judgment of the Developer, the parking area is set
back a reasonable distance and is properly screened from both front and side
roads. Off-street parking spaces will be provided in accordance with the
following:
a) one space - size 10' x 20' for automobiles per 1,000 sq. ft. of
warehouse space
b) one space - size 10' x 20' for automobiles per 600 sq. ft. of
manufacturing space
c) one space - size 10' x 20' for automobiles per 250 sq. ft. of office
space
4. LOADING. No loading docks shall be permitted on t f the front of any
building, and, exceot where a lot is bounded by three or more roads, no loading
docks shall be permitted on the side of any building facing a road.
5. STORAGE. No material, supplies, or products shall be stored or
permitted to remain on the Property outside a permanent structure without the
prior written consent of Developer. Approval of outside storage will be granted
only where storage is screened from view by a masonry wall, or other appropriate
screen, six (6) feet in height or rising two (2) feet above the stored material,
whichever is higher.
6. MATERIALS. Without the Developer's prior written consent, the use
of concrete block or cinder block for outside facing of exterior walls will not
be permitted nor will any frame structures be permitted.
7. SIGNS. A scale drawing in color of any sign, billboard, trademark
or advertising device to be used on any lot or the exterior of any building or
Structure will be submitted to Developer in triplicate for the written approval
by Developer. Normally the Occupant's trade mark and/or trade name may be
displayed on the building in the manner in which they are generally used by the
Occupant.
8. OPEN AREA. Not more than fifty per cent (50%) of any lot area shall
be covered by Structures.
Page 4
<PAGE>
9. COLOR. No building or Structure shall be painted, repainted,
stuccoed or be surfaced with any material unless and until Developer approves
the color and/or material in writing.
10. GROUND COVER. All set-back areas facing roads between the front
building line and the curb, with the exception of driveways, sidewalks, and
other walk ways shall be used exclusively for the planting and growing of trees,
shrubs, lawns and other ground covering or material as approved by Developer. If
developed lots are not properly maintained, Developer may undertake such
maintenance as may be necessary, at the expense of the Owner.
11. NUISANCE. Owners shall not cause or make (or permit to be caused or
made) any excessive noise, odors, harmful sewage or vibration that could be
deemed objectionable to other occupants and that would conflict with the
purposes or restrictions of the Property, and shall not create or maintain a
nuisance. Each Owner must provide for trash disposal from his building.
No use will be made of any lot or any portion thereof or any building
or Structure thereon at any time, nor shall any materials or products be
manufactured, processed or stored thereon or therein, which shall, cause an
undue fire hazard to adjoining properties, or which shall constitute a nuisance
or cause the emission of noxious odors or gases or smoke, or cause noises or
other conditions which might injure the character of the lot in question or
neighboring properties or which shall constitute a violation of any law of the
United States, the State of North Carolina, or Alamance County, or any
regulation or ordinance promulgated thereunder.
12. UNUSED AREA. All unused land area that is planned for future
building expansion or other purposes shall be maintained and kept free of
unsightly plant growth, stored material, rubbish and debris.
ARTICLE V
Setbacks
--------
No Structure, or any part thereof or projection therefrom, shall be
erected nearer than fifty (50) feet from any primary road on the Property (a
primary road being a public right-of-way sixty (60) feet or more in width
granted, or intended to be granted, such intention to be evidenced by prior
written notice to each Owner, to Alamance County), nor nearer
Page 5
<PAGE>
than thirty (30) feet from any secondary road on the Property (a secondary road
being a public right-of-way less than sixty (60) feet in width granted, or
intended to be granted, such intention to be evidenced by prior written notice
to each Owner, to Alamance County), nor nearer than thirty (30) feet from any
side or rear boundary line of the parcel on which the Structure is erected.
ARTICLE VI
Plans and Specifications
------------------------
1. No Structure, building, fence, wall, sign, advertising device,
roadway, loading facility, outside storage facility, parking area, site grading,
planting, landscaping, facility for industrial waste or sewage disposal, nor any
other improvement shall be commenced, erected or constructed, nor shall any
addition thereto or change or alteration therein be made (except to the interior
of a building), nor shall any change in the use of any premises be made, until
the plans and specifications therefor, showing the nature, kind, shape,
heights, materials, color scheme, lighting and location on the lot of the
proposed improvements, grading, landscaping or alterations and the proposed use
or change in the use of the premises, shall have been submitted to and approved
in writing by the Developer and a copy of such plans and specifications as
finally approved lodged permanently with the Developer. The Developer shall have
the right to refuse to approve any plans or specifications or proposed use of
the premises for any reason which the Developer, in its sole discretion, may
deem in the best interests of the Property and the Owners, occupants or lessees
or prospective owners or lessees of other properties therein.
2. No parking will be permitted on the Streets on the Property and each
Owner, unless otherwise agreed to by Developer, shall provide on his property
necessary and adequate parking facilities and private driveways as approved by
the Developer under paragraph 1 of this Article VI.
3. Construction and alteration of all improvements on the Property
shall be in accordance with the requirements of all applicable Building, Zoning,
and other Codes and Regulations.
ARTICLE VII
Maintenance
-----------
1. Each Owner shall at all times keep his premises, buildings,
improvements and appurtenances in a safe, clean, neat and
Page 6
<PAGE>
sanitary condition and shall comply with all laws, ordinances and regulations
pertaining to health and safety. Each Owner shall provide for the removal of
trash and rubbish from his premises.
2. During construction it shall be the responsibility of each Owner to
insure that construction sites are kept free of unsightly accumulations of
rubbish and scrap materials, and the construction materials, trailers, shacks
and the like are kept in a neat and orderly manner.
3. The Developer agrees to maintain all undeveloped land owned by it within
the Property in a manner compatible with the provisions of this Article VII.
ARTICLE VIII
Covenants Run with Land; Enforceability
---------------------------------------
1. The foregoing covenants and restrictions shall run with, burden, and
bind the Property and shall bind and inure to the benefit of, and be
enforceable by, Developer and Owner and the respective heirs, successors and
assigns of each. The Developer reserves the right, however, from time to time
hereafter to delineate, plat, grant or reserve within the Center such public
streets, roads, sidewalks, ways and appurtenances thereto, and such easements
for drainage and public utilities, as it may deem necessary or desirable for the
development of the Property (and from time to time to change the location of the
same) free and clear of these restrictions and covenants, and to dedicate the
same to public use or to grant the same to Alamance County and/or to appropriate
public utility corporations.
2. Such covenants and restrictions shall be jointly and severally
enforceable by the Developer and its succesors and assigns and by the Owner, and
its successors and assigns, provided however that only the Developer or its
assignees, under Article IX hereof, shall have the right to exercise the
discretionary powers herein reserved to the Developer.
3. If any violation or breach of any of these Restrictions shall exist on
the Property, and the Owner shall not have taken reasonable steps toward the
removal or termination of the same within fifteen (15) days after written notice
thereof, the Developer shall have the right, through their agents and employees,
to enter upon the Property, with respect to any operation being conducted
thereon, and summarily abate, remove and extinguish any thing or condition that
may be or exist thereon contrary to the provisions hereof. The Developer, or any
such agent, shall not thereby be deemed to have trespassed
Page 7
<PAGE>
upon the Property and shall be subject to no liability to the Owner or Occupant
of the Property for such entry, abatement or removal.
The cost of any abatement or removal of violations authorized under
this Section shall be a binding, personal obligation of the Owner as well as a
lien (enforceable in the same manner as a mortgage) upon the Property. The lien
provided in this Section shall not be valid as against a bona fide purchaser
(or bona fide mortgagee) of the property in question unless a suit to enforce
such lien shall have been filed in a court of record in Alamance County prior to
the recordation among the Land Records of Alamance County of the deed (or
mortgage) conveying the property in question to such purchaser (or subjecting
the same to such mortgage).
4. Violation of any of these Restrictions may be enjoined, abated,
restrained or otherwise remedied by appropriate legal or equitable proceedings.
Proceedings to restrain violation of these Restrictions may be brought at any
time that such violation appears reasonably likely to occur in the future. In
the event of proceedings brought by any party or parties to enforce or restrain
violation of any of these Restrictions, or to determine the rights or duties of
any person hereunder, the prevailing party in such proceedings may recover a
reasonable attorneys' fee to be fixed by the court, in addition to court costs
and any other relief awarded by the court in such proceedings.
5. The failure of any person entitled to enforce any of these
Restrictions, to enforce the same shall in no event be deemed a waiver of the
right of any such person to enforce these Restrictions thereafter.
6. Waiver or attempted waiver of any provision of these Restrictions
shall not be deemed a waiver thereof with regard to any subsequent violation
with respect to such provision or any other provision of these Restrictions.
ARTICLE IX
Nominees and Successors of Developer
------------------------------------
The Developer may from time to time delegate any or all of its rights'
powers, discretion and duties hereunder to such agent or agents as it may
nominate. It may also permanently assign any or all of its powers and duties
(including discretionary powers and duties), obligations, rights, title,
easements and estates reserved to it by this Declaration to any one or more
corporations, associations, or persons that will accept
Page 8
<PAGE>
the same. Any such assignment shall be in writing recorded among the Land
Records of Alamance County and the assignee shall join therein for the purpose
of evidencing its acceptance of the same, and such assignee shall thereupon have
the same rights, title, powers, obligations, discretion and duties as are herein
reserved to the Developer, and the Developer shall thereupon be released
therefrom.
ARTICLE X
Good Faith Lenders Clause
-------------------------
No violation of any of these Restrictions shall defeat or render
invalid the lien of any mortgage or deed of trust made in good faith and for
value upon the Property; provided, however, that any mortgagee or trustee or
beneficiary under any deed of trust in actual possession, or any purchaser at
any trustees', mortgagees' or foreclosure sale shall be bound by and subject to
these Restrictions as fully as the Owner.
ARTICLE XI
Owner's Covenant
----------------
The Owner covenants for himself, his heirs, successors and assigns to
observe, perform and be bound by these Restrictions and to incorporate these
Restrictions by reference in any deed or other conveyance of all or any portion
of the Property.
IN WITNESS WHEREOF, the Developer has caused this Declaration to be
executed as of the day and year first above written.
ATTEST: INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
/s/ Mary Farrell
- -------------------------------------- /s/ Michael J. Batza, Jr.
Mary Farrell ---------------------------------
Michael J. Batza, Jr.
(Vice President)
ATTEST: Alphabet, Inc., General Partner
/s/ Arlene L. Burnett
- -------------------------------------- By /s/ D.N. Draime
Arlene L. Burnett --------------------------------
D.N. Draime (President)
Page 9
<PAGE>
STATE OF
COUNTY OF
I, a Notary Public of said County and State, do hereby certify that
Michael J. Batza, Jr. the duly authorized Vice President of MSC Corporation, a
Naryland corporation, such corporation being a duly authorized General Partner
of INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership, personally
appeared before me this day and acknowledged the due execution of the foregoing
instrument. Witness my hand and official seal this day of______________, 1978.
---------------------------
Notary Public
My commission expires:
STATE OF
COUNTY OF
I, Arlene L. Burnett a Notary Public of said County and State, do
hereby certify that the duly authorized President of Alphabet Inc., an Ohio
corporation, such corporation being a duly authorized General Partner of
INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership, personally
appeared before me this day and acknowledged the due execution of the foregoing
instrument. Witness my hand and offical seal this 24th day of October, 1978.
/s/ Arlene L. Burnett
---------------------------
Notary Public
My commission expires: 11/14/82
Page 10
<PAGE>
Exhibit A
---------
<PAGE>
Exhibit E to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Covenants
<PAGE>
MEMORANDUM 0F LEASE
THIS MEMORANDUM OF LEASE is made this 24th day of October, 1976 by and
between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership having
a place of business c/o MSC Corporation at 21 West Road, Towson, Maryland 21204
("Landlord") as Landlord and ALPHABET, INC.
, an Ohio corporation having a place of business at P.O. Box 308,
Orwell, Ohio 44076 ("Tenant") as Tenant.
A. By lease dated October 24, 1978, (the "Lease") Landlord has leased
to Tenant the premises described in Exhibit A to this Memorandum of Lease and
located in the Carolina Central Industrial Center, Mebane, Alamance County,
North Carolina together with necessary access, parking and utility easements to
serve the premises.
B. Landlord and Tenant desire to enter into this Memorandum of Lease
for the purpose of recordation and giving notice of the existence of the Lease.
NOW THEREFORE, in consideration of the rents received and the covenants
and conditions more particularly set forth in the Lease, Landlord and Tenant do
hereby covenant, promise and agree as follows:
1. Landlord, in consideration of the rent to be paid and the covenants
to be performed by Tenant, does hereby demise and Lease unto Tenant and Tenant
hereby rents from Landlord, a portion of the premises known as Carolina
Central Industrial Center, Mebane, Alamance County, North Carolina, which
portion thereof leased to Tenant is shown and described on Exhibit "A", attached
hereto and made a part hereof, being part of the
<PAGE>
Carolina Central Industrial Center as shown on Exhibit "B", attached
hereto and made part hereof.
2. The original term of the lease shall commence on March 31, 1979, (or
on such date that landlord gives tenant notice pursuant to Section 1.3 of said
lease) and shall terminate on the last day of the month in which the 25th
annual anniversary of the "commencement" date shall occur.
3. Tenant has three (3) consecutive five (5) year renewal options to
renew such Lease.
4. This instrument is executed for the purpose of giving public notice
of the fact of execution of the above described Lease and all of the terms and
conditions of such Lease and Exhibits and Attachments thereto are incorporated
herein by reference.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written. '
ATTEST: LANDLORD :
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
- ----------------------------------- By /s/ Michael J. Batza, Jr. (Seal)
---------------------------
Michael J. Batza, Jr.,
Vice President
ATTEST: TENANT:
ALPHABET, INC.
- ----------------------------------- By /s/ Richard A. Bechtold (Seal)
-----------------------------
Richard A. Bechtold
Vice President
Page 2
<PAGE>
STATE OF MARYLAND
COUNTY OF HARFORD
This 24th day of October, 1978, personally came before me, E. Rebecca
Kincaid a notary public of said county and state, Michael J. Batza, Jr. who,
being by me duly sworn, says that he is Vice President of MSC Corporation, a
corporation, and general partner of Industrial Development Associates, a
Maryland limited partnership, and that the seal affixed to the foregoing
instrument in writing is the corporate seal of said corporation, and that said
writing was signed and sealed by him in behalf of said corporation acting as a
general partner of said partnership by its authority duly given. And the said
Michael J. Batza, Jr. acknowledged the said writing to be the act and deed of
said corporation acting as general partner of said partnership.
/s/ E. Rebecca Kincaid
---------------------------
Notary Public
My Commission Expires: 7/1/82
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
This 15th day of December, 1978, personally came before me, Janet F.
Minnis, a notary public of said county and state, Richard A. Bechtold, who
being by me duly sworn, says that he is Vice President of Alphabet, Inc., an
Ohio corporation, and that the seal affixed to the foregoing instrument in
writing is the corporate seal of said corporation, and that said writing was
signed and sealed by him in behalf of said corporation by its authority duly
given. And the said Richard A. Bechtold acknowledged the said writing to be the
act and deed of said corporation.
/s/ Janet F. Minnis
---------------------------
Notary Public
My Commission expires: 8-9-83
Page 3
<PAGE>
SCHEDULE OF EXHIBITS
1. Exhibit A - Description of the Leased Premises
2. Exhibit B - Description of the Carolina Central Industrial
Center
<PAGE>
Exhibit A to Memorandum
of Lease between
Industrial Development
Associates
and
Alphabet, Inc.
Description of Leased Premises
Tenant has leased from Landlord 50,256 square feet of light
manufacturing space, consisting of the entire single tenant building located on
4.278 acres of land owned by Industrial Development Associates known as Building
#1 in the Carolina Central Industrial Center.
<PAGE>
Exhibit B to Lease
between
Industrial Development
Associates
and
Alphabet, Inc.
Carolina Central Industrial Center
[Street map showing location of Building Number 1 and plot lines.]
<PAGE>
FIRST AMENDMENT TO LEASE
BETWEEN
INDUSTRIAL DEVELOPMENT ASSOCIATES
AND
ALPHABET, INC.
This First Amendment to Lease is made this 23 day of December, 1978 by
and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited partnership
("Landlord") and ALPHABET) INC. ("Tenant") .
PRELIMINARY STATEMENT
---------------------
A. By lease dated October 24 , 1978 (the "Lease") Landlord leased to
Tenant certain property (the "Leased Premises") located at the Carolina Central
Industrial Center, Alamance County, North Carolina, as more particularly des-
cribed in Exhibit A to the Lease.
B. New York Life Insurance Company ("New York Life"), in connection
with its agreement to provide financing to the Landlord with respect to the
Carolina Central Industrial Center, has requested that Landlord and Tenant
amend the Lease.
NOW, THEREFORE, in consideration of the covenants herein contained and
other good and valuable consideration, Landlord and Tenant agree as follows:
<PAGE>
1. If New York Life, its successors or assign, whether by foreclosure
or otherwise, shall succeed to the interest of the landlord under the Lease,
Tenant shall not seek to hold New York Life responsible for the return to Tenant
of any security deposit paid by Tenant to Landlord pursuant to Section 3.5 of
the Lease unless New York Life has received such security deposit from the prior
landlord or otherwise.
2. Section 4.2 of the Lease is amended as follows:
"4.2. Use of Premises. Tenant may use the
Leased Premises only for the purpose of light manufacturing of wiring
harness for automotive and related industries.
3. Section 7.2 of the Lease is hereby amended by inserting in the
fifteenth line of such section the number "50,998 which represents the number of
square feet of the Leased Premises.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
ATTEST: LANDLORD:
INDUSTRIAL DEVELOPMENT ASSOCIATES
MSC Corporation, General Partner
/s/ E. Rebecca Kincaid
- ----------------------------------- By /s/ Michael J. Batza, Jr. (Seal)
------------------------
Michael J. Batza, Jr.
Vice President
ATTEST: TENANT :
ALPHABET, INC
/s/ Janet F. Minnis
- ----------------------------------- By /s/ Richard A. Bechtold (Seal)
------------------------
ALPHABET, INC.
<PAGE>
STATE OF MARYLAND
COUNTY OF HARFORD
This 23rd day of December 1978, personally came before me E. Rebecca
Kincaid, a notary public of said county and state, Michael J. Batza, Jr., who,
being by me duly sworn, says that he is Vice President of MSC Corporation, a
corporation, and general partner of Industrial Development Associates, a
Maryland limited partnership, and that the seal affixed to the foregoing
instrument in writing is the corporate seal of said corporation, and that said
writing was signed and sealed by him in behalf of said corporation acting as a
general partner of said partnership by its authority duly given. And the said
Michael J. Batza, Jr., acknowledged the said writing to be the act and deed of
said corporation acting as general partner of said partnership.
NOTARY PUBLIC
E. Rebecca Kincaid
----------------------------
Notary Public
My Commission Expires 7/1/82
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
This 2 day of January, 1979, personally came before me, Janet T.
Minnis, a notary public of said county and state, Richard A. Bechtold, who,
being by me duly sworn, says that he is Vice President of Alphabet, Inc., an
Ohio corporation, and that the seal affixed to the foregoing instrument in
writing
<PAGE>
was signed and sealed by him in behalf of said corporation by its authority
duly given. And the said Richard A. Bechtold, acknowledged the said writing to
be the act and deed of said corporation.
Janet F. Minnis
- ----------------------------------- ----------------------------
Notary Public
My Commission Expires 8-9-83
<PAGE>
SECOND AMENDMENT TO LEASE
BETWEEN
INDUSTRIAL DEVELOPMENT ASSOCIATES
AND
ALPHABET INC. (t/a MCR, INC.)
This Second Amendment to Lease is made this 15th day of December, 1981
by and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited
partnership ("Landlord") and ALPHABET INC. ("Tenant").
By Lease dated October 24, 1978 (the "Lease"), and First Amendment
dated December 23, 1978 (the "First Amendment") ' Landlord leased to Tenant
certain property (the "Leased Premises") located at the Carolina Central
Industrial Center, Alamance County, North Carolina, as more particularly
described in Exhibit A to the Lease.
Tenant and Landlord are desirous of amending the Lease and First
Amendment.
NOW, THEREFORE, in consideration of the covenants herein contained
and other good and valuable consideration, Landlord and Tenant hereby agree as
follows:
1. Section 3.1, ANNUAL RENT, of the Lease, is hereby amended so as to
provide as of January 1, 1982 an annual rent increase from $94,346.00 to
$132,356.00. Said rent to be paid in equal monthly installments of $11,029.67.
2. Section 3.3, UTILITIES, of the Lease, is hereby amended so as to
provide beginning January 1, 1982, that Landlord shall be responsible for and
pay all charges for gas, electricity, water, and sewer expenses. Tenant shall
maintain the services in its name and control. Monthly, upon receipt of bills
for the abovementioned services, Tenant shall forward same to Landlord. Landlord
shall pay all utility bills in a prompt manner.
Tenant shall retain the right, in the event of Landlord's failure to
pay the utility charges, to cure the default. Tenant reserves all legal rights
to pursue, in the event of said default, whatever action it may have under
appropriate North Carolina law to recoup its out-of-pocket expenses and legal
fees for same.
Tenant will continue to pay all charges and expenses related to use of
telephone services.
3. Add Section 3.6, ANNUAL ADJUSTMENT. Tenant's basic annual rent as
amended ($132,356.00) shall be adjusted annually by an amount equal to 3% of
the previous year's rent. This adjustment is intended to compound on an annual
basis. Landlord shall advise Tenant of his new monthly rent prior to year end
and bill the gross adjusted amount beginning January l of each calendar year.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
ATTEST: LANDLORD:
INDUSTRIAL DEVELOPMENT ASSOCIATES
______________________________ By _________________________________(SEAL)
Michael J. Batza, Jr.
Meridian Inc., General Partner
ATTEST : TENANT:
ALPHABET INC.
_______________________________ By ___________________________________(SEAL)
Richard A. Bechtold
STATE OF ___________, COUNTY OF __________, to wit:
I HEREBY CERTIFY that on this ____ day of _____________, 198__ before
me, the subscriber, a notary public of the State of ________________,
personally appeared MICHAEL J. BATZA, JR., Assistant Secretary of Meridian
Inc., a Maryland corporation and general partner of Industrial Development
Associates, a Maryland limited partnership, and on behalf of such limited
partnership executed the foregoing instrument and acknowledged such execution
of such instrument as the act and deed of such limited partnership.
IN WITNESS WHEREOF, l have affixed my officiaL seal.
(SEAL) -----------------------------
Notary Public
My Commission expires:
STATE OF ____________, COUNTY OF ___________, to wit:
l HEREBY CERTIFY that on this ____ day of _______________, 198__
before me, the subscriber, a notary public of the State of __________________,
personally appeared RICHARD A. BECHTOLD, Vice President of Alphabet Inc., and
on behalf of such corporation executed the foregoing instrument and acknowledged
such execution of such instrument as the act and deed of such corporation.
IN WITNESS WHEREOF, l have affixed my official seal.
(SEAL) -----------------------------
Notary Public
My Commission expires:
Page 2
<PAGE>
Exhibit 10.4
LEASE AGREEMENT
BETWEEN
STONERIDGE, INC.
AND
HUNTERS SQUARE INC.
1. Parties 1
2. Basic Lease Provisions And Definitions 1
3. Demise 3
4. Term 3
5. Minimum Rent 4
6. Security Deposit 4
7. Real Estate Taxes 4
8. Use 4
9. Tenant's Additional Agreements 5
10. Conduct Of Business 5
11. Signs 5
12. Property In The Premises 5
13. Trade Fixtures 6
14. Alterations 6
15. Liens 6
16. Common Areas 6
17. Utilities 7
18. Maintenance 7
19. Promotion And Advertising 8
20. Assignment And Subletting 8
21. Insurance 9
22. Fire Or Other Casualty 10
23. Eminent Domain 11
24. Subordination, Attornment And Mortgagee's Approval 11
25. Estoppel Certificate 12
26. Bankruptcy 12
27. Default 12
28. Surrender Of Premises 13
29. Holding Over 14
30. Access To Premises 14
31. Quiet Enjoyment 14
32. Waiver 14
33. Notices And Payments 14
34. Relationship Of Parties 15
35. Exoneration 15
36. Renewal Options 15
37. Delays 15
38. Signature Of Parties 16
39. Notary 16
<PAGE>
OFFICE LEASE
THIS LEASE AGREEMENT (the "Lease") effective as of the date of the signature of
the last party to sign, by and between the following parties:
1. PARTIES
LANDLORD: HUNTERS SQUARE INC.
(the "Landlord")
whose address is:
Post Office Box 8827
Warren, Ohio 44484
TENANT: STONERIDGE, INC.
(the "Tenant"),
whose address is:
8700 East Market Street
Warren, Ohio 44484
Until the Landlord advises the Tenant to the contrary, in writing, Lewis
Development Corporation shall be the exclusive Agent to act on behalf of the
Landlord under this Lease, with full power and authority.
2. BASIC LEASE PROVISIONS AND DEFINITIONS
The following are presented for the convenience of the parties and include a
summary of the basic provisions of this Lease. Each reference in this Lease to
one of the following provisions shall be construed to incorporate all of the
terms provided for under such provisions:
2.1 Building
Phase IV of Hunters Square located at 8680 East Market Street, in the Township
of Howland, County of Trumbull and State of Ohio, as shown on attached Exhibit
A. Landlord reserves the right to change the name of the Building, from time to
time.
2.2 Premises (Article 3)
The portion of the Building containing approximately 18,720 square feet (Floor
Area), plus additional lower area of 5,850 square feet and graphically
represented on attached Exhibit B, and excluding the exterior walls, roof,
storefront and land beneath the Premises which constitutes the entire Building.
2.3 Term (Article 4)
Ten (10) Lease Years beginning January 1, 2000, the "Commencement Date" and
ending December 31, 2009, the "Expiration Date", unless Landlord has not been
able to deliver the Premises to Tenant prior to the Commencement Date. In such
event, Commencement Date shall be deferred to the day after Landlord delivers
possession of the Premises and the expiration date shall be ten years later and
the Rent shall be adjusted accordingly. Landlord shall commence construction
with reasonable dispatch and due diligence with a view to achieving a January 1
Commencement Date. In any event, Landlord shall complete construction by June
1, 2000, at the latest. Landlord agrees to construct the Premises and Common
Areas (as hereinafter defined) in accordance with the floor plan and plan
specifications as described in the Addendum. The Term of this Lease includes all
extensions and renewals.
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<PAGE>
2.4 Minimum Rent (Article 5)
YEARS 1 THROUGH 5
Three Hundred Thousand Nine Hundred Eighty Two and 00/100
Dollars ($300,982.00) per Lease Year, payable in advance
monthly installments of Twenty Five Thousand Eighty Two
and 00/100 Dollars ($25,082.00) each, subject to
adjustments as hereinafter provided. Monthly minimum rent: $25,082.00
YEARS 6 THROUGH 10
The Minimum Rent will increase fifteen percent (15%) or
the CPI Index whichever is lower.
2.5 Security Deposit (Article 6) (Waived)
2.6 Permitted Use (Article 8)
Only for the use of a general business office.
2.7 Tax Charge (Article 7)
Initial monthly payment: 1,843.00
2.8 CAM and Insurance Charge (Article 16 and 22.2)
Initial monthly payment: 2,765.00
2.9 Additional Rent
Means all other charges and payments owing to Landlord by
Tenant. 0.00
----------
2.10 Monthly Payment Total
Initial monthly total of items set forth above in 2.4,
2.7, 2.8, 2.9: $29,690.00
==========
2.11 Utility Commencement Date (Article 18): January 1, 2000 or upon occupancy,
whichever occurs first.
2.12 Price Index
The Price Index means the "All Items" portion of the "Consumer Price Index for
All Urban Consumers: U. S. City Average" (1982-84 = 100), as compiled by the
Bureau of Labor Statistics, United States Department of Labor. If the Price
Index should in the future be compiled on a different basis, appropriate
adjustments will be made for purposes of computations. If the United States
Department of Labor no longer compiles and publishes the Price Index, any
comparable index published by any other branch or department of the federal
government shall be used for the purpose of computing the CPI adjustments. If
no such index is compiled and published by any branch or department of the
federal government, the statistics reflecting cost of living changes, as
compiled by any institution, organization or individual, generally recognized as
an authority by financial and insurance institutions shall be used as a basis
for CPI adjustments.
2.13 CPI Increase Formula
means the Price Index applicable on the first day of the month of Execution Date
as the denominator and the index number for the first month of each Lease Year
or other period being adjusted as the numerator,
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<PAGE>
multiply the resulting fraction by the payment being adjusted; in no case may
the product be less than the payment being adjusted.
2.14 Floor Area
means the area determined by measuring from the exterior faces of all outside
walls and the centerline of common walls.
2.15 Rent
means Minimum Rent, Renewal Rent, and Additional Rent.
2.16 Renewal Options (Article 36)
Two (2) option(s) of renewal for five (5) years each following the Expiration
Date.
2.17 Renewal Rental (Article 36)
The Minimum Rent for all renewal options will increase if the option is
exercised fifteen percent (15%) for each five year period after the original
term or the CPI Index whichever is lower.
2.18 Default Rate (Article 27.6)
Any payment to be made by Tenant to Landlord for Rent, if not paid, when due,
shall, in addition to other charges which may be imposed, bear interest at the
rate of eighteen per cent (18%) per annum from the due date until the date paid.
3. DEMISE
3.1 Landlord leases to Tenant, and Tenant rents from the Landlord the Premises.
This Lease is effective upon the Execution Date, but rent and other obligations
of the Tenant hereunder shall commence upon the Commencement Date.
4. TERM
4.1 Tenant shall have access to the Premises prior to the Commencement Date for
the purpose of completing its fixturing and stocking of opening inventory, so
long as the activities of Tenant do not unreasonably interfere with the work of
Landlord Under Article 3. The term shall begin on the Commencement Date and
continue until the Expiration Date, unless it is sooner terminated, as provided
in Article 23 or Article 27 or extended in accordance with the provisions of
Article 37.
4.2 Tenant shall use the Premises for the Permitted Use, and no other use or
purpose, during the Term.
4.3 Provided Tenant is not in default, Tenant has the option to terminate this
Lease after 7 years, 6 months (July 1, 2007) by giving notice no later than
December 31, 2006. If Tenant fails to give written notice by December 31, 2006,
the option to cancel will be null and void. Tenant agrees to pay one year's
complete minimum rent and common charges for July 1, 2007 through June 30, 2008.
Payment shall be on a monthly installment for the period July 1, 2007 through
June 30, 2008, in installments equal to the then Minimum Rent and common area
charges.
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<PAGE>
5. MINIMUM RENT
5.1 Tenant shall pay to Landlord the Minimum Rent or Renewal Rent during any
Renewal Term on or before the first day of each calendar month during the Term.
Minimum Rent for the first month is due at the time of the Execution of the
Lease.
5.2 In the event any installment of Minimum Rent, Renewal Rent or Additional
Rent is overdue by ten (10) days or more, a "Late Charge" of Three Hundred
Dollars ($300.00) may be charged by Landlord for the purpose of defraying the
expense incident to handling such delinquent payment, together with interest at
the Default Rate.
5.3 No payment of Rent of a lesser amount than the correct amount then due
shall be deemed to be other than a payment on account. No endorsement or
statement on any check or other communication accompanying a check for payment
shall be deemed an accord and satisfaction. Landlord may accept all such
payments without any prejudice to the right of Landlord to recover the full
balance due and to pursue remedies under Article 27.
6. SECURITY DEPOSIT
6.1 Intentionally Omitted.
7. REAL ESTATE TAXES
7.1 Beginning with the Commencement Date, Tenant shall pay the Tax Charge as
its proportionate share of the "Real Estate Tax Expense" which shall include all
real estate taxes and assessments both general and special imposed by federal,
state or local governmental authority or any other taxing authority having
jurisdiction over the Building, against the land, Building and all other
improvements within the Building, together with any and all expenses incurred by
Landlord in negotiating, appealing or contesting such taxes and assessments.
Real Estate Tax Expense shall include the face amount of real estate taxes but
shall not include any additional charges or penalties incurred by Landlord due
to late payment of real estate taxes. Tenant's pro rata share shall be computed
by multiplying the total of such Real Estate Tax Expense by a fraction whose
numerator is the Floor Area of Tenant's Premises and whose denominator is the
number of square feet of Gross Leasable Area within that portion of the Building
included within the tax statement. Any dispute as to the areas used in
determining the Real Estate Tax Expense shall be resolved by certification of
Landlord's architect.
7.2 Landlord shall annually estimate and adjust Tenant's Tax Charge based on
charges in the amount of the Real Estate Tax Expense.
7.3 If this Lease terminates (other than by reason of Tenant's default) during
a tax year, Tenant's initial obligation for Real Estate Tax Expense for a
partial tax year shall be computed on a per diem basis.
8. USE
8.1 Tenant agrees that the Premises shall be used for the Permitted Use, and
ancillary and customary uses related thereto for no other purpose or use.
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<PAGE>
9. TENANT'S ADDITIONAL AGREEMENTS
9.1 Affirmative Obligations. Tenant agrees at its own cost and expense to:
(a) keep and maintain in a safe, neat and clean condition all portions of the
Premises, (b) abide by and observe all reasonable rules and regulations
established by Landlord, from time to time, with respect to the operation of the
Building and its Common Areas; (c) pay, when due, all personal property taxes
assessed against Tenant's fixtures and furnishings, all taxes arising out of the
operation of Tenant's business, and pay for all license fees, occupational taxes
and other governmental charges assessed by reason of Tenant's use or occupancy
of the Premises.
9.2 Negative Obligations. Tenant agrees that it shall not, without first
obtaining Landlord's prior written consent, which shall not be unreasonably
witheld or delayed: (a) permit the Premises to be used in any way which will
injure the reputation of the same (or of the Building), (b) use, occupy, suffer
or permit any use of the Premises which would (i) violate any law, ordinance or
regulation, (ii) constitute a nuisance, or (iii) constitute an extra-hazardous
use, (c) place a load on any floor in the premises or within the interior of the
Building which exceeds the floor load per square foot which such floor was
designed to carry, or install, operate or maintain therein any heavy item of
equipment except in such manner as to achieve proper distribution of the weight;
(d) erect any radio or television aerial or other devise on the roof or exterior
walls of the Premises or the building in which the Premises are located, nor
penetrate the roof for any purpose.
10. CONDUCT OF BUSINESS
10.1 At all times Tenant shall conduct its business, if any, in a reputable
manner.
11. SIGNS
11.1 Tenant may, but shall not be obligated to, erect its exterior sign
subject to Landlord's prior written approval as to number, size, color, type,
content and location of such sign.
12. PROPERTY IN THE PREMISES
12.1 All leasehold or building improvements or additions, which when installed
or completed, are permanently attached to the Building, shall become and remain
the property of the Landlord. All store fixtures, trade equipment or trade
fixtures and signs (including signs erected outside the Premises) shall remain
the property of the Tenant.
12.2 Tenant agrees that all personal property of every kind or description
which may at any time be in the Premises shall be at the Tenant's sole risk, or
at the risk of those claiming under the Tenant. Landlord shall not be
responsible or liable to Tenant for any loss or damage that may be occasioned by
the acts or omissions of persons occupying any space adjacent to or adjoining
Tenant's Premises, or any part thereof. Landlord shall not be responsible or
liable to Tenant for any loss or damage resulting to Tenant or its property or
its business from roof leaks, water, gas, steam, fire, or the bursting, stoppage
or leaking water and/or sewer pipes, or from the heating or plumbing fixtures,
or from electric wires, or from gas or odors, or caused in any manner
whatsoever, provided that if any such event shall render the Premises
untenantable for a period in excess of seven (7) days, rent shall abate until
occupancy is restored.
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<PAGE>
13. TRADE FIXTURES
13.1 All trade fixtures and operating equipment installed by Tenant in the
Premises shall be kept in good working order and repair during the Term.
13.2 Tenant may, at the expiration of the Term, remove all the Tenant's trade
fixtures and operating equipment which can be removed without injury to, or
defacement of the Premises, provided all Rents are paid in full and Tenant is
not otherwise in default hereunder. Any and all damage to the Premises or to
the Building (resulting from or caused by such removal) shall be promptly
repaired at Tenant's expense.
14. ALTERATIONS
14.1 Tenant agrees not to make any alterations of or upon any part of the
Premises which affect the structure or the building systems except with the
prior written consent of the Landlord, which shall not be unreasonably withheld
or delayed. Tenant further agrees, in the event of making permitted
alterations, to indemnify and save harmless the Landlord from all expense,
liens, claims or damages to either persons, property, the Premises or the
Building, arising out of or resulting from the undertaking or making of
alterations.
14.2 All alterations made by Tenant shall consist of reasonable material
installed in a workmanlike manner by duly qualified (and licensed, when
applicable) workmen and artisans and in compliance with all applicable laws,
rules and regulations.
15. LIENS
15.1 No work which Landlord permits Tenant to do or which Tenant is obligated
to perform, whether in the nature of erection, construction, alteration or
repair, shall be deemed to be for the immediate use and benefit of Landlord so
that no mechanics' or other lien or encumbrance or charge shall be allowed
against the Building by reason of any consent given by Landlord to Tenant to
improve the Premises.
15.2 Prior to commencing any such work, Tenant shall prepare, execute and file
a Notice of Commencement if required by Law. In the event any mechanics' or
other lien at any time is filed against the Premises or the Building by reason
of work or materials performed or furnished, or alleged to be performed or
furnished, to Tenant or anyone holding the Premises through or under Tenant,
Tenant shall within 60 days thereafter cause the same to be discharged of record
by payment, deposit, bonding in an amount satisfactory to the Landlord, or by
order of court of competent jurisdiction. If Tenant shall fail to cause such
lien forthwith to be so discharged or bonded after being notified of the filing
thereof, then, in addition to any other right or remedy of Landlord, Landlord
may discharge the same by paying the amount claimed to be due or bonding or
deposit procedure, and the amount so paid by Landlord including reasonable
attorney's fees, with interest thereon at the Default Rate, and costs and
allowances, shall constitute Additional Rent payable and shall be paid by Tenant
to Landlord on demand.
16. COMMON AREAS
16.1 Landlord shall make available within and outside of the Building such
Common Areas as are described in Exhibit B. Common Areas means, but is not
limited to, any parking areas, driveways, service courts, access and egress
roads, sidewalks, opened and enclosed courts, landscaped and planted
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areas, fire corridors, meeting areas and public restrooms. Landlord shall
operate, manage, equip, light, repair and maintain the Common Areas for their
intended purposes in such manner as Landlord shall in its sole discretion, from
time to time, determine, and may, from time to time, change the size, location,
elevation, nature and/or use of any buildings, structures, booths therein or
thereon and move or remove the same, or to construct additional structures
within the Common Areas.
16.2 Tenant, its officers, (if any), employees, customers and invitees shall
have the non-exclusive right in common with Landlord and all others to whom
Landlord has or may hereafter grant rights, to use the Common Areas, subject to
such rules and regulations as Landlord may impose, from time to time. Landlord
may, at any time and from time to time, close any Common Area to make repairs or
changes or to prevent the acquisition of public rights in such area or to
discourage unauthorized parking.
16.3 Tenant agrees to pay to Landlord its proportionate share of all costs and
expenses (the "CAM Charge") incurred by Landlord in each Lease Year for (i) the
Common Areas, (ii) the roofs of the Building, and (iii) all other areas and
facilities adjoining or used in connection with the Building which include, but
are not limited to, operating, equipping, policing and protecting, providing
sanitation, sewers, trash removal, pest control, repair, maintenance and
replacement of sidewalks, signs, displays, directories, landscaping, vegetation,
pavement, parking lot, driveways, entrance ways and lighting fixtures, cleaning,
painting, striping, security control and fire protection, premiums for insurance
for property damage, liability and casualty insurance, full compensation and
benefits of personnel used to perform services. The initial monthly payment
shall be adjusted effective on the first day of the first month of the second
Lease Year and on the first day of the first month of each Lease Year thereafter
in accordance with the CPI Increase Formula.
17. UTILITIES
17.1 Not later than the Utility Commencement Date, Tenant shall subscribe for
all utilities in its own name. If Tenant does not, Landlord will charge Tenant
an administrative fee of 15% of each utility bill delivered to Landlord for
utility services furnished to Tenant and billed to Landlord. From the Utility
Commencement Date, Tenant agrees to pay for all utility services rendered or
furnished to the Premises including gas, water, electricity, sprinkler charges
assessed by any governmental authority, fire line charges, sewer rental, sewage
treatment facilities and the like, together with all taxes levied or other
charges on such utilities and governmental charges based on utility consumption,
standby utility capacity or potential utility use. Any such charges for
services supplied by Landlord, or charges for utilities which may be rebilled by
the Landlord, shall be due and payable within ten (10) days after billings are
rendered to Tenant. In no event shall Landlord be liable for the quality,
failure or interruption of such services to the Premises.
18. MAINTENANCE
18.1 Landlord agrees to keep and maintain (except as hereinafter set forth),
the roof and other exterior portions of the Building premises, the Common Areas
as determined in accordance with Section 16.1, and the plumbing, sewage and
utility lines outside the building in which the Premises are located; except
however, that Landlord shall not be responsible for the following: doors, door
closers and operators and windows; and damage caused by any act or negligence of
Tenant, its employees, agents, invitees, licensees or contractors. Other than
as herein provided, Landlord shall not be responsible to make any
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other improvements or repairs of any kind in or upon the Premises. Landlord will
repair any defects in Landlord's work described in the Addendum.
18.2 Tenant covenants and agrees to keep and maintain at its own cost and
expense in good order, condition and repair the Premises and every part thereof,
except as hereinabove provided, including, but without limitation, the exterior
and interior portions of all doors, door closers and operators, windows, plate
glass and showcases surrounding the Premises, all plumbing and sewage facilities
and electrical systems within the Premises, fixtures, heating, air-conditioning
and electrical equipment, utility lines under the floor of Tenant's Premises,
and interior walls, floors and ceilings, signs and all interior building
appliances and similar equipment. Tenant further agrees to replace any of said
equipment when necessary at its own cost and expense. Tenant agrees to be
responsible for any damage to the Premises or to the Building, or any part
thereof, including but not limited to the roof, exterior walls, loading dock
areas, landscaping, planted areas, parking lot, driveways, entrance ways and
signs caused by any act or negligence of Tenant, its employees, agents,
invitees, licensees or contractors.
18.3 Tenant, at its cost, shall change all air conditioning filters at least
two (2) times a year, and shall have the HVAC system professionally inspected
and generally serviced at least twice per year. Tenant shall furnish Landlord
with a copy of its service contract and copies of all service reports received
from the service contractor.
18.4 At all times Tenant will not use electrical current in excess of the
electrical distribution system, nor make any alterations or additions to
Tenant's electrical system without the prior written consent of Landlord. No
electrical equipment shall be placed in the Premises which overloads any
electrical lines. All changes in electrical lines shall only be made with prior
written consent of Landlord and using only qualified and licensed electricians.
The Electrical System shall be installed consistent with the specifications of
Tenant.
19. PROMOTION AND ADVERTISING
19.1 Intentionally Omitted.
20. ASSIGNMENT AND SUBLETTING
20.1 Tenant agrees not to assign this Lease or to sublet the whole or any part
of the Premises, without the prior written consent of the Landlord which shall
not be unreasonably withheld or delayed. Any assignment or subletting, shall
not relieve Tenant from liability for payment of Rent or for the obligation to
keep and be bound by the provisions, conditions and covenants of this Lease,
unless this Lease may be amended by agreement between such assignee or subtenant
and Landlord, which shall occur if any assignee shall be of materially
comparable economic strength as Tenant. If any assignment or subletting, even
with the consent of Landlord, results in Rent in an amount greater than that
provided for in this Lease, then such excess shall belong to the Landlord and
shall be payable to Landlord as Additional Rent. In the event any assignment or
subletting not releasing Tenant, the acceptance of rent from any other person
shall not be deemed to be a waiver of any of the provisions of this Lease or to
be a consent to the assignment of this Lease or subletting of the Premises.
20.2 An assignment for the benefit of creditors or by operation of law shall
not be effective to transfer any rights to assignees without the prior written
consent of the Landlord.
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20.3 If Tenant, for any reason, requests the Landlord to find a substitute
occupant for the Premises or submits to Landlord a request for approval of an
assignment or subletting by Tenant, Tenant shall pay to Landlord Landlord's
administrative costs, overhead and fees of counsel in connection with any such
request, but not less than a minimum of Two Hundred Fifty and 00/100 Dollars
($250.00).
21. INSURANCE
21.1 Tenant agrees to provide on or before the date of possession of the
Premises and to keep in force during the Term: (1) comprehensive general
liability insurance for the mutual benefit of Landlord and Tenant relating to
the Premises and its appurtenances in an amount of not less than Two Million
($2,000,000) Dollars per occurrence, which shall name Landlord as an additional
insured; (2) fire and extended coverage, vandalism, malicious mischief and
special extended coverage insurance in an amount adequate to cover the cost of
replacement of all leasehold or building improvements in the Premises which were
originally constructed or provided by or on behalf of Tenant as well as the cost
of replacement of all fixtures, equipment, decorations, contents and personal
property therein; and (3) plate glass insurance with respect to all plate and
other glass in the Premises. Tenant agrees to deliver to Landlord at least
fifteen (15) days prior to the time such insurance is first required to be
carried by Tenant, and thereafter at least fifteen (15) days prior to the
expiration of any such policy, either a duplicate original or a certificate and
true copy of all policies procured by Tenant in compliance with its obligations
hereunder, together with evidence of payment therefore, the ("Insurance").
21.2 The Insurance shall be written by one or more responsible insurance
companies authorized to sell casualty insurance in the State reasonably
satisfactory to Landlord and shall contain endorsements that : (1) such
insurance may not be canceled or amended with respect to Landlord (or its
designee(s)), except upon ten (10) days written notice by registered mail to
Landlord (and such designee(s)), by the insurance company; and (2) Tenant shall
be solely responsible for payment of premiums for the Insurance. In the event
Tenant fails to furnish the Insurance, the Landlord may obtain the Insurance and
the premiums shall be paid by Tenant to the Landlord upon demand.
21.3 Tenant will indemnify, save harmless, and defend Landlord from and against
any and all claims and demands in connection with any accident, injury or damage
whatsoever caused to any person on property arising directly or indirectly out
of the Tenant's initial construction, alteration, renovation, remodeling and/or
fixturing of the Premises (whether or not occurring prior to the Commencement
Date), or out of the business conducted in the Premises or occurring in, on or
about the Premises or any part thereof, or arising directly or indirectly from
any act or omission of Tenant or any of its contractors, subcontractors or
concessionaires or subtenants or their respective licensees, servants, agents,
employees, contractors or subcontractors, and from and against any and all
costs, expenses and liability incurred in connection with any such claim or
proceeding brought thereon. Landlord will indemnify, save harmless, and defend
Tenant from and against any and all claims and demands in connection with any
accident, injury or damage whatsoever caused to any person on property arising
directly or indirectly out of the Landlord's initial construction, alteration,
renovation, remodeling and/or fixturing of the Premises (whether or not
occurring prior to the Commencement Date), or out of the business conducted in
the Premises or occurring in, on or about the Premises or any part thereof, or
arising directly or indirectly from any act or omission of Landlord or any of
its contractors, subcontractors or concessionaires or subtenants or their
respective licensees, servants, agents, employees, contractors or
subcontractors, and from and against any and all costs, expenses and liability
incurred in connection with any such claim or proceeding brought thereon.
Page 9
<PAGE>
21.4 Each insurance policy carried by Landlord or Tenant and insuring all or
any part of the Building, the Premises, including improvements, alterations and
changes in and to the Premises made by either of them and Tenant's trade
fixtures and contents therein, shall be written in a manner to provide that the
insurance company waives all right of recovery by way of subrogation against
Landlord or Tenant, as the case may be, in connection with any loss or damage to
the Premises, property or businesses, building and contents caused by any of the
perils covered by fire and extended coverage, and business interruption
insurance, or for which either party may be reimbursed as a result of insurance
coverage affecting any loss suffered by it. So long as the policy or policies
involved can be so written and maintained in effect, neither Landlord, nor
Tenant, shall be liable to the other for any such loss or damage, provided,
however, that the foregoing waivers of liability given by Landlord and Tenant to
each other shall apply only to the extent of any recovery made by the parties
under any policy of insurance now or hereafter issued.
21.5 Landlord agrees to maintain and include the premiums thereon as part of
the CAM Charge: (1) comprehensive general liability insurance relating to the
Building and its Common Areas on an occurrence basis in the minimum amount of
Two Million ($2,000,000.00) Dollars; (2) fire and extended coverage, vandalism,
malicious mischief and special extended coverage insurance to the extent of the
replacement value of the buildings and improvements originally constructed by
Landlord.
22. FIRE OR OTHER CASUALTY
22.1 If the Premises (or any part thereof) are damaged or destroyed by any
insured casualty, Landlord shall, except as otherwise provided herein, and to
the extent it recovers proceeds from such insurance, repair and/or rebuild the
same with reasonable diligence. Landlord's obligation hereunder shall be
limited to the building and improvements originally provided by Landlord at the
Commencement Date of the Term. Landlord shall not be obligated to repair,
rebuild or replace any property belonging to Tenant or any improvements to the
Premises furnished by Tenant. If there should be a substantial interference
with the operation of Tenant's business in the Premises as a result of such
damage or destruction which requires Tenant to temporarily close its business to
the public, the Minimum Rent shall abate. Unless this Lease is terminated by
Landlord or Tenant as herein provided, Tenant shall, at its cost and expense,
repair, restore, redecorate and refixture the Premises and restock the contents
thereof in a manner and to at least a condition equal to that existing prior to
such damage or destruction, except for the building and improvements to be
reconstructed by Landlord as above set forth, and the proceeds of all insurance
carried by Tenant on the property, decorations and improvements as well as
fixtures and contents in the Premises shall be held in trust by Tenant for such
purposes. Tenant agrees to commence such work within ten (10) days after the
date of such damage or destruction or the date Landlord completes any
reconstruction required to be completed by it pursuant to the above, whichever
date is later, and Tenant shall diligently pursue such work to its completion.
22.2 Notwithstanding anything to the contrary contained in the preceding
subsection 22.1 or elsewhere in this Lease, Landlord or Tenant at their
respective options, may terminate this Lease on thirty (30) days notice to the
other party, given within ninety (90) days after the occurrence of any damage or
destruction if: (1) the Premises are damaged or destroyed as a result of a risk
which is not covered by Landlord's insurance, or (2) the Premises are damaged
and the cost to repair the same shall be more than fifty (50%) percent of the
cost of replacement thereof, or (3) the Premises are damaged during the last
three (3) years of the term, or (4) the building of which the Premises is a part
is damaged to the extend of fifty (50%) percent or more of the then monetary
value thereof (whether the Premises are damaged or not) or (5) if any or all of
the buildings or Common Areas of the Building are damaged (whether or not the
Premises are damaged) to such an extent that, in the sole judgment of Landlord,
the Building cannot be operated as an integral unit.
Page 10
<PAGE>
23. EMINENT DOMAIN
23.1 If the whole or any part of the Premises is taken by any public or quasi-
public authority under the power of eminent domain, condemnation or
expropriation or in the event of a conveyance in lieu thereof, then this Lease
shall terminate on the date when Tenant is required to yield possession thereof.
23.2 If more than twenty (20%) percent of (a) the Floor Area of the Building or
(b) the Common Areas, shall be taken or conveyed under Section 23.1, Landlord
shall have the right, at its option, to be exercised by notice in writing
delivered to Tenant, to terminate this Lease effective, at the option of
Landlord, either upon the date title vests in the condemning authority, or upon
the date Landlord is required to deliver possession of the part taken or
conveyed.
23.3 In the event of a taking under the power of eminent domain of the
Premises, Common Areas, or any other portion of the Building, whether whole or
partial, all compensation awarded for such taking of the fee and leasehold
estate, or consideration paid for a conveyance in lieu of condemnation, as
damages or otherwise, shall belong to and be the property of Landlord, except
that Tenant shall be entitled to recover from the condemning authority, but not
from Landlord, such amounts as may be separately awarded to Tenant for the value
of its leasehold estate and for removal expenses, business dislocation damages
and moving expenses.
24. SUBORDINATION, ATTORNMENT AND MORTGAGEE'S APPROVAL
24.1 The Landlord reserves the right to subordinate this Lease at all times to
the lien of any mortgage or mortgages now or hereafter placed upon the
Landlord's interest in the Premises and on the land and buildings of the
Building (the holder of any such mortgage hereinafter referred to as
"Mortgagee"), and to any and all advances to be made under such mortgages, and
all renewals, modifications, extensions, consolidations and replacements thereof
provided that the Mortgagee shall grant nondisturbance assurances satisfactory
to Tenant.
24.2 Tenant agrees to execute and deliver, upon demand, such further instrument
or instruments subordinating this Lease on the foregoing basis to the lien of
any such mortgage or mortgages as shall be reasonably desired by the Landlord
and any Mortgagees or proposed Mortgagees provided that the Mortgagee shall
grant nondisturbance assurances satisfactory to Tenant.
24.3 Tenant shall, in the event of the sale or assignment of Landlord's
interest in the Building, or in the event of any proceedings brought for the
foreclosure of, or in the event of the exercise of the power of sale under any
mortgage covering the Building, attorn to and recognize such purchase or
Mortgagee as Landlord under this Lease, and in any such events, Landlord named
herein shall not thereafter be liable on this Lease.
24.4 If any Mortgagee shall have given prior written notice to Tenant that it
is a holder of a mortgage as described in Section 24.1 and such notice includes
the address to which notices to such Mortgagee are to be sent, then Tenant
agrees to give to such Mortgagee notice simultaneously with any notice given to
Landlord to correct any default of Landlord as hereinabove provided and agrees
that the Mortgagee shall have the right, within sixty (60) days after receipt of
said notice, to correct or remedy such default before Tenant may take any action
under this Lease by reason of such default except when there is an emergency in
which event the remedy shall adequately address the situation then obtaining.
Page 11
<PAGE>
25. ESTOPPEL CERTIFICATE
25.1 At any reasonable time, and from time to time, upon the written request of
Landlord or any Mortgagee, Tenant, within ten (10) days of the date of such
written request, agrees to execute and deliver to Landlord and/or such
Mortgagee, a written statement: (a) ratifying this Lease if there has been no
default by Landlord; (b) confirming the Commencement and expiration dates of the
Term; (c) certifying that Tenant is in occupancy of the Premises and that this
Lease is in full force and effect and has not been modified, assigned,
supplemented or amended, except by such writings as shall be stated; (d)
certifying that all conditions and agreements under this Lease to be satisfied
and performed have been satisfied and performed, except as shall be stated; (e)
certifying that Landlord is not in default under this Lease and there are no
defenses or offsets against the enforcement of this Lease by Landlord, or
stating the defaults and/or defenses claimed by Tenant; (f) reciting the amount
of advance rental, if any, paid by Tenant and the date to which rental has been
paid; (g) reciting the amount of security deposited with Landlord, if any; and
(h) any other information which Landlord or the Mortgagee shall reasonably
require.
26. BANKRUPTCY
26.1 This is a Lease of real property in a Building within the meaning of
Subsection 365 (b) (3) of the Bankruptcy Code, 11 U. S. C., Section 101 et. seq.
--------
("Bankruptcy Code").
26.2 Tenant agrees that if, at any time, Tenant becomes a debtor under the
Bankruptcy Code or is adjudged bankrupt or insolvent under the laws of any
state, or makes a general assignment for the benefit of creditors, or if a
receiver of Tenant's property in the Premises is appointed and shall not be
discharged within thirty (30) days of such appointment, then Landlord may, at
its option, declare this Lease terminated and shall forthwith be entitled to
immediate possession of the Premises except that if any such proceedings are
pursuant to the Bankruptcy Code, then Landlord shall be entitled to all the
rights and remedies accorded landlords, including without limitation those set
forth in said Bankruptcy Code.
26.3 If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code to the extent provided in Article 20, any and
all monies or other considerations payable or otherwise to be delivered in
connection with such assignment, shall be paid or delivered to Landlord, shall
be and remain the exclusive property of Landlord, and shall not constitute
property of Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly paid
or delivered to Landlord. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on and after the date of such assignment. Any such assignee shall, upon
demand, execute and deliver to Landlord an instrument confirming such
assignment.
27. DEFAULT
27.1 All rights and remedies of Landlord shall be cumulative, and none shall
exclude any other rights or remedies allowed by law or in equity. The
occurrence of any of the following shall constitute a default and breach of this
Lease by Tenant:
27.2 If Tenant shall fail, neglect or refuse to pay any installment of Rent at
the time and in the amount required, or to pay any other monies agreed by it to
be paid promptly when and as the same shall become due and payable, and if any
such default should continue for a period of more than ten (10) days; or if
Page 12
<PAGE>
27.3 Or shall fail, neglect or refuse to keep and perform any of the other
covenants, conditions, stipulations or agreements herein contained, and in the
event any such default shall continue for a period of more than ten (10) days
after notice thereof is given in writing to Tenant by Landlord (provided,
however, that if the cause for giving such notice involves the making of repairs
or other matters reasonably requiring a longer period of time than the period of
such notice, Tenant shall be deemed to have complied with such notice so long as
it has commenced to comply with said notice within the period set forth in the
notice and is diligently prosecuting compliance of said notice).
27.4 In the event of any such default or breach of this Lease by Tenant,
Landlord shall have the right and option to declare the entire Minimum Rent or
Renewal Rent due and CAM Charges for the balance of the term hereof immediately
due and payable by Tenant, and shall have any or all of the remedies hereinafter
set forth, and further, in the event of such default or breach of this Lease by
Tenant, the Tenant does hereby authorize and fully empower Landlord to cancel or
annul this Lease at once and reenter and remove all persons and their property,
and such property may be stored in a public warehouse or elsewhere at the cost
of the Tenant, all without service of notice or resort to legal process and
without being deemed guilty of any manner of trespass and without prejudice to
any remedies which might otherwise be used by Landlord.
27.5 Any payment required to be made by Tenant under the provisions of this
Lease not made by Tenant when due shall be deemed to be due and payable by
Tenant to Landlord on demand with interest thereon from the date when the
particular amount became due to the date of payment thereof to Landlord. The
interest shall be at the rate of eighteen (18%) per annum from the due date
until the date paid, the "Default Rate".
27.6 The Landlord may, however, at any time after such default or violation of
conditions or covenants, reenter and take possession of the Premises and remove
all of Tenant's property without such re-entry working a forfeiture of the Rent
to be paid and the agreements and conditions to be kept and performed by Tenant
for the full Term. In such event, Landlord shall have the right, but not the
obligation, to divide or subdivide the Premises in any manner Landlord may
determine and to lease or let the same or portions thereof for such periods of
time and at such rentals and for such use and upon such covenants and conditions
as Landlord may elect, applying the net rentals from such letting first to the
payment of Landlord's expenses incurred in dispossessing Tenant and the cost and
expense of making such improvements, alterations and repairs in the Premises as
may be necessary in order to enable Landlord to relet the same, and to the
payment of any brokerage commissions or other necessary expenses of Landlord in
connection with such reletting. The balance, if any, shall be applied by
Landlord from time to time on account of the payments due or payable by Tenant
hereunder with the right reserved to Landlord to bring such action or
proceedings for the recovery of any deficits remaining unpaid as Landlord may
deem favorable from time to time without obligation to await the end of the term
hereof for the final determination of Tenant's account.
28. SURRENDER OF PREMISES
28.1 Tenant agrees to vacate, remove from and surrender the possession of the
Premises to Landlord upon the expiration of the Term, without any specific
notice to vacate, and upon any earlier termination of this Lease, as herein
provided, in as good condition and repair as the same shall be at the
commencement of Term or may have been put by the Landlord during the continuance
thereof, ordinary wear and tear excepted. Tenant agrees to give to Landlord
written notice of its intention to terminate its tenancy, if known, and its
possession rights under this Lease at the expiration of the Term, such notice to
be given at least four (4) months prior to the Expiration Date.
Page 13
<PAGE>
29. HOLDING OVER
29.1 In the event Tenant remains in possession of all or any part of the
Premises (or fails to deliver the keys to Landlord as required by Article 28
and/or execute the Premises Vacation Report) after the expiration of the Term,
Tenant shall be deemed to be occupying the Premises as a tenant from month to
month at a monthly rental equal to one hundred and fifty (150) percent of the
amount otherwise due the sum of (i) the monthly installment of Minimum Rent or
Renewal Rent payable during the last month of the Term, and (ii) one-twelfth
(1/12th) of all items of additional rent or other charges payable or paid during
the last Lease Year. Such continued occupancy shall not defeat Landlord's
rights to regain possession of the Premises.
30. ACCESS TO PREMISES
30.1 Tenant agrees to permit the Landlord or its agents to inspect or examine
the Premises at any reasonable time, and to permit the Landlord to make such
repairs or improvements to the building of which the Premises are a part that
the Landlord may reasonably deem desirable or necessary for its preservation and
which the Tenant has not covenanted herein to do or has failed to do. In the
event of an emergency, Landlord shall have the right to enter the Premises
without Tenant's permission, but shall immediately notify Tenant.
31. QUIET ENJOYMENT
31.1 Landlord agrees that if the Tenant shall comply with all of the
provisions to be performed on the Tenant's part, the Tenant shall, at all times
during the Term, have the peaceable and quiet enjoyment and possession of the
Premises without any manner of hindrance from any person whomsoever.
32. WAIVER
32.1 No waiver of any of the provisions or of the breach of any provision of
this Lease shall be taken to constitute a waiver of any subsequent breach of
such provision, nor to justify or authorize the nonobservance on any other
occasion of the same or any other provision; nor shall the acceptance of Rent by
the Landlord at any time when the Tenant is in default under any provision be
construed as a waiver of such default or of the Landlord's right to terminate
this Lease on account of such default; nor shall any waiver or indulgence
granted by either party to the other be taken as an estoppel against the
granting party.
33. NOTICES AND PAYMENTS
33.1 Any bill, statement, notice, communication or payment which Landlord or
Tenant may desire to be required to give to the other party shall be in writing
and shall be sent to the other party by registered or certified mail to the
address specified in Article 1 or to such other address as either party shall
have designated to the other by like notice, and the time of the rendition of
such shall be when same is deposited in an official United States Post Office,
postage prepaid.
33.2 All payments required under this Lease are to be paid in legal tender and
lawful money of the United States or the equivalent, at Landlord's above
specified address.
Page 14
<PAGE>
34. RELATIONSHIP OF PARTIES
34.1 Nothing contained in this Lease shall be deemed or construed by the
parties hereto or by any third party to create the relationship of principal and
agent or of partnership or of joint venture or of any association whatsoever
between Landlord and Tenant.
35. EXONERATION
35.1 The Landlord, or any successor in interest, including an individual, joint
venture, tenancy in common, firm, partnership, general or limited, or
corporation shall not be subject to personal liability or on the members of such
joint venture, tenancy in common, firm, partnership, or corporation in respect
to any of the provisions of this Lease. The Tenant shall look solely to the
equity of the Landlord in the Building and the rents, issues and profits derived
therefrom for the satisfaction of the remedies of the Tenant in the event of a
breach by the Landlord.
36. RENEWAL OPTIONS
36.1 If Tenant is not in default and is in full operation during the entire
final year of the Term, Tenant, at its option, shall be entitled to renew this
Lease for two (2) additional term(s) of five (5) year(s) (each) by giving a
written notice of its intention to do so to the Landlord not less than one (1)
year prior to the Expiration Date, or one (1) year before the end of the next
prior renewal period, if it has been exercised. Said renewals(s) shall be upon
all the terms and provisions of this Lease, except that the Minimum Rent in
effect for the last year of the Term shall be adjusted to fifteen (15%) increase
or CPI whichever is lower, provided, however, that in no event shall the rent
exceed the fair market rental for the premises.
36.2 This Lease shall be governed by and construed in accordance with the
applicable laws of the state where the Premises are located. If any provision
of this Lease is capable of two interpretations, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the meaning which shall render it valid. If any provision
of this Lease, or the application thereof to any person or circumstances shall
to any extent be invalid or unenforceable, the remainder of this Lease or the
application of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby, and
each provision of this Lease shall be valid and be enforceable to the fullest
extent permitted by law.
37. DELAYS
37.1 If Landlord or Tenant is delayed or prevented from performing any
provision during the Term because of strikes, lockouts, labor troubles,
inability to procure materials, failure of power, governmental restrictions or
reasons of a like nature not the fault of the party delayed, then the period of
delay shall be deemed added to the time of performance and the delayed party
shall not be liable for losses or damages caused by the delay. After the
Commencement Date, this Article shall not apply to any payments due to Landlord
by Tenant.
Page 15
<PAGE>
38. SIGNATURE OF PARTIES
IN WITNESS WHEREOF, the Landlord and Tenant have caused this Lease to be signed
as of the date of signature of the last party to sign.
Signed in the presence of: LANDLORD: HUNTERS SQUARE INC.
/s/ DEANNE M. MOORE By: /s/ CARTER P. LEWIS
- ----------------------------- ------------------------
Carter P. Lewis, Treasurer
/s/ MICHAEL BAGBY Date: 3/19/99
- ----------------------------- ------------------------
(As to Landlord)
TENANT: STONERIDGE, INC.
/s/ WILLIAM T. HALL By: /s/ DAVID L. THOMAS
- ----------------------------- -------------------------
David L. Thomas, Vice President
Date: 3/9/99
------------------------
/s/ NANCY TERMINE
- -----------------------------------
(As to Tenant)
39. NOTARY
STATE OF OHIO
COUNTY OF TRUMBULL
Personally appeared before me, a Notary Public in and for said County and State,
the above named /s/ CARTER P. LEWIS who acknowledged that HE did sign the
------------------- --
fore-going instrument and that the same is HIS free act and deed.
---
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at WARREN,
-------
OHIO this 19th of MARCH 1999.
- ---- ---- ----- --
/s/ DEANNE M. MOORE
- ---------------------
Notary Public
STATE OF OHIO
COUNTY OF TRUMBULL
Personally appeared before me, the undersigned, a Notary Public in and for said
County and State,
/s/ DAVID L. THOMAS and ____________________ known to me to be the VICE
- ------------------- ----
President and __________________________________ Secretary, respectively,
of STONERIDGE, INC. the corporation which executed the foregoing document,
----------------
who acknowledged that they did sign and seal the
Page 16
<PAGE>
foregoing document for and on behalf of said corporation, being there-unto duly
authorized by its Board of Directors; that the same is their free act and deed
as such officers and the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at WARREN,
-------
OHIO this date of MARCH 19, 1999.
- ---- --------- --
/s/ DEANNE M. MOORE
- --------------------
Notary Public
STATE OF OHIO
COUNTY OF TRUMBULL
Personally appeared before me, a Notary Public in and for said County and State,
the above named _____________ who acknowledged that _______ did sign the
foregoing instrument and that the same is _______ free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
__________this ________ day of _________________________19______.
_____________________________________
Notary Public
Page 17
<PAGE>
Exhibit 10.15
CAROLINA CENTRAL INDUSTRIAL CENTER
LEASE
THIS AGREEMENT OF LEASE is made as of this 5th day of February, 1998,
--- -------- ----
by and between INDUSTRIAL DEVELOPMENT ASSOCIATES, a Maryland limited
partnership, having a place of business c/o Heritage Properties, Inc. at 515
Fairmount Avenue, Towson, Maryland 21204 ("Landlord"), as landlord, and
STONERIDGE, ALPHABET DIVISION, an Ohio Corporation;
- ------------------------------ ----
ARTICLE I
---------
Premises and Construction
-------------------------
1.1 Premises. The Landlord hereby leases to Tenant, and Tenant hereby leases
--------
from Landlord, land and improvements constituting a portion of Lot No. 4 as
shown on the Consolidated Map of the Property of Industrial Development
Associates known as the Carolina Industrial Center, Phase 1, by Alley, Williams,
Carmen & King, Inc., Engineers, dated February 11, 1991, and recorded in Plat
Book 43, at page 51, Alamance County N.C. Registry, and also shown on drawing
recorded in Plat Book 31, at page 30, Alamance County Registry, the same being
shown on as 36,427 square feet of space in the building constructed on said lot,
------
known as Building No. 4 (the "Building") as shown on plans by Alley, Williams,
-
Carmen & King dated 2-19-90, Exhibit "A," duplicate copies of which showing the
boundaries of the demised portion of the building, have been highlighted and
initialled on behalf of each of the parties, with each party retaining one
highlighted and initialled copy each of even date herewith, this building being
known as 1403 S. Third Street Extension, in the City of Mebane, Alamance
------------------------------
County, North Carolina. The Landlord may, now or hereafter in its discretion,
cause the portion of the building leased hereunder and that not so leased to be
assigned separate street numbers. Except for Section 7.2 hereof, the phrase
"Tenant's pro rata" share and the like references shall mean 59.71%, which has
------
been determined by dividing the total rentable square feet in the Building into
the rentable square feet in the Building leased to Tenant. The rentable square
feet has been determined as the area within dimensions measured from the center
of any interior demising wall to the outside of any exterior wall constituting a
wall of the demised portion of the building.
1.2 Work to be Performed by Landlord at Landlord's Expense.
------------------------------------------------------
Landlord, at its cost and expense, shall perform and complete such work on the
interior of Leased Premises as set forth in the plans and specifications
("Landlord's Plans") attached as Exhibit "B" to this Lease. During the period
Landlord is performing work on the Leased Premises pursuant to this section,
Tenant shall have the right to enter upon the Leased Premises to install its
fixtures, equipment, and other property so long as Tenant does not unreasonably
interfere with Landlord in the performance of Landlord's work.
Landlord shall notify Tenant in writing as soon as the Leased Premises
are substantially completed in accordance with Plans and ready for Tenant to
take occupancy. Taking of possession by Tenant shall be subject to punch list
items for the Leased Premises specified by the parties at the time Tenant takes
possession and faulty materials or workmanship warranted by the Landlord.
Landlord hereby warrants the
1
<PAGE>
materials and workmanship for the work performed by Landlord for a period of one
year commencing on the date Tenant takes possession of the Leased Premises or,
in the case of any dividing wall(s) erected by the Landlord, commencing on the
date the Landlord completes such dividing wall(s), provided that Tenant gives
Landlord written notice of any defect promptly as it is discovered and within
such one-year period.
1.3 Work to be Performed by Tenant at its Expense with Landlord's Approval.
----------------------------------------------------------------------
Tenant, at its own cost and expense, shall perform and complete such work on the
interior of Leased Premises as set forth on the plans and specifications
("Tenant's Plans") attached as Exhibit "C" to this Lease, which Plans and
Specifications are hereby approved by the Landlord.
ARTICLE II
----------
Lease Term
----------
2.1 Term. The term of this Lease shall begin on March 1, 1998, and shall
---- -------------
end on March 31, 2001, unless sooner terminated as herein provided, this
--------------
period being called the "Term."
ARTICLE III
-----------
Rent
----
3.1 Annual Rent. Beginning on the later of March 1, 1998 or the date
-----------
Landlord completes the work described in Section 1.2 above, Tenant shall pay to
Landlord annual rent in accordance with the following schedule, without demand
or set-off, in legal tender, and in advance on the first day of each and every
month in each year during the Term. The annual rent shall be:
<TABLE>
<CAPTION>
Period Area (SF) Rent/SF Annual Rent Monthly Rent
- -------------------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C>
3/1/98 - 4/1/98 36,427 Free Free Free
4/1/98 - 3/31/99 36,427 $2.85 $103,816.95 $8,651.41
4/1/99 - 3/31/2000 36,427 $2.96 $107,969.63 $8,997.47
4/1/2000 - 3/31/2001 36,427 $3.08 $112,288.41 $9,357.37
</TABLE>
Tenant shall make all rent payments to Landlord, Industrial Development
Associates, c/o Heritage Properties, Inc., 515 Fairmount Avenue, Suite 900,
Towson, Maryland 21286, or at such other address designated by Landlord in a
written notice to Tenant.
3.2 Impositions. The annual real estate or other taxes and special
-----------
assessments imposed on or with respect to the land and improvements on the
assessed unit of which Leased Premises are a part, including, without
limitation, front foot or benefit assessments for sewerage, water or paving and
any rent or occupancy tax which may be imposed (collectively the "Impositions")
for any tax year during the term of this lease shall be paid by the Tenant
within thirty (30) days following receipt of a bill therefor from the Landlord
after such tax or assessment is due as part of additional rent for the Leased
Premises. Tenant shall not be obligated to pay any installment of any special
assessment levied or assessed during the Term but not due until after
termination of this Lease. Impositions shall be based on a square foot
proportional basis as to any assessed unit of which the Leased Premises are a
part.
Unless otherwise required by Landlord, Tenant shall pay its share of
Impositions directly to the Landlord. Upon the request of Tenant, the Landlord
shall deliver copies of Imposition bills and notices to Tenant following their
receipt by Landlord.
2
<PAGE>
3.3 Utilities. Beginning on January 1, 1998, Tenant shall pay when due, as
--------- ---------------
part of additional rent, all charges for gas, electricity, water, sewer,
telephone, and all other utilities used or consumed at the I-eased Premises,
Landlord shall provide that gas, electricity, and water be separately metered
for the Leased Premises. Tenant shall pay all such bills directly to the billing
entity, and, upon request of Landlord, shall forward to Landlord a receipt or
other appropriate evidence that all such bills are paid.
3.4 Expenses. Unless expressly or otherwise provided in this Lease, Tenant
--------
shall pay all costs, expeases and obligations of every kind relating to the
Leased Premises which may arise during the term except (a) municipal, state. or
federal incorne taxes or estate, succession, inheritance or gift taxes or
corporation franchise taxes assessed against Landlord: (b) costs, expenses, and
obligations incurred by Landlord in connection with the sale or mortgaging of
the Leased Promises; and (c) costs of maintenance and repairs for which Landlord
is responsible under the terms of the Lease.
3.5 Security Deposit. N/A
---------------------
3.6 Rights of First Offer. N/A
--------------------------
3
<PAGE>
ARTICLE IV
----------
Occupancy
---------
4.1 Quiet Enjoyment. Upon payment of the rent as required under this Lease
---------------
and performance by Tenant of all of the covenants and provisions of this lease
to be performed by Tenant, Tenant shall have during the Lease Term peaceful and
quiet use and possession of the Leased Premises without hindrance on the part of
Landlord or others holding through or under the Landlord.
4.2 Use of Premises. Tenant may use the Leased Premises only for the
---------------
purpose of product research and development, warehousing, distribution, light
manufacturing and office use.
4.3 Compliance with Law. Tenant shall at all times during the Term, at its
-------------------
own expense, conform to and comply with all laws, regulations, orders and other
governmental requirements, or requirements of the Board of Fire Underwriters,
now or hereunder in force, affecting Tenant's use or occupancy of all or any
part of the Leased Premises. Landlord represents and warrants to Tenant that on
the date of delivery of the Leased Premises to Tenant, the Leased Premises and
the Building will be in compliance with all laws, ordinances, orders, rules,
regulations of any governmental body having jurisdiction over the use,
condition, and occupancy of the Leased Premises. Landlord has at all times in
the past conducted its activities at the Building and the land and improvements
shown on Consolidated Map of Property of Industrial Development Associates
referred to in Section 1.1. hereof, and shall operate and perform all work of
Landlord for the Building and the lot at which the Building is located, in
accordance with all governmental requirements relating to Environmental Matters.
Landlord shall indemnify Tenant from all claims and liability of any kind caused
by Landlord with respect to any violation of any governmental requirement
regarding construction and operation of the Building or the land and
improvements shown on Consolidated Map of Property of Industrial Development
Associates referred to in Section 1.1 hereof relating to Environmental Matters.
Landlord also agrees to indemnify Tenant from all claims and liabilities of any
kind with respect to any violation of any governmental requirements relating to
Environmental Matters by any prior owner of lessee of the land and improvements
shown on the Consolidated Map of Property of Industrial Development Associates
refereed to in Section 1.1 hereof, if such violation occurred prior to the date
hereof and is known to Landlord.
Tenant shall operate and maintain the Leased Premises in accordance with all
governmental requirements relating to Environmental Matters. Tenant shall
indemnify Landlord from all claims and liability of any kind caused by Tenant
with respect to any violation of any governmental requirement regarding
occupancy and operation of the Leased Premises relating to Environmental
Matters.
"Environmental Matters" shall mean all governmental requirements governing
the discharge, release, emission, or disposal of any hazardous substance, and
prescribing methods for or other limitations on sorting, handling, or otherwise
managing hazardous substances including, but not limited to, the then current
versions of the following federal statutes, their state analogs, and the
regulations implementing them: the Resource Conservation and Recovery Act (42
U.S.C. SS6901, et.seq.); the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. SS9601, et.seq.); the Clean Water Act (33 U.S.C.
SS1251, et.seq.); the Clean Air Act (42 U.S.C. SS7401, et.seq.) and the Toxic
substances Control Act (15 U.S.C. SS2601, et.seq.).
4
<PAGE>
4.4. Restrictive Covenants. At all times during the Term, Tenant shall
----------------------
comply with, perform, and be bound by, all the terms, provisions, conditions,
restrictions, and covenants imposed on "Occupants/Tenants" set forth in the
covenants with respect to the Leased Premises as set forth on attached Exhibit
"D" entitled "Restrictive Covenants." The Landlord, having caused the Building
and other improvements on the Leased Premises to be constructed, acknowledges
that the Leased Premises comply with the said Restrictive Covenants and that the
Tenant's intended use of the Leased Premises (product research and development,
warehousing, distribution, light manufacturing and office use) is not a
violation thereof.
ARTICLE V
---------
Transfers
---------
5.1 Assigning and Subletting. Tenant shall not have the right to sublet the
-------------------------
Leased Premises, or any portion thereof, or to assign Tenant's interest in this
Lease, or any portion thereof, without the prior consent of Landlord, which
consent shall not be unreasonably withheld or delayed. For purposes of this
Section 5.1, consent shall be considered unreasonably withheld when Landlord
rejects a proposed sublessee whose intended use of the Leased Premises is not
inconsistent with a use described in Section 4.2 and who is financially
responsible in terms of being able to pay its debts when they become due in the
usual course of business. For purposes of this Section 5.1, consent shall be
considered unreasonably delayed when Landlord does not respond to Tenant's
proposed assignment or sublease within ten (10) days, if Tenant so specifies
that required response time in Tenant's inquiry notice. Subletting or assignment
shall not relieve Tenant of its obligations to Landlord under this Lease. In the
event that the amount of the rent to be paid to the Tenant by any assignee or
sublessee is greater than the rent required to be paid by the Tenant to the
Landlord pursuant to this Lease, Tenant shall pay to Landlord any such excess as
is received by Tenant from such assignee or sublessee. Tenant shall not have
the right to sublet the Leased Premises at a rental rate less than the rate
stated in this Lease.
5.2 Assignments to Tenant's Lenders. Notwithstanding the foregoing
------------------------------------
provisions of Section 5.1, Landlord acknowledges that Tenant shall be
permitted, without Landlord's consent, to assign its interest in the Lease and
the Leased Premises in favor of a national banking association as collateral in
connection with funds loaned to Tenant for Tenant's work and/or establishment
and operation of its business in the Leased Premises.
ARTICLE VI
----------
Parking
-------
6.1 Parking. Subject to the rules, regulations, and conditions set forth on
---------
Exhibit D, Rider #3, Tenant shall be entitled to the use of automobile parking
areas, driveways, access roads, footways, and loading facilities as shown on
the site plan attached as Exhibit "E".
5
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ARTICLE VII
-----------
Maintenance and Alterations
---------------------------
7.1 Maintenance and Repair. Tenant at its sole cost and expense, and
-----------------------
except as provided below, shall perform all maintenance of an ordinary and
recurring nature necessary to maintain and keep in an orderly condition and in
a good state of repair the interior of the Leased Premises from ceiling to
floor, including, but not by way of limitation, all non-capital repairs to
interior walls, windows, plumbing and sewerage facilities, air-conditioning
system, heating system, electrical facility and equipment, exterior lighting on
the building, and all other fixtures, equipment and appliances of every nature
between the ceiling and the floor on the interior of the Building, reasonable
use and wear and fire and other casualty excepted. Landlord shall assign to
Tenant during the Term all warranties applicable to the heating, ventilating and
air-conditioning systems and equipment serving the Leased Premises to the extent
of the Tenant's interest therein during the Term. The cost of maintenance and
repairs shall include all costs allocable to such maintenance and repair in
accordance with generally accepted accounting principals and the terms hereof.
Landlord shall maintain in good and presentable repair and condition the roof,
structural parts of the Building, and all parts of the Building not to be
maintained by Tenant as provided above, and cause to be maintained the Common
Areas of the Industrial Center of which the Leased Premises are a part as
referred to in Section 7.2 of this Lease. Tenant may repair and credit upon rent
any repairs to the Leased Premises which are a responsibility of the Landlord
which have not been made within thirty (30) days after written notice by the
Tenant to the Landlord calling attention to the need for such repairs, or within
twenty-four (24) hours after actual notice to the Landlord by the Tenant in the
event of an emergency. Except as expressly provided in this Lease, Landlord
shall not be called upon or obligated to make or pay any repairs, replacements,
restorations, improvements, alterations or additions whatsoever in or about the
Leased Premises.
7.2 Common Area Maintenance. For the purpose of this Lease and in
------------------------
particular of this Section thereof, the term "common area maintenance" shall be
deemed to refer to that maintenance which may be provided by the Landlord, to
Carolina Central Industrial Center under the terms of the recorded Restrictive
Covenants referred to in Section 4.4 hereof and, in particular as set forth in
paragraph 26 of said recorded Restrictive Covenants, as well a such maintenance
rights of enforcement and powers as may be assigned by the Landlord herein
(referred to in the said restrictive Covenants as the "Declarant") to an entity
formed pursuant to paragraph 27 by a majority of the Lots covered thereby, it
being understood that the term "common area" as herein used does not imply that
there is real property owned within said Carolina Central Industrial Center as a
common area.
During the free rent period, and for each year during the Term and all
renewal periods, Tenant shall pay monthly as additional rent upon receipt of a
bill therefor from Landlord, a common area maintenance charge representing
Tenant's proportionate share of the cost to Landlord of operating, maintaining,
repairing and replacing the roads and parking areas, street lighting and
exterior grounds in and around Carolina Central Industrial Center of which the
Leased Premises are a part. Such charge shall be for repair of the parking areas
and for keeping them clear of snow, debris and other rubbish, and for
maintenance of all exterior grounds, grass, landscaping and related areas.
Tenant's proportionate share shall be the amount determined by multiplying
the total annual expense to the Landlord for so maintaining the parking areas
and exterior grounds by a fraction, the numerator of which is 36,427
------
representing the number of square feet of
6
<PAGE>
floor area of the Leased Premises, and the denominator of which shall be the
floor area of the other buildings in the Industrial Park (i.e., 239,569 square
-------
feet) of which the Leased Premises are a part. Tenant's proportionate share of
the common area charges presently is 15.21%.
------
7.3 Alterations by Tenant. Tenant, without the prior written consent
----------------------
of Landlord, which consent shall not be unreasonably withheld or delayed after
submission of plans for such, shall not make any interior alterations,
structural alterations, changes to the exterior appearance of the Leased
Premises, additions or other improvements to the Leased Premises, except for
maintenance and repair required of Tenant.
ARTICLE VIII
------------
Surrender of Leased Premises
----------------------------
8.1 Surrender. Upon the end of the Term or any earlier termination of
----------
this Lease, Tenant shall surrender to Landlord the Leased Premises, including
(except as otherwise provided in Section 8.2 below) all alterations,
improvements and other additions, in good order and repair, reasonable wear and
tear and damage by fire or other casualty excepted.
8.2 Tenant Equipment Excepted. Tenant shall be entitled to (or, at
--------------------------
Landlord's request, must) remove from the Leased Premises Tenant's office, trade
and manufacturing fixtures, furniture, equipment and signs which Tenant has
installed on the Leased Premises prior to or during the Term at the cost of
Tenant and which are not an integral part or necessary to the operation of the
Leased Premises as are plumbing, heating ventilation, air-conditioning, and
other similar equipment. Tenant shall at its own cost and expense repair any and
all damage to the Leased Premises resulting from or caused by such removal, and
shall restore the Leased Premises to good order and condition, reasonable wear
and tear excepted. Tenant shall have thirty (30) days after termination of this
Lease as provided herein to effect such removal, repair and restoration.
ARTICLE IX
----------
Mechanic's Liens
----------------
9.1 Mechanic's Liens. Prior to approving any construction on the Leased
-----------------
Premises by Tenant, Landlord shall have the right to require Tenant, or Tenant's
contractor for such construction, to furnish a bond in an amount equal to the
estimated cost of such construction with corporate surety approved by Landlord
for (a) completion of such construction and (b) indemnifying Landlord and
Tenant, as their interests may appear, against liens for labor and materials,
which bond shall be furnished before any work is begun or any materials
delivered. Landlord shall also have the right at any time before, during or
after such construction to require Tenant to furnish such other assurances
against mechanics' liens as may be reasonable including, but not limited to,
releases of liens signed by all contractors, subcontractors, and suppliers, and
affidavits executed by Tenant and by Tenant's contractor or architect that all
labor and material theretofore furnished have been paid in full and provide a
bond in order to obtain release of any lien filed against the Building.
7
<PAGE>
ARTICLE X
---------
Insurance and Indemnity
-----------------------
10.1 Casualty Insurance. Beginning on the commencement of the Term hereof
-------------------
of this Lease and continuing during the entire Term, Landlord, at its expense,
shall keep the Building on the Leased Premises insured against loss or damage by
fire, vandalism and other casualty to the extent now or hereafter covered under
standard extended coverage. Such insurance shall be in the amount of the full
replacement value of the Building (including leasehold improvements) as the same
may increase from time to time. Landlord shall furnish Tenant with a copy of
such policy or with a certificate of the insurer that the same is in effect. The
Tenant shall pay Landlord as additional rent upon receipt of a bill therefor
from Landlord the annual premium for such insurance coverage. Such payment by
Tenant shall be based on a square foot proportional basis as to the total area
of any building of which the Leased Premises are a part.
Tenant shall at all times during the Term maintain at its own cost and
expense such casualty insurance against loss, damage, or destruction to all
signs, trade fixtures, improvements, equipment, furniture and other
installations and property installed by Tenant on the Leased Premises, and
shall, upon Landlord's request, provide Landlord with certificates of insurance
evidencing that such policies are in force or copies of such policies.
Both Landlord and Tenant hereby agree to procure and maintain such property
and business interruption insurance as they deem appropriate for protecting
their respective interests.
10.2 Indemnity. At all times after Tenant takes possession of the Leased
----------
Premises and for any period that Tenant enters the Leased Premises prior to the
Commencement Date to make its installations, Tenant shall protect, indemnify,
and save the Landlord harmless of, from and against any and all liabilities,
damages, costs expenses, fees, demands, or claims of any nature whatsoever
arising from (a) any work or thing done in or about the Leased Premises, and the
improvements now or hereafter constructed thereon, or any part thereof, by
Tenant or its agents or employees or independent contractors hired by Tenant,
(b) injury to or death of persons or damage to property on the Leased Premises
or the improvements now or hereafter constructed thereon, and (c) any negligent
act or omission on the part of the Tenant, or its employees or invitees or
independent contractors arising out of the occupancy or use of the Leased
Premises and the improvements now or hereafter constructed thereon, except that
Tenant shall not be required to save and hold Landlord harmless or to indemnify
Landlord if the injury or loss is due to a willful or negligent act or omission
of the Landlord or its agents or employees.
10.3 Public Liability Insurance. During all periods of construction or
---------------------------
reconstruction work performed by Tenant on the Leased Premises, Tenant, at its
own expense, shall keep in force, by advance payments of premiums, workmen's
compensation and builder's risk insurance reasonably acceptable to Landlord.
Beginning on the date of commencement of Tenant's entry upon the Leased
Premises and continuing during the entire Term, Tenant, at Tenant's expense,
shall keep in force, by advance payments of premiums, public liability insurance
in an amount of not less than Two Million Dollars ($2,000,000.00), this being a
single limit policy for one or more claims thereunder because of any one
occurrence for personal injury or death and for damage to property, insuring
against any liability that may accrue on account of any
8
<PAGE>
occurrences in or about the Leased Premises or in consequence of Tenant's
occupancy of the Leased Premises. Such insurance shall protect and indemnify not
only against any and all such liability, but also against all loss, expense and
damage of any and every sort and kind, including costs of investigation and
attorney's fees and other costs of defense. All such insurance shall be with
insurers approved by Landlord (which approval shall not be unreasonably withheld
or delayed), and all policies shall name Landlord and Tenant as beneficiaries
as their respective interests may appear. All policies required pursuant to
Article X shall provide that, notwithstanding any act or negligence of Tenant
which might otherwise result in a forfeiture, such policies shall not be
canceled without at least ten (10) days' prior written notice to each insured.
Tenant shall furnish Landlord with a copy of all such polices or a certificate
that such policies are in effect.
10.4 Waiver of Subrogation. Landlord and Tenant each waive and release
----------------------
any and all rights to recover against the other or against the officers,
directors, shareholders, partners, employees or agents of the other party for
any loss or damage to such waiving party arising from any cause covered by any
insurance required to be carried by such party pursuant to this article or by
any other insurance actually carried by such party to the extent that such loss
or damage is covered by valid and collectable insurance in effect at the time of
such loss or damage. Landlord and Tenant shall each have included in all
policies or fire, extended coverage, business interruption and other casualty
insurance respectively obtained by them covering the Leased Premises, the
Building and contents therein, a waiver by the insurer of all rights of
subrogation or otherwise against the other party hereto in connection with any
loss or damage thereby insured against. Any additional premium for such waiver
shall be paid by the primary insured.
ARTICLE XI
----------
Eminent Domain
--------------
11.1 Total Taking. If the entire Leased Premises be taken under the power
-------------
of eminent domain or purchased by a governmental entity in lieu thereof (herein
together called "Eminent Domain"), this Lease shall terminate as of the date
possession is taken.
11.2 Partial Taking. If any portion of the Leased Premises shall be taken
---------------
under the power of Eminent Domain, and the portion not so taken would not, in
the reasonable judgment of Tenant, be adequate for the continued operation of
Tenant's business, either unrestored or restored, notice of which judgment shall
be communicated in writing to Landlord stating the reasons therefor within sixty
(60) days following the date on which Tenant receives notice of the condemning
authority's intention to take such property as hereinafter set forth, or if
Landlord deems such restoration to be impractical, this Lease shall be deemed
to have terminated as of the date of the taking of possession by the condemnor.
If this Lease is not terminated pursuant to this Section 11.2, Landlord,
immediately following the taking, to the extent of condemnation proceeds made
available to Landlord, shall proceed to restore such part of the Leased Premises
as is not taken to or near the former condition of the original Leased Premises,
less all signs, trade fixtures, improvements, furniture, and other installations
and property installed by Tenant, as the circumstances will permit. During the
period of such restoration and thereafter rent shall be abated in a just and
proportionate amount.
9
<PAGE>
11.3 Damages. All damages awarded for any such taking under the power of
--------
Eminent Domain shall be paid to the Landlord, except for damages awarded for
Tenant's fixtures and equipment used in operation of the Leased Premises and its
reasonable relocation expenses.
11.4 Rent. If this Lease is terminated as provided in this Article XI, all
-----
rent shall be paid up to the date that possession is taken by the condemning
authority, and Landlord shall make a proportional refund to Tenant of any rent
or other amounts paid by Tenant which are applicable to any period after that
date and not yet earned.
ARTICLE XII
-----------
Damage and Destruction
----------------------
12.1 Restoration of Damaged or Destroyed Leased Premises. In the event
----------------------------------------------------
that the Building on the Leased Premises shall be damaged by fire or other
casualty covered by extended coverage insurance during the term of this Lease,
the Tenant shall give immediate notice thereof in writing to the Landlord. If
the Building is not damaged to such an extent as to render it practicably
untenable rental payments shall proportionately abate during such interruption
of its use as may be caused by such casualty. In the event of such casualty the
Landlord shall, upon such notice thereof, proceed to cause such damages to be
repaired, and such repairs shall be pursued with due and reasonable diligence
and be completed within a reasonable time, subject to any delays resulting from
any force majeure.
-------------
If the damage to the Building by such casualty shall render it practicably
untenable, rental payments shall abate from the date of the casualty damage
until such time as the Building shall have been rendered tenable, and Landlord
shall promptly cause an evaluation of such damage to be made and, within thirty
days of its receipt of notice of such casualty, shall determine if it: (a) is
unwilling to proceed to restore said premises, in which case it will give
written notice of such determination within such thirty day period to the
Tenant, and the Lease shall thereupon be terminated and rental payments
thereunder shall cease (or be refunded) as of the date of the casualty; or (b)
is willing to proceed to restore same, which notice shall be given to the Tenant
in writing within such thirty day period and shall contain an estimate of the
time required to render the Building tenable once more. If the estimated time
required for completion shall exceed sixty (60) days from the time of
commencement thereof, or if less than six months remain in the Term of the Lease
as of the date of the casualty, with rental and other payments hereunder to
cease or be refunded as of the date of the casualty, the Tenant shall have the
option to terminate the Lease as of the date of the casualty, such option to be
exercised or affirmatively waived in writing within 15 days after Tenant's
receipt of notice of the estimated time required to render the Building
tenantable, with restoration to commence within ten days of receipt by the
Landlord of written notice by the Tenant of its election hereunder. Should
restoration of the Building be commenced pursuant to (b) of this paragraph, the
Landlord shall cause such repairs to be pursued with due and reasonable
diligence and to be completed within the estimated time, subject to any delays
resulting from any force majeure.
-------------
10
<PAGE>
ARTICLE XIII
------------
Default by Tenant
-----------------
13.1 Tenant's Default. If Tenant (a) shall fail to pay any rent or other
-----------------
sum of money due hereunder within ten (10) days after receipt or receipt of
refusal by the Landlord of notice of such failure or if Tenant shall fail to pay
any rent or other sum of money due hereunder within five days after the same
shall be due (provided however that the Landlord agrees to give written notice
to Tenant of any such failure of payment and such failure will not constitute an
event of default unless Tenant fails to make such payment on or before the tenth
day from and after receipt or refusal of such notice, and provided further that
such notice and grace period shall be required to be provided by the Landlord
and shall be accorded the Tenant, if necessary, only twice during any
consecutive twelve month period of the term, with an event of default to be
deemed to have immediately occurred upon the third failure to make a timely
payment as aforesaid within any consecutive twelve month period of the term) or
(b) shall fail to perform any other terms, conditions, or covenants of this
Lease to be observed or performed by Tenant for more than thirty (30) days after
written notice of such default shall have been mailed to Tenant, unless such
default is of a nature that it cannot practically be cured within such thirty
(30) day period and Tenant is proceeding with due diligence to cure stich
default, or (c) shall abandon the Leased Premises, then at Landlord's option and
without limiting Landlord in the exercise of any other right or remedy Landlord
may have in law or equity on account of such default, and without any further
demand or notice, Landlord may
(i) Re-enter the Leased Premises take possession of all Improvements,
additions, alterations, equipment and fixtures thereon, eject all parties
in possession thereof therefrom, and, without terminating this Lease, at
any time and from time to time relet the Leased Premises or any part or
parts thereof for the account of Tenant or otherwise, receive and collect
the rents therefor, applying the rents first to the payment of such
reasonable expenses as Landlord may have paid, assumed or incurred in
recovering possession of the Leased Premises, including costs, expenses and
reasonable attorney's fees, and for placing the Leased Premises in good
order and condition or preparing or altering the same for reletting and all
other expenses, commissions and charges paid, assumed or incurred by
Landlord in or in connection with reletting the Leased Premises, and then
to the fulfillment of the covenants of Tenant. Any such reletting may be
for the remainder of the Term of this Lease or for a longer or shorter
period. Landlord may execute any lease made pursuant to the terms hereof
either in Landlord's name or in the name of Tenant, as Landlord may see
fit, and the subtenant therein shall be under no obligation whatsoever for
the application by Landlord of any rent collected by Landlord from such
subtenant to any and all sums, due and owing or which may become due and
owing under the provisions of this Lease. Tenant shall not have any right
or authority to collect any rent from subtenant. In any case and whether or
not the Leased Premises or any part thereof be relet, Tenant shall pay to
Landlord all sums required to be paid by Tenant up to the time of re-entry
by Landlord. Thereafter Tenant, if required by Landlord, shall pay to
Landlord until the end of the Term of this Lease the equivalent of the
amount of all rent and other charges required to be paid by Tenant under
the terms of this Lease, less the proceeds of such reletting during the
Term of this Lease, if any, after payment of the expenses of Landlord. Such
rent shall be due and
11
<PAGE>
payable on the several rent days herein specified, and Landlord need
not wait until the termination of this Lease to recover any rent by legal
action or otherwise. Re-entry by Landlord shall not constitute an election
to terminate this Lease unless Landlord gives Tenant notice of Landlord's
election to terminate.
(ii) Declare this Lease at an end, re-enter the Leased Premises eject
all parties in possession thereof therefrom and repossess and enjoy the
Leased Premises together with all Improvements thereto, and Landlord shall
thereupon be entitled to recover from Tenant any rent due from Tenant to
Landlord as of the date of such re-entry and, subject to the Landlord's duty
to mitigate damages, the amount of rent and charges equivalent to rent
reserved in this Lease for the balance of the Term. For the purpose of this
subparagraph (ii) all Impositions and contributions to expenses and other
items paid by Tenant shall be projected over the term of the Lease at an
average increase of such items as may have occurred since the date of this
Lease to the date of default.
13.2 Remedies Not Exclusive; No Waiver. The remedies of Landlord set forth
----------------------------------
in this Lease are cumulative and are in addition to and not exclusive of any
other remedy of Landlord herein given or which may be permitted by law, and if
any breach or threatened breach by Tenant of this Lease occurs, Landlord shall
be entitled to enjoin such breach or threatened breach and shall have the right
to invoke any right and remedy allowed by law or in equity or by statute or
otherwise in addition to rights set forth in this Lease. Tenant shall permit any
re-entry as provided for in this Article without hindrance to Landlord, and
Landlord shall not be liable in damages or guilty of trespass because of such
re-entry. The failure of Landlord to insist, in any one or more instances, upon
a strict performance of any of the covenants of this Lease or to exercise any
option contained herein, shall not be construed as a waiver or a relinquishment
for the future as to such covenant or option. A receipt by Landlord of rent with
knowledge of the breach of any covenants of this Lease shall not be deemed a
waiver of such breach. No waiver by Landlord of any provision of this Lease
shall be deemed to have been made unless expressed in writing and signed by
Landlord.
13.3 Cure by Landlord. Section Intentionally deleted.
-----------------
13.4 Cure by Tenant. Section Intentionally deleted.
---------------
ARTICLE XIV
-----------
Bankruptcy
----------
14.1 Effect of Bankruptcy or Other Proceedings. If at any time any
------------------------------------------
bankruptcy or any reorganization proceeding is instituted by or against Tenant
either in the State or Federal Courts, or if a receiver is appointed under the
Bankruptcy Act, for its business or property on or in the Leased Premises, or if
the Tenant should suffer the taking of this lease by execution or by foreclosure
of any lien against its leasehold interest, or if Tenant shall make an
assignment for the benefit of creditors or voluntarily or involuntarily take
advantage of any debtor relief proceedings under present or future law,
Landlord, in addition to any other remedies provided it in the event of Tenant's
default as set forth in this Lease or under any applicable law, shall have the
option, to be exercised by written notice given to Tenant, to declare this
12
<PAGE>
Lease terminated at any time after the expiration of twenty (20) days following
the commencement of such proceeding or the execution or attempted execution or
foreclosure or attempted foreclosure upon its leasehold interest, unless the
proceeding is dismissed or the judgment or lien pursuant to which execution or
foreclosure was made or attempted is paid and unless all payments of rent and
other payments required by this Lease to be made by Tenant to Landlord are paid
promptly during such period of twenty (20) days. Landlord shall under no
circumstances be required to permit a receiver or any person claiming through or
under Tenant to retain possession of the Leased Premises. Landlord need not
lease the Leased Premises to such receiver or person, and Landlord shall be
entitled to immediate possession of the Leased Premises. Any repossession or
termination hereunder shall not operate in any way to prejudice or affect the
right of Landlord for recovery of rent or other charges theretofore accrued,
thereafter accruing or any damages, nor shall any such termination or
repossession ever be construed as a waiver of or an election not to claim future
damages on account of such breach, but all such damages including all future
rentals shall be fully recoverable by the Landlord.
ARTICLE XV
----------
Miscellaneous
-------------
15.1 Recording. Tenant shall not record this lease without the written
----------
consent of the Landlord, however upon the request of either party the other
shall join in the execution of a memorandum or "short form" lease for the
purpose of recordation, describing the parties, premises, and the term hereof
and incorporating this lease by reference therein.
15.2 Subordination, Non-disturbance and Attornment Agreement. This Lease
--------------------------------------------------------
shall be subject to and subordinate at all times to the lien of any mortgages or
deeds of trust now or hereafter made by the Landlord on the Leased Premises, and
to all advances made or hereafter to be made thereunder. Although this
subordination provision shall be self-operative and no further instrument of
subordination shall be required, Tenant will, nevertheless, upon request of the
Landlord, enter into a subordination, non disturbance and attornment agreement
with reference to any present or future lender whose loan is secured by a deed
of trust secured in whole or in part upon all or a portion of the Leased
Premises, providing in terms reasonably and customarily required by said lender
and deemed appropriate by its legal counsel for such purposes, for the
subordination of this lease to said deed of trust and any modifications or
extensions thereof, with the Tenant's use, possession or enjoyment of the
premises hereunder to be assured so long as there is no default hereunder, with
the Tenant agreeing to attorn to any transfer of the Landlord's title in said
premises by reason of foreclosure or other proceedings instituted in connection
with the deed of trust, including the Lender if it be the purchaser.
15.3 Estoppel Certificates. Each party agrees at reasonable intervals and
----------------------
from time to time upon not less than ten (10) days' prior written notice by the
other to execute, acknowledge and deliver a statement in writing certifying (i)
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the Lease is in full force and effect as modified and
stating the modifications), (ii) the dates to which the rent and other charges
have been paid in advance, if any, and (iii) stating whether or not to the best
knowledge of the signer of such certificate the signing party is in default in
performance of any covenant, agreement or condition contained in this Lease and,
if so, specifying each such default of which the signer may have knowledge. Each
party acknowledges that any such statement delivered under this Lease may be
relied upon by third parties not a party to this Lease.
13
<PAGE>
15.4 Right to Enter. Landlord and its agents shall have the right to enter
---------------
the Leased Premises at reasonable hours upon twenty-four hours notice to Tenant,
and at any time without notice if any emergency exists, to examine the Leased
Premises, or to make such repairs and alterations as shall be reasonably
necessary for the safety and preservation of the Leased Premises, or during the
last three (3) months of the Term to show both the interior and exterior of the
Leased Premises to prospective tenants or purchasers and to place "For Rent" or
"For Sale" signs thereon.
15.5 Laws of North Carolina. This Lease shall be construed and applied in
-----------------------
accordance with the laws of the State of North Carolina.
15.6 Severability. Any provision or provisions of this Lease which shall
-------------
prove to be invalid, void, or illegal shall in no way affect or impair or
invalidate any other provisions, and the remaining provisions shall remain in
full force and effect.
15.7 Headings. The headings of the various Articles and Sections of this
---------
Lease are inserted for reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Lease.
15.8 Notices. Any notice or other communication required or permitted
--------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, or by overnight courier, postage or other charges prepaid. Any
such notice shall be deemed given when so delivered personally, telegraphed,
telexed or sent by facsimile transmission or, if mailed, seven (7) days after
the date of deposit in the United States mail, or, if sent by overnight courier,
the day after delivery to the overnight courier, at the addresses set forth in
the first paragraph of this Lease or so mailed or delivered to the Tenant or a
responsible employee thereof at the address at the address of the Leased
Premises, with a copy sent as follows if to the Tenant:
Ms. Janet Minnis
Alphabet, Inc. - MCR Division
1400 Dogwood Way
Mebane, NC 27302
Any party may, by notice given in accordance with this Section to the other
party, designated other addresses or persons for receipt of notices hereunder.
14
<PAGE>
15.9 Force Majeure. In no event shall Landlord be liable for, nor shall
--------------
Tenant have the right to terminate this Lease for delays in the prosecution of
Landlord's share of construction beyond Landlord's control ("Force Majeure"),
---------------
including (but not limited to) delays caused directly or indirectly by strikes,
lockouts, the unavailability of labor or materials, Acts of God, acts of any
Federal, State, or Local governmental agency or authority, war, insurrection,
rebellion, riot, civil disorder, fire, explosion, windstorm, hail, snow, extreme
cold, rain, flood, damage from aircraft, vehicles, or smoke, or by any other
casualty of a substantial enough nature to cause delay.
15.10 Successors. This Lease shall be binding upon and insure to the
-----------
benefit, as the case may require, of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
15.11 Subordination. This Lease shall be subject to and subordinate at all
--------------
times to the Restrictive Covenants covering Carolina Central Industrial Center
recorded in Book 716 at page 613, Alamance County Registry, which are attached
hereto, and the Tenant agrees that it will not by any act or omission on its
part, cause the same to be violated as more particularly set forth in Section
4.4. hereof.
This Lease shall be further subject to and subordinate at all times to the
lien of any mortgage, mortgages or deeds of trust now or hereafter made by
Landlord on the Leased Premises and to all advances made or hereafter to be made
thereunder. This subordination provision is self-operative and shall be
applicable during the period prior to the execution of the agreement provided
for by paragraph 15.2, and shall further be operative and applicable if the
agreement referred to in paragraph 15.2 is for any reason never executed, the
Landlord agreeing that it will make all reasonable efforts to procure the
execution of that agreement so referred to in Section 15.2. In addition to the
foregoing provisions and notwithstanding any non-execution of the agreement
provided for in paragraph 15.2, the Tenant will, during the continuance of its
occupancy hereunder, nevertheless execute and deliver such further instruments
confirming such subordination or status of this Lease as may be required by the
Landlord for financing or refinancing the Leased Premises.
15.12 Assignment of Landlord's Interest. If Landlord should ever assign
----------------------------------
this Lease or the rents hereunder to a creditor as security for a debt, Tenant
shall, after notice of such assignment and upon demand by Landlord or the
assignee, pay all sums thereafter becoming due Landlord hereunder to the
assignee and give all notices required to be given Landlord hereunder both to
Landlord and the assignee.
15.13 Transfer by Landlord. If Landlord sells, leases or in any manner
---------------------
transfers title to the Leased Premises, including foreclosure sale by judicial
proceeding or otherwise, the Landlord shall be relieved of all covenants and
obligations arising hereunder, provided the Landlord is not then in default
hereunder and that such transferee shall agree to assume all covenants and
obligations of the Landlord hereunder. Tenant agrees that it will attorn to such
transferee, provided such transferee has assumed Landlord's covenants and
obligations hereunder, and Tenant shall continue to perform all of the terms,
covenants, and conditions and obligations of this Lease.
15
<PAGE>
15.14 Limitation of Execution against Landlord. If Tenant obtains a money
-----------------------------------------
judgment against Landlord, any of its partners or its successors or assigns
under any provision of, or with respect to this Lease or on account of any
matter, condition or circumstance arising out of the relationship of the parties
under this Lease, or of Tenant's occupancy of the Property, Tenant shall be
entitled to have execution upon such judgment only upon Landlord's estate in the
Leased Premises, and not out of any other assets of Landlord, any of its
partners, or its successors or assigns; and Landlord shall be entitled to have
any such judgment so qualified as to constitute a lien only on the fee simple
estate subject to any liens antedating any such judgment except that this
limitation shall not apply to the extent that any such judgment against Landlord
is covered by insurance. Nothwithstanding the foregoing, in the event Tenant
obtains a money judgment against Landlord, any of its partners, successors or
assigns by reason of any breach of Landlord's representation regarding
Environmental Matters in Section 4.3 hereof or the indemnification obligations
of Landlord contained therein, Tenant shall be entitled to satisfy such judgment
and recover from the party or parties against which the judgment is entered up
to the greater of (i) the value of Landlord's estate in the Leased Premises, or
(ii) $100,000.
15.15 Time of Essence. Time is of the essence in this Lease.
----------------
IN WITNESS WHEREOF, the parties have executed two identical counterpart
originals of this instrument, the Landlord retaining one thereof, and the Tenant
retaining the other, the day and year first above written.
WITNESS: LANDLORD: Industrial Development Associates
By: /s/ David G. Rhodes, Pres.
- ----------------------- ---------------------------
Heritage Properties, Inc.
Authorized Agent
WITNESS: TENANT: Stoneridge, Alphabet Division
/s/ Nancy A. Termine By: /s/ David L. Thomas
- ----------------------- ---------------------------
16
<PAGE>
STATE OF MARYLAND
COUNTY OF Baltimore
---------
I, Pamela S. Rurka, a Notary Public of said County and State, do hereby
certify that David G. Rhodes personally came before me this day and acknowledged
---------------
that he is the President of Heritage Properties, Inc., agent for Industrial
--------- ------------------------- ---------
Development Associates, a Maryland limited partnership, and that, by authority
duly given and as the act of said corporation as agent for said limited
partnership acting in its behalf, the foregoing instrument was signed in the n e
of Heritage Properties, Inc., as agent by its president. Witness my hand and
official seal this 5th day of February, 1998.
--- --------------
/s/ Pamela S. Rurka
Notary Public
My Commission Expires: 8/1/98
STATE OF
---------------
COUNTY OF
---------------
I, , a Notary Public of said County, do hereby certify that
----------
personally came before me, this day and acknowledged that he is
- ------------
manager of Stoneridge, Alphabet Division, the company, and that, by authority
-----------------------------
duly given and as the act of said company the foregoing instrument was signed in
the name of Stoneridge, Alphabet Division, by a manager. Witness my hand and
-----------------------------
official seal, this day of , .
--- -------- ----
Notary Public
My Commission Expires:
17
<PAGE>
Schedule of Exhibits to
Lease between Industrial Development Associates
and
Stoneridge, Alphabet Division
Exhibit A Description of Leased Premises
B Landlord's Plans
C Tenant's Plans
D Restrictive Covenants
H Site Plan
F Rider
18
<PAGE>
EXHIBIT 21.1
PRINCIPAL SUBSIDIARIES
Name of Subsidiary Jurisdiction in Which Organized or Incorporated
- ------------------ -----------------------------------------------
Consolidated Subsidiaries of
Stoneridge, Inc.:
Alphabet de Mexico Mexico
TED de Mexico Mexico
Berifors AB Sweden
Berifors Production AB Sweden
Stoneridge Pollak, Ltd. England
TVI Europe, Ltd. Scotland
Stoneridge International
Sales Corp. Barbados
Stoneridge Control
Devices, Inc. Massachusettes, United States
Stoneride Electronics, Inc. Texas, United States
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONERIDGE,
INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999
AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,924
<SECURITIES> 0
<RECEIVABLES> 100,293
<ALLOWANCES> (1,549)
<INVENTORY> 65,701
<CURRENT-ASSETS> 192,316
<PP&E> 174,750
<DEPRECIATION> (68,587)
<TOTAL-ASSETS> 698,309
<CURRENT-LIABILITIES> 115,204
<BONDS> 331,898
0
0
<COMMON> 0
<OTHER-SE> 231,628
<TOTAL-LIABILITY-AND-EQUITY> 698,309
<SALES> 675,221
<TOTAL-REVENUES> 675,221
<CGS> 487,349
<TOTAL-COSTS> 487,349
<OTHER-EXPENSES> 89,839
<LOSS-PROVISION> 728
<INTEREST-EXPENSE> 30,741
<INCOME-PRETAX> 67,022
<INCOME-TAX> 25,850
<INCOME-CONTINUING> 41,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,172
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.84
</TABLE>
