-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9X6R1+lcTGsInZUbTSQGAFYecOMvyq/rnqj9YLPTrAWsyQ/Cz9yHTAUcCvOrXUJ K5TSfYJhkMnawQVxLDou6w== 0000950130-00-001760.txt : 20000331 0000950130-00-001760.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950130-00-001760 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONERIDGE INC CENTRAL INDEX KEY: 0001043337 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 341598949 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13337 FILM NUMBER: 585752 BUSINESS ADDRESS: STREET 1: 9400 EAST MARKET ST CITY: WARREN STATE: OH ZIP: 44484 BUSINESS PHONE: 3308562443 MAIL ADDRESS: STREET 1: 9400 EAST MARKET ST CITY: WARREN STATE: OH ZIP: 44484 10-K405 1 FORM 10-K405 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 ------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (330) 856-2443 -------------------------------------------------- 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
INDEX ----- STONERIDGE, INC. - FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 Page No. 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
2 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 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 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 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:
Year Ended December 31, ---------------------------------------------- 1999 1998 1997 ---- ---- ---- 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%
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 -------- -------- -------- 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 -------- -------- -------- 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 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 Executive Officers of the Registrant The executive officers of the Company are as follows:
Name Age Position - ---- --- --------- 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
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 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:
Owned/ Square Location Use Leased Status Footage -------- --- ------------- ------- 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
(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 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.
Quarter Ended High Low ------------- ---- --- 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
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 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.
Years ended December 31, ----------------------------------------------------- ----------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (in thousands, except per share data) 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
11 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 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 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 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 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements: Page - --------------------------------- ---- 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
16 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 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------ 1999 1998 ---- ---- (in thousands) Assets Current Assets: 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 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 18 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, ------------ 1999 1998 1997 ---- ---- ---- (in thousands, except per share data) 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 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 19 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, --------------------------------- 1999 1998 1997 --------- ---------- ---------- (in thousands) 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 ======== ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 20 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Other Number Additional Retained Comprehensive Comprehensive of Shares Paid-In Capital Earnings Income Income --------- --------------- -------- ------------- ------------- (in thousands) 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) ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 21 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 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:
1999 1998 ---- ---- 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 ========= ========
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:
Estimated Useful Life 1999 1998 ----------- ---- ---- 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 ======== ========
23 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 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 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 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 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 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:
1999 1998 1997 ------- ------- ------- 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 ======= ======= =======
A reconciliation of the Company's effective income tax rate to the statutory federal tax rate for 1999 and 1998 is as follows:
1999 1998 ---- ---- 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% ==== ====
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 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:
1999 1998 ------- ------- 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 ======== =======
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:
Third Related Party Party ----- ------- 2000 $2,991 $554 2001 2,361 467 2002 1,550 451 2003 1,307 451 2004 71 380 Thereafter -- 891
30 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:
Weighted Share Excercise Average Options Prices Exercise Price ------------- -------------- ----------------- 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 =======
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:
1999 1998 ---- ---- 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%
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 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:
1999 1998 1997 --------- --------- --------- 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
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 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:
1999 1998 1997 ---- ---- ---- Net sales: 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
33 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:
Quarter Ended, -------------------------------------------------- Dec. 31 Sep. 30 June 30 Mar. 31 ---------- ------------ ------------ ---------- (in millions, except per share data) 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 ==================================================
Results reflect the acquisitions of Hi-Stat effective January 1, 1999, Delta effective March 6, 1999 and TVI effective August 27, 1999. 34 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
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 --------- -------- ---------- ---------- ------ (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
36 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 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 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.
Page in Form 10-K --------- 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
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 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 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 EX-10.3 2 LEASE AGREEMENT EXHIBIT 10.3 LEASE BETWEEN INDUSTRIAL DEVELOPMENT ASSOCIATES AND ALPHABET, INC. Carolina Central Industrial Center Mebane, North Carolina 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) 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 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 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 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- 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. 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 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 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 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 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 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 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 Page 8 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 Page 9 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 Page 10 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 Page 11 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. Page 12 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 Page 13 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. Page 14 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, Page 15 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- Page 16 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 Page 17 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 Page 18 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 Page 19 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 Page 20 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- Page 21 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 Page 22 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, Page 23 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 Page 24 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, Page 25 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 Page 26 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 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 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 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. 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. Exhibit C to Lease between Industrial Development Associates and Alphabet, Inc. Landlord's Plans 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 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 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 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 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 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 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 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 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 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 Exhibit A --------- Exhibit E to Lease between Industrial Development Associates and Alphabet, Inc. Covenants 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 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 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 SCHEDULE OF EXHIBITS 1. Exhibit A - Description of the Leased Premises 2. Exhibit B - Description of the Carolina Central Industrial Center 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. 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.] 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: 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. 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 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 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. 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 EX-10.4 3 LEASE AGREEMENT 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 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. Page 1 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, Page 2 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. Page 3 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. Page 4 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. Page 5 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 Page 6 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 Page 7 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. Page 8 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 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 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 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 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 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 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 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 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 EX-10.15 4 LEASE AGREEMENT 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 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:
Period Area (SF) Rent/SF Annual Rent Monthly Rent - -------------------- --------- ------- ----------- ------------ 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
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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-21.1 5 SUBSIDIARIES AND AFFILIATES OF THE COMPANY 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 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 3,924 0 100,293 (1,549) 65,701 192,316 174,750 (68,587) 698,309 115,204 331,898 0 0 0 231,628 698,309 675,221 675,221 487,349 487,349 89,839 728 30,741 67,022 25,850 41,172 0 0 0 41,172 1.84 1.84
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