10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended April 2, 2005 Commission file number 001-13337

STONERIDGE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Ohio	34-1598949
(State or Other Jurisdiction of Incorporation	(I.R.S. Employer
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

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 þ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

The number of Common Shares, without par value, outstanding as of May 2, 2005 was 23,182,141.

STONERIDGE, INC. AND SUBSIDIARIES
INDEX

	Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 2, 2005 and December 31, 2004		2
Condensed Consolidated Statements of Operations for the Three Months Ended April 2, 2005 and March 31, 2004		3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 2, 2005 and March 31, 2004		4
Notes to Condensed Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4. Controls and Procedures		22
Part II Other Information		23
Signatures		24
Exhibit Index		25
EX-2.1 Stock Purchase Agreement
EX-10.1 Summary of Executive Compensation
EX-31.1 Certification 302 - CEO
EX-31.2 Certification 302 - CFO
EX-32.1 Certification 906 - CEO
EX-32.2 Certification 906 - CFO

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STONERIDGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	April 2,		December 31,
	2005		2004
	(Unaudited)		(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	42,317	$	52,332
Accounts receivable, net		119,248		100,615
Inventories, net		58,956		56,397
Prepaid expenses and other		14,542		11,416
Deferred income taxes		9,833		13,282
Total current assets		244,896		234,042
PROPERTY, PLANT AND EQUIPMENT, net		110,409		114,004
OTHER ASSETS:
Goodwill		65,176		65,176
Investments and other, net		25,295		24,979
Deferred income taxes		35,549		34,800
TOTAL ASSETS	$	481,325	$	473,001
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	72	$	109
Accounts payable		62,611		57,709
Accrued expenses and other		53,694		52,907
Total current liabilities		116,377		110,725
LONG-TERM LIABILITIES:
Long-term debt, net of current portion		200,052		200,052
Other liabilities		6,552		6,619
Total long-term liabilities		206,604		206,671
SHAREHOLDERS’ EQUITY:
Preferred shares, without par value, 5,000 authorized, none issued		—		—
Common shares, without par value, 60,000 authorized, 22,785 and 22,780 issued and outstanding at April 2, 2005 and December 31, 2004, respectively (net of 8 treasury shares for each period), with no stated value		—		—
Additional paid-in capital		146,128		145,764
Retained earnings		10,624		6,255
Accumulated other comprehensive income		1,592		3,586
Total shareholders’ equity		158,344		155,605
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	481,325	$	473,001

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

STONERIDGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(in thousands except for per share data)

	For the Three Months Ended
	April 2,			March 31,
	2005			2004
NET SALES	$	180,827		$	176,023
COSTS AND EXPENSES:
Cost of goods sold		135,592			128,207
Selling, general and administrative		30,388			28,061
Restructuring charges		2,126			—
OPERATING INCOME		12,721			19,755
Interest expense, net		5,989			6,251
Other income, net		(929	)		(275	)
INCOME BEFORE INCOME TAXES		7,661			13,779
Provision for income taxes		3,292			4,561
NET INCOME	$	4,369		$	9,218
BASIC NET INCOME PER SHARE	$	0.19		$	0.41
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING		22,683			22,572
DILUTED NET INCOME PER SHARE	$	0.19		$	0.40
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING		22,891			22,795

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

STONERIDGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(in thousands)

	For the Three Months Ended
	April 2,			March 31,
	2005			2004
OPERATING ACTIVITIES:
Net income	$	4,369		$	9,218
Adjustments to reconcile net income to net cash (used) provided by operating activities-
Depreciation		6,808			6,214
Amortization of intangible assets		70			70
Amortization of debt financing costs		310			358
Deferred income taxes		2,701			1,937
Equity earnings of unconsolidated subsidiaries		(752	)		(481	)
(Gain) loss on sale of fixed assets		(3	)		43
Share-based compensation expense		327			281
Changes in operating assets and liabilities -
Accounts receivable, net		(19,900	)		(27,166	)
Inventories		(3,222	)		(5,227	)
Prepaid expenses and other		(3,331	)		(2,410	)
Other assets		(617	)		32
Accounts payable		5,846			13,255
Accrued expenses and other		2,059			10,785
Net cash (used) provided by operating activities		(5,335	)		6,909
INVESTING ACTIVITIES:
Capital expenditures		(4,054	)		(4,750	)
Net cash used by investing activities		(4,054	)		(4,750	)
FINANCING ACTIVITIES:
Repayments of long-term debt		(37	)		(13	)
Share option activity		42			(581	)
Net cash provided (used) by financing activities		5			(594	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(631	)		(46	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(10,015	)		1,519
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		52,332			24,142
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	42,317		$	25,661

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

1.	The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the Commission’s rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2004 Annual Report on Form 10-K.
	The results of operations for the three months ended April 2, 2005 are not necessarily indicative of the results to be expected for the full year.
2.	Beginning in 2005, the Company changed from a calendar year end to a 52-53 week fiscal year end. The Company’s fiscal quarters are now comprised of 13-week periods and once every seven years, starting in 2008, the fourth quarter will be 14 weeks in length. The first quarter of 2005 and 2004 ended on April 2 and March 31, respectively.
3.	On March 24, 2005, the Company entered into a stock purchase agreement with GE Capital Equity Holdings, Inc., 3i Group plc, 3i Europartners II LP, Roberto Poli and Alberto Bombonato to acquire Vimercati, S.p.A. (“Vimercati”), an Italian full service switch products supplier for the automotive industry. The closing of the purchase of Vimercati is conditioned on (i) customary closing conditions, including the Company’s due diligence into Vimercati’s customer relationships, and (ii) the pre-emptive right of a shareholder of Vimercati. In April 2005, this shareholder gave notice of his intent to exercise his pre-emptive right. Accordingly, if this shareholder is successful in acquiring the remaining outstanding shares of Vimercati, the Company’s agreement to acquire Vimercati will be terminated. If the shareholder fails in his bid to acquire Vimercati, the Company may still complete the acquisition, subject to customary closing conditions. The purchase price to acquire Vimercati is 24.9 million euros subject to post-closing adjustments, which are based upon Vimercati’s financial position at closing. This acquisition, if completed, would be funded through available cash. For the fiscal year ended December 31, 2004, Vimercati reported net sales of approximately 32 million euros. At this time, because of the exercise of the pre-emptive right, the Company does not expect to close the acquisition of Vimercati.
4.	Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 72% and 67% of the Company’s inventories at April 2, 2005 and December 31, 2004, 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:

	April 2,			December 31,
	2005			2004
Raw materials	$	33,542		$	31,583
Work in progress		11,812			10,216
Finished goods		14,934			15,685
		60,288			57,484
Less: LIFO reserve		(1,332	)		(1,087	)
Total	$	58,956		$	56,397

5.   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

5

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

	maturity of these instruments. The estimated fair value of the Company’s fixed rate debt at April 2, 2005, per quoted market sources, was $219.8 million and the carrying value was $200.0 million.
	The Company uses derivative financial instruments, including foreign currency forward and option contracts, to mitigate its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on short-term, foreign currency denominated intercompany transactions and other known foreign currency exposures. The principal currencies hedged by the Company include the Swedish krona, British pound, Mexican peso and euro. The foreign currency forward contracts are marked to market, with gains and losses recognized in the Company’s condensed consolidated statement of operations as a component of other income. The option contracts are marked to market, with gains and losses recognized in the Company’s condensed consolidated statement of operations as a component of operating income. The Company’s foreign currency forward and option contracts substantially offset gains and losses on the underlying foreign denominated transactions. The Company does not enter into financial instruments for speculative or profit motivated purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest.
	The Company’s foreign currency forward contracts have a notional value of $18.0 million and reduce exposure related to the Company’s krona and pound denominated receivables. The estimated fair value of these contracts at April 2, 2005, per quoted market sources, was approximately $(0.2) million. The Company’s foreign currency option contracts have a notional value of $0.3 million and reduce exposure to the Company’s other known foreign currency exposures. The estimated fair value of these contracts at April 2, 2005, per quoted market sources, was approximately $(0.1) million.
6.	Under Statement of Financial Accounting Standard (SFAS) 142, “Goodwill and Other Intangible Assets,” goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The Company performs its annual impairment test of goodwill as of October 1. In the fourth quarter of 2004, the Company determined that the carrying value of one of the Company’s reporting units, which is included in the Control Devices reportable segment, exceeded its fair value by $183.5 million. The corresponding write-down of goodwill to its fair value was reported as a component of operating loss in the Company’s consolidated statement of operations for the fourth quarter of 2004.
	There was no change in the carrying value of goodwill by reportable segment during the first quarter of 2005.
7.	The Company has two share-based compensation plans. One plan is for employees and one plan is for the Company’s outside directors. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” prospectively to all employee and director awards granted, modified or settled after January 1, 2003, under the provisions of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” Option awards under the Company’s plans cliff-vest over periods ranging from one to five years, and compensation expense is recognized on a straight-line basis. Restricted share awards vest over a period of one to three years and compensation expense is also recognized on a straight-line basis. Because the Company adopted the fair value recognition provisions of SFAS 123 on a prospective basis, the cost related to employee and director share-based compensation recognized during the first quarter of 2005 and 2004 is less than that which would have been recognized if the fair value method had been applied to all awards granted since the original effective date of SFAS 123. The following table illustrates the effect on net income and net income per share if the fair value method had been applied to all outstanding and unvested awards in each period.

6

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

	For the Three Months Ended
	April 2,			March 31,
	2005			2004
Net income, as reported	$	4,369		$	9,218
Add: Share-based employee compensation expense included in reported net income, net of related tax effects		204			176
Deduct: Share-based employee compensation expense determined under the fair value method for all awards, net of related tax effects		(205	)		(233	)
Pro forma net income	$	4,368		$	9,161
Net income per share:
Basic – as reported	$	0.19		$	0.41
Basic – pro forma	$	0.19		$	0.41
Diluted – as reported	$	0.19		$	0.40
Diluted – pro forma	$	0.19		$	0.40

8.   Other comprehensive (loss) income includes foreign currency translation adjustments and gains and losses from certain foreign currency transactions, minimum pension liability adjustments, and unrealized gains and losses on available-for-sale marketable securities. All portions of other comprehensive (loss) income are recorded net of related taxes. Comprehensive income for the three months ended April 2, 2005 and March 31, 2004 consisted of the following:

	For the Three Months Ended
	April 2,			March 31,
	2005			2004
Net income	$	4,369		$	9,218
Other comprehensive (loss) income:
Currency translation adjustments		(2,071	)		131
Minimum pension liability adjustments		67			(39	)
Unrealized gain on marketable securities		10			22
		(1,994	)		114
Comprehensive income	$	2,375		$	9,332

9.   On May 1, 2002, the Company issued $200.0 million aggregate principal amount of senior notes. The $200.0 million notes bear interest at an annual rate of 11.50% and mature on May 1, 2012. The senior notes are redeemable in May 2007 at 105.75. Interest is payable on May 1 and November 1 of each year. On July 1, 2002, the Company completed an exchange offer of the senior notes for substantially identical notes registered under the Securities Act of 1933.

In conjunction with the issuance of the senior notes, the Company also entered into a $200.0 million credit agreement with a bank group. The credit agreement had the following components: a $100.0 million revolving facility (of which $96.1 million was available at April 2, 2005, after consideration of outstanding letters of credit), which includes a $10.0 million swing line facility, and a $100.0 million term facility. The revolving facility expires on April 30, 2008 and requires a commitment fee of 0.375% to 0.500% on the unused balance. The revolving facility permits the Company to borrow up to half its borrowings in specified foreign currencies. Interest is payable quarterly at either (i) the prime rate plus a margin of 0.25% to 1.25% or (ii) LIBOR plus a margin of 1.75% to 2.75%, depending upon the Company’s ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), as defined. Interest on the swing line facility is payable monthly at the quoted overnight borrowing rate plus a margin of 1.75% to 2.75%, depending upon the Company’s ratio of consolidated total

7

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

debt to consolidated EBITDA. The Company repaid the entire outstanding balance of the term facility during 2003.

Long-term debt consisted of the following:

	April 2,			December 31,
	2005			2004
11 1/2% Senior notes, due 2012	$	200,000		$	200,000
Other		124			161
		200,124			200,161
Less: Current portion		(72	)		(109	)
	$	200,052		$	200,052

10.   Net income per share amounts for all periods are presented in accordance with SFAS 128, “Earnings Per Share,” which requires the presentation of basic and diluted net income per share. Basic net income per share was computed by dividing net income by the weighted-average number of common shares outstanding for each respective period. Diluted net income per share was calculated by dividing net income by the weighted-average of all potentially dilutive common shares that were outstanding during the periods presented. Actual weighted-average shares outstanding used in calculating basic and diluted net income per share were as follows:

	For the Three Months Ended
	April 2,		March 31,
	2005		2004
Basic weighted-average shares outstanding		22,683		22,572
Effect of dilutive securities		208		223
Diluted weighted-average shares outstanding		22,891		22,795

Options to purchase 279 and 415 common shares at an average price of $16.10 and $16.97 per share were outstanding during the first quarter of 2005 and 2004, respectively, and were not included in the computation of diluted earnings per share. These options were not included because their respective exercise prices were greater than the average market price of the Company’s common shares and, therefore, their effect would have been anti-dilutive.

11.

The Company has announced restructuring initiatives related to the rationalization of certain manufacturing facilities in the high cost regions of Europe and North America. This rationalization is a result of the Company’s cost reduction initiatives. In connection with this plan, the Company recorded restructuring charges of $2,126 in the Company’s condensed consolidated statement of operations, for the quarter ended April 2, 2005. These restructuring charges are related to the Control Devices reportable segment and included the following:

							Facility
	Severance			Asset			Closure		Other
	Costs			Impairments			Costs		Costs			Total
Total expected restructuring charge	$	4,200		$	1,200		$	2,000	$	600		$	8,000
Balance at March 31, 2004	$	—		$	—		$	—	$	—		$	—
Second quarter charge to expense		—			205			—		9			214
Third quarter charge to expense		—			202			—		118			320
Fourth quarter charge to expense		1,068			207			—		287			1,562
Cash payments		(590	)		—			—		(414	)		(1,004	)
Non-cash utilization		—			(614	)		—		—			(614	)

8

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

							Facility
	Severance			Asset			Closure		Other
	Costs			Impairments			Costs		Costs			Total
Balance at December 31, 2004	$	478		$	—		$	—	$	—		$	478
First quarter charge to expense		1,786			333			—		7			2,126
Cash payments		(1,206	)		—			—		(7	)		(1,213	)
Non-cash utilization		—			(333	)		—		—			(333	)
Balance at April 2, 2005	$	1,058		$	—		$	—	$	—		$	1,058
Remaining expected restructuring charge	$	1,346		$	253		$	2,000	$	179		$	3,778

	All restructuring charges, except for the asset impairments, will result in cash outflows. Severance costs relate to a reduction in workforce. Asset impairment charges relate primarily to the write-down of property, plant and equipment, resulting from the closure or streamlining of certain facilities. Facility closure costs primarily relate to asset relocation and lease termination costs and other exit costs include miscellaneous expenditures associated with exiting business activities. At this time, the Company expects that these restructuring efforts will be substantially completed during the second quarter of 2006.
12.	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, cash flows or the financial position of the Company.
	As previously disclosed, a judgment was entered against the Company in the District Court (365th Judicial District) in Maverick County, Texas on January 15, 2004. The plaintiffs alleged in their complaint that a Company fuel valve installed as a replacement part on a truck caused a fire after an accident resulting in a death. The plaintiffs are the parents of the decedent. The final judgment entered against the Company was approximately $36.5 million. The Company denied its fuel valve contributed to the fire and believed that there were valid grounds to reverse the judgment on appeal. An appellate hearing of this judgment was held during the first quarter of 2005. The Company has recently been advised that its legal counsel and the plaintiff’s counsel have entered into a written agreement dated April 11, 2005 to settle this litigation. The court of appeals has been advised to abate its decision while the parties finalize the necessary documentation. When the documentation is complete, the parties will request that the court of appeals remand to the trial court. The trial court will be presented with a proposed order agreed to by both parties to enter a final judgment. The settlement amount is covered by the Company’s insurance.
13.	The Company has a single defined benefit pension plan that covers certain employees in the United Kingdom and a single postretirement benefit plan that covers certain employees in the U.S. Components of net periodic pension and postretirement benefit cost are as follows:

	Pension Benefit Plan						Postretirement Benefit Plan
	For the Three Months Ended						For the Three Months Ended
	April 2,			March 31,			April 2,		March 31,
	2005			2004			2005		2004
Service cost	$	19		$	18		$	23	$	23
Interest cost		257			221			22		22
Expected return on plan assets		(267	)		(248	)		—		—
Amortization of actuarial loss		76			14			—		—
Net periodic benefit cost	$	85		$	5		$	45	$	45

The Company previously disclosed in its financial statements for the year ended December 31, 2004 that it expected to contribute $183 to its defined benefit pension plan in 2005. As of April 2, 2005, the Company did not make any contributions to its defined benefit pension plan.

9

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

14.	The Company recognized a provision for income taxes of $3.3 million, or 43.0% of pre-tax income, and $4.6 million, or 33.1% of pre-tax income, for federal, state and foreign income taxes for the three months ended April 2, 2005 and March 31, 2004, respectively. The increase in the effective tax rate for the first quarter of 2005 compared to the first quarter of 2004 was attributable to the affect of foreign losses related to certain operations in the U.K. for which it is estimated that the tax benefit may not be realized. As a result, a valuation allowance was recorded in the first quarter of 2005.
15.	In December 2004, the FASB issued SFAS 123R, “Share-Based Payment,” which requires all companies to measure compensation cost for all share-based payments (including employee share options) at fair value. This Statement was to become effective for interim periods beginning after June 15, 2005; however, effective April 21, 2005, the SEC issued a final ruling that amended Rule 4-01(a) of Regulation S-X to delay the date for compliance with SFAS 123R to the first interim or annual reporting period of the Company’s first fiscal year beginning on or after June 15, 2005. The Company adopted the fair-value provisions of SFAS 123 in 2003, as discussed in Note 7 to the Company’s condensed consolidated financial statements; therefore, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
16.	In November 2004, the FASB issued SFAS 151, “Inventory Costs,” as an amendment to ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage). This Statement requires that these items be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. This Statement becomes effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS 151 to have a material impact on the Company’s consolidated financial statements.
17.	SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise that are evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer.
	The Company has two reportable segments: Vehicle Management & Power Distribution and Control Devices. These reportable segments were determined based on the differences in the nature of the products offered. The Vehicle Management & Power Distribution reportable segment produces electronic instrument clusters, electronic control units, driver information systems and electrical distribution systems, primarily wiring harnesses and connectors for electrical power and signal distribution. The Control Devices reportable segment produces electronic and electromechanical switches, control actuation devices and sensors, and driver information systems.
	As a result of changes in executive leadership during 2004, the Company realigned senior management responsibilities under four operating segments effective for the fourth quarter of 2004. These four operating segments are aggregated for reporting purposes into the Company’s Vehicle Management & Power Distribution and Control Devices reportable segments. The Company’s chief executive officer also changed the profit measure used to evaluate the business to “Income Before Income Taxes.” Because the Company changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change, and because the profit measure used to evaluate the business changed, the corresponding information for prior periods has been restated to conform to the current year reportable segment presentation.
	The accounting policies of the Company’s reportable segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Company’s December 31, 2004 Form 10-K. The

10

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

Company’s chief executive officer evaluates the performance of its reportable segments based primarily on revenues from external customers, capital expenditures and income before income taxes. Intersegment sales are accounted for on terms similar to those to third parties and are eliminated upon consolidation.

A summary of financial information by reportable segment is as follows:

	For the Three Months Ended
	April 2,			March 31,
Net Sales	2005			2004
Control Devices	$	88,343		$	97,811
Intersegment Sales		922			651
Control Devices Net Sales		89,265			98,462
Vehicle Management & Power Distribution		92,484			78,212
Intersegment Sales		5,948			5,735
Vehicle Management & Power Distribution Net Sales		98,432			83,947
Eliminations		(6,870	)		(6,386	)
Total Consolidated Net Sales	$	180,827		$	176,023

	For the Three Months Ended
	April 2,			March 31,
Income Before Income Taxes	2005			2004
Control Devices	$	2,006		$	14,046
Vehicle Management & Power Distribution		9,379			7,572
Corporate Interest Expense		(5,859	)		(6,166	)
Other Corporate Activities		2,135			(1,673	)
Total Consolidated Income Before Income Taxes	$	7,661		$	13,779

	For the Three Months Ended
	April 2,		March 31,
Depreciation and Amortization	2005		2004
Control Devices	$	4,711	$	4,132
Vehicle Management & Power Distribution		2,069		2,078
Corporate Activities		98		74
Total Consolidated Depreciation and Amortization	$	6,878	$	6,284

	For the Three Months Ended
	April 2,		March 31,
Interest Expense (Income)	2005		2004
Control Devices	$	79	$	(19	)
Vehicle Management & Power Distribution		51		104
Corporate Activities		5,859		6,166
Total Consolidated Interest Expense	$	5,989	$	6,251

11

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

	For the Three Months Ended
	April 2,		March 31,
Capital Expenditures	2005		2004
Control Devices	$	2,347	$	2,422
Vehicle Management & Power Distribution		1,615		2,308
Corporate Activities		92		20
Total Consolidated Capital Expenditures	$	4,054	$	4,750

The following table presents net sales and non-current assets for each of the geographic areas in which the Company operates:

	For the Three Months Ended
	April 2,		March 31,
	2005		2004
Net Sales:
North America	$	140,436	$	142,535
Europe and other		40,391		33,488
Total	$	180,827	$	176,023

	April 2,		December 31,
	2005		2004
Non-Current Assets:
North America	$	214,068	$	183,604
Europe and other		22,361		55,355
Total	$	236,429	$	238,959

18.	The senior notes and the credit facility are fully and unconditionally guaranteed, jointly and severally, by each of the Company’s existing and future domestic wholly-owned subsidiaries (Guarantor Subsidiaries). The Company’s non-U.S. subsidiaries did not guarantee the senior notes and the credit facility (Non-Guarantor Subsidiaries).
	Presented below are summarized condensed consolidating financial statements of the Parent (which include certain of the Company’s operating units), the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated basis, as of April 2, 2005 and December 31, 2004, and for the three months ended April 2, 2005 and March 31, 2004.
	These summarized condensed consolidating financial statements are prepared on the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional information that is material to investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below.

12

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

	April 2, 2005
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,924		$	19		$	26,374		$	—		$	42,317
Accounts receivable, net		52,922			37,879			28,463			(16	)		119,248
Inventories, net		26,622			15,642			16,692			—			58,956
Prepaid expenses, intercompany and other		(256,036	)		240,932			29,605			—			14,542
Deferred income taxes		6,177			1,673			1,983			41			9,833
Total current assets		(154,391	)		296,145			103,117			25			244,896
PROPERTY, PLANT AND EQUIPMENT, net		57,242			31,184			21,983			—			110,409
OTHER ASSETS:
Goodwill		44,585			20,591			—			—			65,176
Investments and other, net		31,649			496			124			(6,974	)		25,295
Deferred income taxes		35,803			(59	)		(195	)		—			35,549
Investment in subsidiaries		392,365			—			—			(392,365	)		—
TOTAL ASSETS	$	407,253		$	348,357		$	125,029		$	(399,314	)	$	481,325
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	—		$	—		$	72		$	—		$	72
Accounts payable		22,910			21,352			18,349			—			62,611
Accrued expenses and other		25,820			11,753			16,096			25			53,694
Total current liabilities		48,730			33,105			34,517			25			116,377
LONG-TERM LIABILITIES:
Long-term debt, net of current portion		200,000			—			7,026			(6,974	)		200,052
Other liabilities		179			1,947			4,426			—			6,552
Total long-term liabilities		200,179			1,947			11,452			(6,974	)		206,604
SHAREHOLDERS’ EQUITY		158,344			313,305			79,060			(392,365	)		158,344
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	407,253		$	348,357		$	125,029		$	(399,314	)	$	481,325

13

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

Supplemental condensed consolidating financial statements (continued):

	December 31, 2004
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	20,363		$	17		$	31,952	$	—		$	52,332
Accounts receivable, net		42,620			32,465			25,535		(5	)		100,615
Inventories, net		24,415			13,098			18,884		—			56,397
Prepaid expenses, intercompany and other		(247,317	)		234,031			24,702		—			11,416
Deferred income taxes		8,454			4,205			623		—			13,282
Total current assets		(151,465	)		283,816			101,696		(5	)		234,042
PROPERTY, PLANT AND EQUIPMENT, net		57,947			32,791			23,266		—			114,004
OTHER ASSETS:
Goodwill		44,585			20,591			—		—			65,176
Investments and other, net		27,766			463			185		(3,435	)		24,979
Deferred income taxes		37,773			(3,960	)		987		—			34,800
Investment in subsidiaries		381,664			—			—		(381,664	)		—
TOTAL ASSETS	$	398,270		$	333,701		$	126,134	$	(385,104	)	$	473,001
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	—		$	—		$	109	$	—		$	109
Accounts payable		20,004			17,691			20,014		—			57,709
Accrued expenses and other		22,370			12,741			17,801		(5	)		52,907
Total current liabilities		42,374			30,432			37,924		(5	)		110,725
LONG-TERM LIABILITIES:
Long-term debt, net of current portion		200,000			—			3,487		(3,435	)		200,052
Other liabilities		291			1,902			4,426		—			6,619
Total long-term liabilities		200,291			1,902			7,913		(3,435	)		206,671
SHAREHOLDERS’ EQUITY		155,605			301,367			80,297		(381,664	)		155,605
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	398,270		$	333,701		$	126,134	$	(385,104	)	$	473,001

14

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

Supplemental condensed consolidating financial statements (continued):

	For the Three Months Ended April 2, 2005
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
NET SALES	$	89,268		$	59,652		$	51,012		$	(19,105	)	$	180,827
COSTS AND EXPENSES:
Cost of goods sold		74,593			42,265			37,382			(18,648	)		135,592
Selling, general and administrative		12,437			7,903			10,505			(457	)		30,388
Restructuring charges		—			300			1,826			—			2,126
OPERATING INCOME		2,238			9,184			1,299			—			12,721
Interest expense, net		6,022			—			(33	)		—			5,989
Other (income) expense, net		(2,505	)		1,658			(82	)		—			(929	)
Equity earnings from subsidiaries		(8,418	)		—			—			8,418			—
INCOME BEFORE INCOME TAXES		7,139			7,526			1,414			(8,418	)		7,661
Provision for income taxes		2,770			(509	)		1,031			—			3,292
NET INCOME	$	4,369		$	8,035		$	383		$	(8,418	)	$	4,369

	For the Three Months Ended March 31, 2004
				Guarantor		Non-Guarantor
	Parent			Subsidiaries		Subsidiaries			Eliminations			Consolidated
NET SALES	$	82,754		$	61,545	$	47,397		$	(15,673	)	$	176,023
COSTS AND EXPENSES:
Cost of goods sold		66,121			42,180		35,208			(15,302	)		128,207
Selling, general and administrative		10,881			9,562		7,989			(371	)		28,061
OPERATING INCOME		5,752			9,803		4,200			—			19,755
Interest expense, net		6,279			—		(28	)		—			6,251
Other (income) expense, net		(1,205	)		886		44			—			(275	)
Equity earnings from subsidiaries		(11,285	)		—		—			11,285			—
INCOME BEFORE INCOME TAXES		11,963			8,917		4,184			(11,285	)		13,779
Provision for income taxes		2,745			220		1,596			—			4,561
NET INCOME	$	9,218		$	8,697	$	2,588		$	(11,285	)	$	9,218

15

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(in thousands except for per share data, unless otherwise indicated)

Supplemental condensed consolidating financial statements (continued):

	For the Three Months Ended April 2, 2005
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net cash (used) provided by operating activities	$	(2,562	)	$	560		$	(7,517	)	$	4,184		$	(5,335	)
INVESTING ACTIVITIES:
Capital expenditures		(1,923	)		(541	)		(1,590	)		—			(4,054	)
Other		4			(17	)		—			13			—
Net cash used by investing activities		(1,919	)		(558	)		(1,590	)		13			(4,054	)
FINANCING ACTIVITIES:
Repayments of long-term debt		—			—			4,147			(4,184	)		(37	)
Share option activity		42			—			—			—			42
Other		—			—			13			(13	)		—
Net cash provided by financing activities		42			—			4,160			(4,197	)		5
Effect of exchange rate changes on cash and cash equivalents		—			—			(631	)					(631	)
Net change in cash and cash equivalents		(4,439	)		2			(5,578	)		—			(10,015	)
Cash and cash equivalents at beginning of period		20,363			17			31,952			—			52,332
Cash and cash equivalents at end of period	$	15,924		$	19		$	26,374		$	—		$	42,317

	For the Three Months Ended March 31, 2004
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net cash provided by operating activities	$	4,767		$	1,804		$	13,611		$	(13,273	)	$	6,909
INVESTING ACTIVITIES:
Capital expenditures		(1,950	)		(1,781	)		(1,019	)		—			(4,750	)
Other		(1	)		(22	)		—			23			—
Net cash used by investing activities		(1,951	)		(1,803	)		(1,019	)		23			(4,750	)
FINANCING ACTIVITIES:
Repayments of long-term debt		(7,300	)		—			(5,991	)		13,278			(13	)
Share option activity		(581	)		—			—			—			(581	)
Other		—			—			28			(28	)		—
Net cash used by financing activities		(7,881	)		—			(5,963	)		13,250			(594	)
Effect of exchange rate changes on cash and cash equivalents		—			—			(46	)		—			(46	)
Net change in cash and cash equivalents		(5,065	)		1			6,583			—			1,519
Cash and cash equivalents at beginning of period		14,535			26			9,581			—			24,142
Cash and cash equivalents at end of period	$	9,470		$	27		$	16,164		$	—		$	25,661

16

19.   Certain prior year amounts have been reclassified to conform to their 2005 presentation in the condensed consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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, agricultural and off-highway vehicle markets.

Our first quarter of 2005 was affected by a number of challenging industry-wide issues, including intense competition, price reductions, higher commodity costs and global excess capacity by the Company’s major customers. The Company continuously works to address these challenges by implementing a broad range of initiatives aimed to improve operating performance.

As announced in January 2005, the Company is undertaking restructuring initiatives related to the rationalization of certain manufacturing facilities. This rationalization is a result of the Company’s cost reduction initiatives. In connection with this plan, the Company recorded restructuring charges of $2.1 million for the first quarter of 2005 and expects the total cost of this restructuring effort to be approximately $8.0 million. See Note 11 to the Company’s condensed consolidated financial statements for more information.

As announced in March 2005, the Company entered into a stock purchase agreement to acquire Vimercati, S.p.A. (“Vimercati”), an Italian full service switch products supplier for the automotive industry. The purchase price to acquire Vimercati was 24.9 million euros subject to post-closing adjustments, which are based upon Vimercati’s financial position at closing. In April 2005, a minority shareholder gave notice of his intent to exercise his pre-emptive right to match our offer. At this time, because of the exercise of the pre-emptive right, the Company does not expect to close the acquisition of Vimercati. See Note 3 to the Company’s condensed consolidated financial statements for more information.

The Company recognized net income for the first quarter of 2005 of $4.4 million, or $0.19 per diluted share, compared with $9.2 million, or $0.40 per diluted share, for the first quarter of 2004.

Significant factors inherent to the Company’s markets that could affect its full-year results in 2005 include customer production volume and profitability, as well as the Company’s ability to successfully execute its planned restructuring program, to recover commodity price increases, to implement planned productivity and cost reduction initiatives, and to successfully integrate potential acquisitions. The Company’s full-year results in 2005 also depend on conditions in the automotive and commercial vehicle industries, which are generally dependent on U.S. and global economies.

Results of Operations

The Company is organized based primarily on markets served and products produced. Under this organization structure, the Company’s operating segments have been aggregated into two reportable segments: Vehicle Management & Power Distribution and Control Devices. The Vehicle Management & Power Distribution reportable segment includes results of operations from the Company’s operations that primarily design and manufacture electronic instrument clusters, electronic control units, driver information systems and electrical distribution systems, primarily wiring harnesses and connectors for electrical power and signal distribution. The Control Devices reportable segment includes results of operations from the Company’s operations that primarily design and manufacture electronic and electromechanical switches, control actuation devices and sensors, and driver information systems.

17

Beginning in 2005, the Company changed from a calendar year end to a 52-53 week fiscal year end. The Company’s fiscal quarters are now comprised of 13-week periods and once every seven years, starting in 2008, the fourth quarter will be 14 weeks in length. The first quarter of 2005 and 2004 ended on April 2 and March 31, respectively.

Three Months Ended April 2, 2005 Compared To Three Months Ended March 31, 2004

Net Sales. Net sales for each of the Company’s reportable segments, excluding intersegment sales, for the three months ended April 2, 2005 and March 31, 2004 are summarized in the following table:

	For the Three Months Ended
	April 2,		March 31,		$ Increase /			% Increase /
	2005		2004		(Decrease)			(Decrease)
Control Devices	$	88,343	$	97,811	$	(9,468	)		(9.7	)%
Vehicle Management & Power Distribution		92,484		78,212		14,272			18.2
Total Net Sales	$	180,827	$	176,023	$	4,804			2.7	%

The decrease in net sales for the Company’s Control Devices reportable segment during the first quarter of 2005 was primarily attributable to the decrease in lower North American light vehicle production and price reductions. The increase in net sales for the Company’s Vehicle Management & Power Distribution reportable segment was primarily due to an increase in commercial vehicle production partially offset by price reductions. Net sales were also favorably affected by foreign exchange rate fluctuations relative to the U.S. dollar, which increased sales by $1.9 million.

Net sales by geographic location for the three months ended April 2, 2005 and March 31, 2004 are summarized in the following table:

	For the Three Months Ended
	April 2,		March 31,		$ Increase /			% Increase
	2005		2004		(Decrease)			/ (Decrease)
North America	$	140,436	$	142,535	$	(2,099	)		(1.5	)%
Europe and Other		40,391		33,488		6,903			20.6
Total Net Sales	$	180,827	$	176,023	$	4,804			2.7	%

North American sales accounted for 77.7% of total net sales for the first quarter of 2005 compared with 81.0% for the first quarter of 2004. The decrease in North American sales was primarily attributable to decreased sales to the North American light vehicle market and price reductions. Sales outside North America accounted for 22.3% of total sales in 2005 compared with 19.0% in 2004. The increase in net sales outside North America was primarily attributable to increased commercial vehicle production and favorable currency exchange rates, partially offset by price reductions.

Cost of Goods Sold. Cost of goods sold for the first three months of 2005 increased by $7.4 million, or 5.8%, to $135.6 million from $128.2 million for the same period of 2004. As a percentage of sales, cost of goods sold increased to 75.0% in 2005 compared to 72.8% in 2004. This increase as a percentage of sales is predominately due to operational inefficiencies resulting from the Company’s restructuring efforts, price reductions required by the Company’s customers and higher commodity costs. The Company expects that these challenges will continue to affect its gross margin through the remainder of 2005.

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased by $2.3 million to $30.4 million for the first three months of 2005 from $28.1 million for the first three months of 2004. Included in SG&A expenses for the first quarter of 2005 and 2004 were product development expenses of $11.1

18

million and $8.9 million, respectively. The increase in SG&A expenses reflects increased investment in the Company’s product development activities, which are focused on occupant safety, chassis, driveline and driver information products. As a percentage of sales, SG&A expenses increased to 16.8% for the first quarter of 2005 from 15.9 % for the first quarter of 2004.

Restructuring Charges. In January 2005, the Company announced that it would undertake restructuring initiatives related to the rationalization of certain manufacturing facilities. This rationalization is a result of the Company’s cost reduction initiatives. In connection with this plan, the Company recorded restructuring charges of $2.1 million for the quarter ended April 2, 2005, which include $1.8 million in severance costs and $0.3 million for asset impairments.

All restructuring charges, except for the asset impairments, will result in cash outflows. Severance costs relate to a reduction in workforce. Asset impairment charges relate primarily to the write-down of property, plant and equipment, resulting from the closure or streamlining of certain facilities. Facility closure costs primarily relate to asset relocation and lease termination costs and other exit costs include miscellaneous expenditures associated with exiting business activities. Total restructuring costs, which are related to the Control Devices reportable segment, are expected to approximate $8.0 million, which includes $4.2 million of severance costs, $1.2 million of asset related impairment charges, $2.0 million of facility closure costs and $0.6 million of other exit costs.

Income Before Income Taxes. Income before income taxes, which is the primary profitability measure used by the Company’s chief executive officer, is summarized in the following table by reportable segment for the three months ended April 2, 2005 and March 31, 2004.

	For the Three Months Ended
	April 2,			March 31,			$ Increase /
	2005			2004			(Decrease)
Control Devices	$	2,006		$	14,046		$	(12,040	)
Vehicle Management & Power Distribution		9,379			7,572			1,807
Corporate Interest		(5,859	)		(6,166	)		307
Other Corporate Activities		2,135			(1,673	)		3,808
Income Before Income Taxes	$	7,661		$	13,779		$	(6,118	)

Income before income taxes for the first quarter of 2005 decreased by $12.0 million at the Control Devices reportable segment to $2.0 million from $14.0 million for the corresponding period in 2004, primarily as the result of restructuring activities, decreased North American light vehicle production, price reductions, higher commodity costs, and increased product development activities.

Income before income taxes for the first quarter of 2005 increased by $1.8 million at the Vehicle Management & Power Distribution reportable segment, primarily as the result of increased commercial vehicle production, offset by higher commodity costs, price reductions and increased product development activities.

Income before income taxes for the first quarter of 2005 for North America decreased by $5.2 million to $4.7 million from $9.9 million for the corresponding period in 2004. Income before income taxes for the first quarter of 2005 outside North America decreased by $0.9 million to $3.0 million from $3.9 million for the corresponding period in 2004. The decrease in the Company’s worldwide profitability was primarily due to the decrease in passenger car and light truck production, price reductions, operating inefficiencies related to restructuring efforts, higher commodity costs, and increased product development activities, partially offset by increased commercial vehicle production.

Provision for Income Taxes. The Company recognized a provision for income taxes of $3.3 million, or 43.0% of pre-tax income, and $4.6 million, or 33.1% of pre-tax income, for federal, state and foreign income taxes for the three months ended April 2, 2005 and March 31, 2004, respectively. The increase in the effective tax rate for the first quarter of 2005 compared to the first quarter of 2004 was attributable to the affect of foreign losses related to certain operations in the U.K. for which it is estimated that the tax benefit may not be realized. As a result, a valuation allowance was recorded in the first quarter.

19

Liquidity and Capital Resources

     Net cash (used) provided by operating activities was $(5.3) million and $6.9 million for the quarters ended April 2, 2005 and March 31, 2004, respectively. The increase in net cash used by operating activities of $12.2 million was primarily due to a decrease in net income of $4.8 million and higher uses of cash for working capital requirements.

     Net cash used by investing activities was $4.1 million and $4.8 million for the quarters ended April 2, 2005 and March 31, 2004, respectively, and related entirely to capital expenditures.

     Net cash used by financing activities for the quarter ended March 31, 2004 was $0.6 million, and related almost entirely to share option activity.

     As discussed in Note 5 to the Company’s condensed consolidated financial statements, the Company has entered into foreign currency forward contracts with a notional value of $18.0 million to reduce exposure related to the Company’s krona- and pound-denominated receivables. The estimated fair value of these contracts at April 2, 2005, per quoted market sources, was approximately $(0.2) million. The Company has entered into foreign currency option contracts with a notional value of $0.3 million to reduce the risk associated with the Company’s other known foreign currency exposures. The estimated fair value of these contracts at April 2, 2005, per quoted market sources, was approximately $(0.1) million. The foreign currency forward contracts are marked to market, with gains and losses recognized in the Company’s condensed consolidated statement of operations as a component of other income. The option contracts are marked to market, with gains and losses recognized in the Company’s condensed consolidated statement of operations as a component of operating income. The Company’s forward foreign exchange and option contracts substantially offset gains and losses on the underlying foreign-denominated transactions. The Company does not enter into financial instruments for speculative or profit motivated purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest.

     As discussed in Note 12 to the Company’s condensed consolidated financial statements, a judgment was entered against the Company on January 15, 2004 whereby the plaintiffs alleged in their complaint that a Company fuel valve installed as a replacement part on a truck caused a fire after an accident resulting in a death. The plaintiffs are the parents of the decedent. The judgment entered against the Company was approximately $36.5 million. The Company denied its fuel valve contributed to the fire and believed that there were valid grounds to reverse the judgment on appeal. An appellate hearing of this judgment was held during the first quarter of 2005. The Company has recently been advised that its legal counsel and the plaintiffs counsel have entered into a written agreement dated April 11, 2005 to settle this litigation. The court of appeals has been advised to abate its decision while the parties finalize the necessary documentation. When the documentation is complete, the parties will request that the court of appeals remand to the trial court. The trial court will be presented with a proposed order agreed to by both parties to enter a final judgment. The settlement amount is covered by the Company’s insurance.

     Future capital expenditures are expected to increase as management targets specific growth opportunities and future organic growth is expected to be funded through cash flows from operations. Management will continue to focus on reducing its weighted average cost of capital and believes that cash flows from operations and the availability of funds from the Company’s credit facilities and senior notes will provide sufficient liquidity to meet the Company’s future growth and operating needs. As outlined in Note 9 to the Company’s condensed consolidated financial statements, the Company has a revolving credit facility of which $96.1 million was available at April 2, 2005. The Company also had $42.3 million in available cash at April 2, 2005, and believes it will have access to the debt and equity markets should the need arise.

Inflation and International Presence

     Management believes that the Company’s operations have not historically been adversely affected by inflation; however, given the current economic climate and recent increases in certain commodity prices, management believes that a continuation of such price increases could significantly affect the Company’s

20

profitability. 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.

Forward-Looking Statements

     Portions of this report 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. Forward-looking statements may be identified by the words “will,” “may,” “designed to,” “believes,” “plans,” “expects,” “continue,” and similar words and expressions. 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. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:

•   the loss or bankruptcy of a major customer;

•   a significant change in automotive, medium- and heavy-duty truck or agricultural and off-highway vehicle production;

•   a significant change in general economic conditions in any of the various countries in which the Company operates;

•   labor disruptions at the Company’s facilities or at any of the Company’s significant customers or suppliers;

•   the ability of the Company’s suppliers to supply it with parts and components at competitive prices on a timely basis;

•   the amount of debt and the restrictive covenants contained in the Company’s credit facility;

•   customer acceptance of new products;

•   capital availability or costs, including changes in interest rates or market perceptions of the Company;

•   changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies;

•   the successful integration of any acquired businesses;

•   the impact of laws and regulations, including the Sarbanes-Oxley Act of 2002 and environmental laws and regulations; and

•   the occurrence or non-occurrence of circumstances beyond the Company’s control.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

     From time to time, the Company is exposed to certain market risks, primarily resulting from the effects of changes in interest rates. At April 2, 2005, however, all of the Company’s outstanding debt was fixed-rate debt.

Commodity Price Risk

     The Company’s risk related to commodity prices has historically not been material; however, given the current economic climate and the recent increases in certain commodity costs, the Company currently is experiencing an increased risk particularly with respect to the purchase of copper and resins. The Company is managing this risk through a combination of fixed-price agreements, staggered short-term contract maturities and commercial negotiations with its suppliers. The Company may also consider pursuing alternative commodities or alternative suppliers to mitigate this risk over a period of time. At this time, the Company does not intend to use financial instruments to mitigate this risk. The recent increases in certain commodity costs have negatively affected the Company’s operating results, and a continuation of such price increases could significantly affect its profitability.

21

Foreign Currency Exchange Risk

     The Company’s risks related to foreign currency exchange rates have historically not been material; however, given the current economic climate, the Company is monitoring this risk. The Company does not expect the effects of this risk to be material in the future based on the current operating and economic conditions in the countries in which it operates. Therefore, a 10.0% change in the value of the U.S. dollar would not significantly affect the Company’s results of operations, financial position or cash flows.

     There have been no material changes to the Company’s exposures to market risk since December 31, 2004, as reported in the Company’s 2004 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

     As of April 2, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer (CEO) and chief financial officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of April 2, 2005.

     There were no changes in the Company’s internal control over financial reporting during the quarter ended April 2, 2005 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     In the ordinary course of business, the Company is involved in various legal proceedings, workers’ compensation and product liability disputes. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of operations, cash flows or the financial position of the Company.

     On January 15, 2004, a judgment was entered against the Company in the District Court (365^th Judicial District) in Maverick County, Texas. The plaintiffs alleged in their complaint that a Company fuel valve installed as a replacement part on a truck caused a fire after an accident resulting in a death. The plaintiffs are the parents of the decedent. The judgment entered against the Company was approximately $36.5 million. The Company denied its fuel valve contributed to the fire and believed that there were valid grounds to reverse the judgment on appeal. An appellate hearing of this judgment was held during the first quarter of 2005. The Company has recently been advised that its legal counsel and the plaintiff’s counsel have entered into a written agreement dated April 11, 2005 to settle this litigation. The court of appeals has been advised to abate its decision while the parties finalize the necessary documentation. When the documentation is complete, the parties will request that the court of appeals remand to the trial court. The trial court will be presented with a proposed order agreed to by both parties to enter a final judgment. The settlement amount is covered by the Company’s insurance.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS

2.1	Stock purchase agreement by and between GE Capital Equity Holdings, Inc., 3i Group plc, 3i Europartners II LP, Roberto Poli and Alberto Bombonato (collectively, the sellers) and Stoneridge, Inc. (the purchaser) to purchase Vimercati S.p.A., filed herewith.
10.1	Summary of executive compensation, filed herewith.
31.1	Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2	Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
	Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2	Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused lthis report to be signed on its behalf by the undersigned thereunto duly authorized.

	STONERIDGE, INC.
Date: May 12, 2005	/s/ Gerald V. Pisani
	Gerald V. Pisani
	President and Chief Executive Officer (Principal Executive Officer)

Date: May 12, 2005	/s/ Joseph M. Mallak
	Joseph M. Mallak
	Vice President and Chief Financial Officer (Principal Financial and Chief Accounting Officer)

24

STONERIDGE, INC.

EXHIBIT INDEX

Exhibit
Number	Exhibit
2.1	Stock purchase agreement by and between GE Capital Equity Holdings, Inc., 3i Group plc, 3i Europartners II LP, Roberto Poli and Alberto Bombonato (collectively, the sellers) and Stoneridge, Inc. (the purchaser) to purchase Vimercati S.p.A., filed herewith.
10.1	Summary of executive compensation, filed herewith.
31.1	Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2	Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2	Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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EX-2.1

EXHIBIT 2.1

March 24, 2005

GE Capital Equity Holdings Inc.:
c/o GE Equity
30 Berkeley Square
London W1J 6EW
Attn.Sherwood Dodge

3i Group and 3i Europartners II:
c/o 3i SGR S.p.A.
Via Orefici, 2
20123 Milano

Attn. Edoardo Professione

Roberto Poli
Via Foppa, 11
20144 Milano

Alberto Bombonato
Via Federico Tesio, 23
20151 Milano

     Re: Stock Purchase Agreement

Dear Sirs:

     Following our discussions, we are pleased to submit to you our proposed text of the Stock Purchase Agreement, which reads as follows:

* * * * *

STOCK PURCHASE AGREEMENT
By and between

GE Capital Equity Holdings, Inc. (“GE”), a company organized and existing under the laws of the State of Delaware, United States of America, with its principal place of business at 120 Long Ridge Road, Stamford, Connecticut, 06927, United States of America;

3i Group plc, a company organized and existing under the laws of the United Kingdom, with registered offices in London, Waterloo Road, 91;

3i Europartners II LP, a company organized and existing under the laws of the United Kingdom, with registered offices in London, Waterloo Road, 91;

Roberto Poli, born in Fontaniva (PD) on May 21, 1943, residing in Milan, Via Foppa, 11;

Alberto Bombonato, born in Milan on May 20, 1941, residing in Milan, Via Federico Tesio, 23;

on the one side (collectively, the “Sellers”)

and

Stoneridge, Inc, an Ohio corporation, with head offices at 9400 East Market Street, Warren, Ohio (USA), on the other side (the “Purchaser”).

WHEREAS,

A

the Sellers are the holders and owners of record of an aggregate number of shares (“Sellers Shares”) representing 70% of the corporate capital of Vimercati S.p.A., a company incorporated and existing under the laws of Italy, with registered offices in Milan, Via Brera, 24/6, corporate capital Euro 7,800,000, operating in the field of manufacturing and sale of electrical components for cars (the “Company”), ;

B

in particular each Seller owns the following shareholding in the Company:

Shareholders		% corporate capital
GE		33%
3i Group		16%
3i Europartners II		16%
Roberto Poli		2.5%
Alberto Bombonato		2.5%
	Total:	70%

C	Aldo Bianchi Vimercati, an individual residing in Milan, Viale Regina Giovanna, 9 (“Vimercati”), is the owner and holder of record of an aggregate number of shares representing 30% of the corporate capital of the Company (the “Vimercati Shares”);
D	the Purchaser desires to buy all of the Sellers Shares and the Vimercati Shares representing, in the aggregate, 100% of the corporate capital of the Company (the “Stock”), and the Sellers are willing to sell the Seller Shares, and cause Vimercati to sell the Vimercati Shares, to the Purchaser, for the consideration and on the terms and conditions set out in this Agreement;

NOW, THEREFORE,

the Parties hereto agree as follows.

1.	RECITALS AND EXHIBITS
	The Recitals hereinabove and the Exhibits attached hereto shall form an integral and substantial part of this Agreement.
2.	DEFINITIONS

In every part of this Agreement, including Recitals and Exhibits, the terms listed below shall have the following meanings:

“2003 Financial Statements” shall mean the Company’s audited financial statements as of December 31, 2003, as provided by the Sellers to the Purchaser.

“Accounting Principles” shall mean the general accounting principles adopted by the Consigli Nazionali dell’Ordine dei Dottori Commercialisti and dei Ragionieri Italiani (and, in absence thereof, the international accounting principles IAS).

“Accounts Payable” shall have the meaning set out in Section 5.6.

“Adjustment Amount” shall have the meaning set out in Section 3.2(b).

“Adjustment Amount Objection Date” shall have the meaning set out in Section 3.2(c).

“Affiliate” shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the person specified.

“Aggregate Borrowings Amount” shall mean the aggregate amount of all Outstanding Borrowings.

“Agreement” shall mean this agreement, including its Recitals and the Exhibits.

“Applicable Rate” shall mean a rate per annum equal to the statutory interest (interesse legale) from time to time in effect.

“Arbitratore” shall have the meaning set out in Section 3.2(c).

“Business Day” shall mean any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in Milan (Italy), or Warren, Ohio (USA).

“Closing” shall mean the sale and purchase of the Stock and the consummation of the other transactions constituting the Closing under Section 4.2.

“Closing Date” shall mean the date on which the Closing takes place.

“Closing Date NFP” shall mean the NFP of the Company as at the Closing.

“Company” shall mean Vimercati S.p.A., as better identified in Recital “A” of this Agreement.

“Control” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.

“Damages” shall have the meaning set out in Section 6.2.

“Encumbrances” shall mean liens, pledges, mortgages, security interests, claims, and encumbrances of any kind, including any restriction on the use, voting, transfer, receipt of income, or other exercise of any attributes of ownership.

“Funds” shall mean, collectively, GE Capital Equity Holdings, Inc., 3i Group plc and 3i Europartners II LP, as better identified in the headings of this Agreement.

“Interim Balance Sheet” shall mean the Company’s balance sheet as of September 30, 2004, as provided by the Sellers to the Purchaser.

“Knowledge of the Sellers” shall mean the actual knowledge of any of the Sellers; provided, however, the knowledge of the Sellers who are also Managers shall mean the actual knowledge of Managers after due and careful investigation and inquiry.

“Lender” shall mean any of bank or other financial institution, including, without limitation, San Paolo IMI, Banco Mediocredito S.p.A., Credito Artigiano and Banco Popolare di Sondrio, that shall have outstanding indebtedness to the Company as at the Closing.

“Letter of Adherence” shall have the meaning set out in Section 7.1(k).

“Liquidated Damages” shall have the meaning set out in Section 9.2(a).

“Loan Agreement” shall mean each loan agreement currently in force between the Company and a Lender, as applicable.

“Managers” shall mean Mr. Aldo Bianchi Vimercati, Mr. Roberto Poli and Mr. Alberto Bombonato, as better identified in Recital “C” and in the headings of this Agreement, respectively.

“Net Financial Position” or “NFP” of the Company shall mean the algebraic sum (calculated in Euro) of the amounts (as at a specified date) of each of the following line items, each as defined by Article 2424 of the Italian Civil Code as currently in effect:

•   cash at bank and on hand (item C.IV of the assets): bank and postal deposits, cheques and cash;

•   current financial assets (item C.III.5 of the assets): other securities (item C.III.6 of the assets);

•   loans receivables (item B.III.2);

•   bonds (item D.1 of the liabilities and equity);

•   convertible bonds (item D.2 of the liabilities and equity);

•   bank borrowings (item D.4 of the liabilities and equity);

•   borrowings from other lenders (item D.5 of the liabilities and equity);

•   borrowings from shareholder (item D.3 of the liabilities and equity);

•   leasing debt (in compliance with IAS 17).

“Objection Date” shall have the meaning set out in Section 3.2(e).

“Ossona Net Proceeds” shall have the meaning set out in Section 7.2(d).

“Outstanding Borrowings” shall mean the outstanding aggregate amount of all borrowings (whether short-term or long-term) of the Company from a Lender under the relevant Loan Agreement as at the Closing.

“Parties” shall mean the Sellers and the Purchaser.

“Price” shall have the meaning set out in Section 3.2(a).

“Purchaser” shall mean Stoneridge, Inc.

“Purchaser Request” shall have the meaning set out in Section 9.2(a).

“Releasee” shall have the meaning set out in Section 10.1.

“SEC” shall have the meaning set out in Section 8.

“Sellers” shall have the meaning set out in the headings of this Agreement; it being agreed that, upon Vimercati’s execution and delivery of the Letter of Adherence in accordance to Section 7.1(k), the term “Sellers” shall include Vimercati, and Vimercati shall be a “Seller” for all purposes hereunder.

“Sellers Shares” shall have the meaning set out in Recital “A”.

“September 30 NFP” shall mean the NFP of the Company as at the close of business on September 30, 2004, which Sellers have represented to be equal to Euro 7,994,000.

“Stock” shall mean, collectively, the Sellers Shares and the Vimercati Shares, representing, in the aggregate, 100% of the corporate capital of the Company.

“Termination Date” shall have the meaning set out in Section 9.2(a).

“Third Party Claim” shall have the meaning set out in Section 6.5.

“Vimercati” shall have the meaning set out in Recital “C”.

“Vimercati Shares” shall have the meaning set out in Recital “C”.

3.   THE STOCK

3.1   Sale and Purchase

(a)	On the terms and conditions set forth in this Agreement, at the Closing, the Sellers shall sell and transfer the Sellers Shares, and shall cause Vimercati (pursuant to Article 1381 of the Italian Civil Code) to sell and transfer the Vimercati Shares, to the Purchaser, which shall purchase from the Sellers and Vimercati (as the case may be), all of the Stock and all related rights, free and clear from any Encumbrance.
(b)	The title to the Stock will be transferred at the Closing, by endorsement of the relevant share certificates in favor of the Purchaser and delivery of the same to the Purchaser. It is understood that the Closing formalities, although finalizing the transaction contemplated herein, will not supersede or imply novation of this Agreement. In particular, all clauses of this Agreement providing for any obligation to be performed after the Closing shall survive such date and shall remain in full force and effect thereafter in accordance with their respective terms, without necessity for any of the Parties to reiterate or otherwise confirm their commitment with respect thereto.
(c)	The Parties understand and agree that the Purchaser may in its sole discretion assign its rights and obligations to a subsidiary of the Purchaser by providing written notice to the Sellers, reasonably prior to the Closing, of the name of such subsidiary. If the Purchaser elects to assign this Agreement to a subsidiary, the Purchaser hereby guarantees the performance of such subsidiary and agrees that the Purchaser shall remain liable hereunder.

3.2   Price and Payment

(a)

In consideration for the transfer of the Stock, at the Closing, the Purchaser shall pay to the Sellers and Vimercati the aggregate amount of €.24,900,000 (twenty-four million nine hundred thousand euro), minus (i) the Aggregate Borrowings Amount and (ii) leasing debt (determined in compliance with IAS 17), plus (i) cash at bank and on hand and (ii) other securities not to exceed €.500,000 (five hundred thousand euro) (the “Price”), which shall be subject to adjustment after the Closing based upon (i) the Adjustment Amount (as defined in Section 3.2(b)) (which may be a positive or negative number) and (ii) the NFP as at the Closing (which may only be downward) pursuant to Sections 3.2(d) and (e); provided, however, the Price shall not be increased by the amount of “other securities” if in advance of the Closing the Purchaser has not been provided documentation by the Sellers, acceptable to the Purchaser in its sole discretion, that the other securities were acquired by the Company in 2005 with cash that would have otherwise been on hand at the Closing.

(b)

If within 45 days after the Closing Date, the Purchaser determines that any of the amounts (i.e., the Aggregate Borrowings Amount, leasing debt amount and/or cash amount) used to calculate the Price were not accurate as of the Closing, then the Price shall be adjusted (either upward or downward) by the aggregate amount of the difference (the “Adjustment Amount”). The Purchaser shall deliver a written notice to the Sellers no later than 45 days after the Closing Date setting forth its calculation of the Adjustment Amount. If the Purchaser determines that the total of the Aggregate Borrowings Amount and the leasing debt amount used to calculate the Price is less than the actual total of those amounts as at the Closing, then the Purchaser shall pay the Sellers the amount of the difference. If greater, the Sellers shall pay the Purchaser the amount of the difference. Similarly, if the Purchaser determines that the cash used to calculate the Price is greater than the actual amount of cash as at the Closing, then the Sellers shall pay the Purchaser

	the amount of the difference. If less, the Purchaser shall pay the Sellers the amount of the difference. Such payment, which shall be net of the amount of the differences described above, shall be made by wire transfer in immediately available funds, either by the Purchaser or the Sellers, as the case may be, within 5 Business Days of the Purchaser’s delivery to the Sellers of the calculation of the Adjustment Amount.
(c)	If the Sellers (as a group) reasonably dispute the Adjustment Amount the Sellers may object in writing to the Adjustment Amount. Such objection notice shall be made prior to the required payment set forth in Section 3.2(b) (the “Adjustment Amount Objection Date”). The objection notice shall be signed by each Seller and contain reasonable detail relating to which part or parts of the Adjustment Amount to which the Sellers object to. If the Sellers do not object on or before the Adjustment Amount Objection Date then the Adjustment Amount provided to the Sellers by the Purchaser shall be final and binding on the Parties. If the Sellers timely object, the post-Closing payment required by Section 3.2(b) shall be delayed and the Purchaser and the Sellers shall immediately attempt to agree upon the amount of the Adjustment Amount. If the Purchaser and the Sellers fail to reach agreement within 10 Business Days after the Seller’s objection, then the Purchaser (on the one hand) and the Sellers (on the other hand) shall each place in a separate sealed envelope a final proposal as to an appropriate amount of the Adjustment Amount and supporting materials therefor, and the final determination thereof shall be submitted to a primary auditing firm of international standing independent of both the Sellers and the Purchaser to be agreed by the Parties within 10 Business Days of receipt by one Party of the other Party’s request to proceed with the joint appointment of the firm or, in the absence of the Parties’ joint determination within that term, to be nominated on the application of either of them by the Chairman of Assirevi (Associazione Italiana dei Revisori Contabili). Such firm shall act equitably (con equo apprezzamento) as an arbitrator (arbitratore) pursuant to Article 1349, first paragraph, of the Italian Civil Code (the “Arbitratore”). The Arbitratore shall be instructed by the Parties to resolve the dispute within 15 Business Days from its submission to the Arbitratore, which will determine the Adjustment Amount, and such determination, which shall be contained in a written document to be delivered to the Sellers and the Purchaser, shall be conclusive, final and binding upon them. The Arbitratore shall determine which Party shall be responsible for the payment of the Arbitratore’s fees and expenses, based on the position respectively taken by each Parties as compared to the Arbitratore’s final decision. The post-Closing payment related to the Adjustment Amount shall be made by the Sellers five Business Days following the Arbitratore’s decision or the Parties’ agreement with respect to the Adjustment Amount.
(d)	If the Closing Date NFP communicated in writing by the Purchaser to the Sellers on or before the 45th day after the Closing Date is less than (worse for the Company) the September 30 NFP then the Sellers shall promptly pay the Purchaser the difference between the September 30 NFP and the Closing Date NFP. This post-Closing payment obligation shall be satisfied by the Sellers making payment by wire transfer of immediately available fund into such bank account of the Purchaser as shall be notified to the Sellers in the written notice of the Closing Date NFP. The Sellers shall make such payment no later than five Business Days following the Purchaser’s written communication of the Closing Date NFP to the Sellers.
(e)	If the Sellers (as a group) reasonably dispute the Closing Date NFP the Sellers may object in writing to the Closing Date NFP. Such objection notice shall be made prior to the required payment set forth in Section 3.2(e) (the “Objection Date”). The objection notice shall be signed by each Seller and contain reasonable detail relating to which part or parts of the Closing Date NFP to which the Sellers object to. If the Sellers do not object on or before the Objection Date then the Closing Date NFP shall be final and binding on the Parties. If the Sellers timely object, the post-Closing payment required by Section 3.2(e) shall be delayed and the Purchaser and the Sellers shall immediately attempt to agree upon the amount of the Closing Date NFP. If the Purchaser and the Sellers fail to reach agreement within 10 Business Days after the Seller’s objection, then the Purchaser (on the one hand) and the Sellers (on the other hand) shall each place in a separate sealed envelope a final proposal as to an appropriate amount of the Closing Date NFP and supporting materials therefor, and the final determination thereof shall be submitted to a

primary auditing firm of international standing independent of both the Sellers and the Purchaser to be agreed by the Parties within 10 Business Days of receipt by one Party of the other Party’s request to proceed with the joint appointment of the firm or, in the absence of the Parties’ joint determination within that term, to be nominated on the application of either of them by the Chairman of Assirevi (Associazione Italiana dei Revisori Contabili). Such firm shall act equitably (con equo apprezzamento) as an arbitrator (arbitratore) pursuant to Article 1349, first paragraph, of the Italian Civil Code. The Arbitratore shall be instructed by the Parties to resolve the dispute within 15 Business Days from its submission to the Arbitratore, which will determine the Closing Date NFP, and such determination, which shall be contained in a written document to be delivered to the Sellers and the Purchaser, shall be conclusive, final and binding upon them. The Arbitratore shall determine which Party shall be responsible for the payment of the Arbitratore’s fees and expenses, based on the position respectively taken by each Parties as compared to the Arbitratore’s final decision. The post-Closing payment related to the Closing Date NFP shall be made by the Sellers five Business Days following the Arbitratore’s decision or the Parties’ agreement with respect to the Closing Date NFP.

(f)

It is acknowledged that in consideration for the sale of their respective shares of the Stock, each of the Sellers and Vimercati shall receive a proportional part of the Price as follows:

Shareholder		Transferred Stake
GE		33%
3i Group		16%
3i Europartners II LP		16%
Roberto Poli		2.5%
Alberto Bombonato		2.5%
Aldo Bianchi Vimercati		30%
	Total:	100%

4.	CLOSING
4.1	Conditions Precedent

The obligation of the Purchaser to proceed with the Closing is subject to the conditions that:

(a)	except for the Aggregate Borrowings Amount, as at the Closing the Company does not have any outstanding indebtedness to banks or other financial institutions;
(b)	the Sellers’ representations and warranties are true and correct in all material respects at and as of the Closing Date;
(c)	the Sellers have performed and complied in all material respects with their covenants set forth in Section 7.1(a), (c), (f), (g), and (h);
(d)	no governmental authority or body has commenced any litigation or proceeding on or prior to the Closing wherein an unfavorable outcome in such litigation or proceeding could prevent the consummation of the transactions contemplated by this Agreement;
(e)	there has not been any material adverse change in the business, operations, assets, prospects, or financial position of the Company since the date of the Interim Balance Sheet;
(f)	the Purchaser has completed to its satisfaction the due diligence relating to the Company’s customers such that the consummation of the transactions contemplated by this Agreement does not result in a material adverse change in the Company’s relationship with any of the Company’s four largest customers in 2004;

(g)	the Purchaser has completed to its satisfaction the environmental due diligence relating to the Company’s manufacturing facility such that there does not exist any environmental liability, contamination or exposure that could have a material adverse effect on the Company’s financial position, business, properties, or operating results;
(h)	all third-party consents, if any, with respect to the Company’s material agreements or contacts listed on Exhibit 5.13, have been received, satisfied or waived;
(i)	at least five Business days prior to the Closing, the Sellers have caused each Lender to deliver the Purchaser a statement setting out such Lender’s Outstanding Borrowings;
(j)	at least five Business Days prior to the Closing, the Sellers have delivered to the Purchaser, for purposes of calculating the Price, the Sellers’ estimate of the amount of leasing debt (determined compliance with IAS 17) and (i) cash at bank and on hand and (ii) other securities as at the Closing;
(k)	Roberto Poli has executed and delivered to the Company a Retention, Non-Compete and Confidentiality Agreement, substantially in the form attached hereto as Exhibit 4.1(k);
(l)	Vimercati has executed and delivered the Letter of Adherence to the Purchaser and the Sellers;
(m)	no shareholder of the Company has exercised his or its preemptive rights to acquire any equity of the Company owned by any other shareholder of the Company;
(n)	no shareholder of the Company has commenced or threatened any litigation the effect of which can prevent, delay or reverse the consummation of the transactions contemplated hereby.

The Purchaser may waive any condition in this Section if it executes a writing so stating. Solely for purposes of this Section 4.1, each condition precedent subject to a materiality qualification shall be deemed to have been satisfied unless the aggregate effect of any non-compliance with the conditions subject to materiality qualifications is equal to or greater than €.1,000,000 (one million euro). The parties agree, however, that, if the Closing occurs as an effect of the operation of the provisions in the immediately preceding sentence, despite the non-compliance with Closing conditions subject to materiality qualifications, the Purchaser shall be entitled to indemnification from the Sellers, subject to the limitations set forth in Section 6.3, for the aggregate euro amount of Damages arising out of, or in connection with, such non-compliance.

The obligation of the Sellers to proceed with the Closing is subject solely to the conditions set forth above in Section 4.1(d) and Section 4.1(e).

4.2   The Closing

Provided each of the conditions to the Purchaser’s obligation to proceed with Closing set forth in Section 4.1 has been satisfied or waived, the Closing shall take place on the fifth Business Day after each of the conditions set forth in Section 4.1 have been satisfied or waived, in Milan, Italy, or such other time or place agreed upon by the Parties.

At the Closing, the following shall occur:

(a)	each of the Sellers shall, and shall cause Vimercati to, (x) endorse their respective shares of the Stock in favor of the Purchaser, (y) deliver such shares to the Purchaser and (z) cause a director of the Company to record the transfer of the Stock on the stock ledger of the Company;
(b)	the Sellers shall cause the Company to make available to the Purchaser all books of account, minute books, stock ledger, and all other records of the Company;

(c)	the Purchaser shall pay the Price to the each of the Sellers and Vimercati by wire transfer into such bank accounts as shall be notified to the Purchaser by the Sellers reasonably prior to the Closing;
(d)	the Sellers shall deliver to the Purchaser the documents referred to in Section 4.1;
(e)	the Sellers shall deliver to the Purchaser executed letters from each member of the Board of Directors and the Board of Auditors of the Company whereby each such member resigns from his/her respective position on the Board and waives any compensation except for already accrued fees; and
(f)	a shareholders’ meeting of the Company shall be held in order to appoint the new Board of Directors and Board of Auditors of the Company.

The Parties agree that the Closing shall not be considered as completed unless all the above activities are duly fulfilled.

5.   REPRESENTATIONS AND WARRANTIES

Each of the Sellers severally represents and warrants the matters set forth in this Section 5 with respect to the Company and the other issues contemplated hereunder. The representations and warranties of the Sellers contained in this Section 5 constitute a unilateral, autonomous and independent guarantee commitment for all legal purposes assumed by the Sellers to the Purchaser in connection with the transactions contemplated by this Agreement.

The Sellers acknowledge that, in connection with the purchase and sale of the Stock and all other transactions contemplated herein, the Purchaser is relying upon each of the representations and warranties of the Sellers in this Section 5 and the Purchaser acknowledges, as of the date hereof, that the Purchaser is not aware of any event, circumstance or condition that would constitute a breach by the Sellers of their representations and warranties set forth in this Section 5.

5.1   Organization and Good Standing

The Company is duly organized, validly existing and in good standing under Italian law.

The accounting records of the Company, as well as its company books, are accurate and complete and comply with Italian law. The Sellers have delivered to the Purchaser accurate and complete copies of the Company’s articles of incorporation and by-laws.

All of the Company’s offices and facilities are located in Italy.

The Company owns all permits, registrations, certificates, licenses, and other similar authorizations which are necessary to its activity as presently conducted. The Company has full power and authority to carry on the business in which it is engaged and to own and use its properties owned and used.

The Company does not own or hold, directly or indirectly, any equity interest in any company, partnership or similar entity, except for a participation equal to 30% of the corporate capital of the Spanish company Previnsa S.A., with registered offices in Madrid, Calle Pérex Ayuso, 16, Spain.

5.2   Capitalization

The Stock is validly issued and represents 100% of the corporate capital of the Company. There are no outstanding subscriptions, options, warranties, rights, convertible securities, or other securities contemplating the purchase, issue or sale of any portion of the capital stock or any equity security of the Company.

Each of the Sellers and Vimercati holds full, valid, legal and beneficial title to their respective shares of the Stock and all of the Stock is free and clear of any Encumbrances.

5.3   Authority

Each of the Sellers and Vimercati have full authority and capacity to act, execute and perform this Agreement and the transactions contemplated hereby.

This Agreement has been duly executed and delivered by each Seller and constitutes the legal, valid and binding obligation of each Seller enforceable against him or it, as applicable, in accordance with the terms of this Agreement.

The Letter of Adherence has been duly executed and delivered by Vimercati and has the effect of validly making Vimercati a Party to this Agreement, which constitutes the legal, valid and binding obligation of Vimercati enforceable against him in accordance with the terms of this Agreement.

Neither the execution and delivery of the Agreement, nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice of lapse of time) (i) contravene, conflict with, or violate any constitution, statute, regulation, rule, injunction, judgment, order, or other governmental restriction to which the Company or the Sellers are subject or (ii) except as disclosed in Exhibit 5.3, contravene, conflict with, violate, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, or cancel, or require any notice under any agreement, contact, lease, license, permit, authorization, or instrument to which the Company is a party or to which the Company’s assets are subject.

5.4   Assets

The Company can validly use (as owner or lessee) all the assets necessary for its activity, as currently operated, free from any Encumbrance. The Company has good title to, or a valid leasehold interest, free from any Encumbrance, in all material, tangible, personal property assets used in the conduct of its business, including all fixtures, furniture, equipment, machinery, and leasehold improvements. Such assets of the Company are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. The assets of the Company are sufficient for the continued conduct of the Company’s businesses after the Closing in substantially the same manner as conducted prior to the Closing.

5.5   Inventory

The Company’s inventory as reflected on the Interim Balance Sheet is valued at the lower of cost or market value on a basis consistent with past practice.

The Company has full and exclusive ownership of its inventory free from any Encumbrance except for customary retention of title clauses in favor of suppliers. The Company permits some of its customers to store products/items in the Company’s warehouse and such products/items are not owned by the Company.

The inventory is of marketable quality and saleable in the ordinary course of business.

Reserves have been established on the Company’s books of account and Interim Balance Sheet with respect to obsolete and slow-moving inventory in accordance with Accounting Principles.

5.6   Receivables; Payables; Borrowings

The Company’s receivables are valid and existing, properly reflected on the Interim Balance Sheet and result from the ordinary course of business. They are subject to no known offsets, counterclaims, defenses of any kind, returns, allowances, or credits. Reserves required by Accounting Principles have been established on the Company’s books of account with respect to uncollectible receivables. The Company’s accounts payable have been incurred in the ordinary course of business and include accruals for severance indemnity and other employees’ entitlements as well as accruals for taxes, social security (the “Accounts Payable”). There have been no changes outside of the ordinary course of business in the Company’s accounts receivable or accounts payable since the date of the Interim Balance Sheet. As and at the Closing, other than the Aggregate Borrowings Amount and the Accounts Payable, the Company will have no indebtedness to any Seller or third party.

5.7   Industrial and Intellectual Property Rights

The Company owns and possesses the right to use, free and clear of all liens, charges, Encumbrances or other claims, the trademark, trade names, patents, trade secrets, and know-how necessary for the operation of its business as presently conducted and listed on Exhibit 5.7. The manufacture and sale of the Company’s products, as presently conducted, does not result in an infringement of any intellectual property owned by a third party. There exist no facts which would invalidate the intellectual property listed in Exhibit 5.7. No proceedings are pending or threatened which challenge the validity or the ownership by the Company of the intellectual property used in the Company’s business or listed on Exhibit 5.7.

5.8   Financial Statements

The 2003 Financial Statements, which are attached hereto as Exhibit 5.8(a) have been prepared from the Company’s books and in accordance with the Accounting Principles and have also been prepared in accordance with Italian law, on a consistent basis to meet applicable legal requirements, interpreted and integrated by correct accounting principles, and are true, complete and exact and represent a true and correct view of the assets and liabilities (situazione patrimoniale), financial position (situazione finanziaria) and results of the operations (risultato economico) of the Company as of December 31, 2003.

Except for the evaluation of the inventory (based solely on a reasonable and customary accounting method, without physical count) the Interim Balance Sheet, which is attached hereto as Exhibit 5.8(b), has been drafted by consistently applying the same rules and principles used for the 2003 Financial Statements and represents a true, complete and correct view of the assets and liabilities (situazione patrimoniale), financial position (situazione finanziaria) and results of the operations (risultato economico) of the Company as of September 30, 2004. The Company does not have any material liability or obligation of any nature except those set forth or reflected in (i) this Agreement or Exhibits hereto or (ii) the Interim Balance Sheet or those incurred in the ordinary course of business since the date of the Interim Balance Sheet.

5.9   Absence of Changes

Except for the events listed in Exhibit 5.9, during the period from October 1, 2004, through the Closing, the Company (i) has conducted its business in the ordinary course, without material adverse changes in its liabilities and financial position; (ii) has not made any material change in its accounting principles or practices or its methods of application of such principles or practices; (iii) has not made any sale, lease or other disposition of, or any agreement to sell or lease, any of the material properties or assets of the Company; and (iv) has not made any declaration of, or any payment of, any dividend in respect to the Stock.

5.10   Employees

Except for the employees regularly hired by the Company and reflected on the Company’s books, no other individual (external counsel or else) is entitled to claim the position of employee of the Company.

The Company has duly paid or adequately reserved for all payments (i) due for salaries, commissions, severance indemnity (and any other similar entitlement depending on termination of the employment), social security and taxes and bonuses or (ii) due in connection with any other employee benefit or employee retirement plan.

No event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by the Company, and no such action is contemplated by the Company. The Company has complied in all respects with all legal requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours and overtime work, benefits, holidays, paid permits and leaves, collective bargaining, mandatory hiring, the payment of social security and similar taxes, and occupational safety and health. The Company is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing legal requirements. The Company has no liabilities or obligations for the employees of Menzaghi S.p.A. and no grounds exist for the assertion of any such liability or obligation.

The Company is in compliance with all applicable laws and regulations concerning labor, employment and employment practices, wages and social security.

5.11   Agents

Exhibit 5.11 contains a full and complete list of the Company’s agents. With respect to such agents and except as otherwise disclosed in such Exhibit:

(a)	the Company has paid or adequately reserved for all payments due for commissions, bonuses, social security and taxes;
(b)	the Company is in compliance with all laws and regulations applicable to the relevant relationships.
(c)	The Purchaser acknowledges that the Company has made no reserve with respect to the termination indemnity provided for by Article 1751 of the Italian Civil Code or by similar law provisions of other countries.

5.12   Owned and Leased Property

(a)

Owned Real Property. Exhibit 5.12(a) lists all real property owned by the Company as of the date of this Agreement. With respect to each such parcel of owned real property, the Company has good, valid and marketable title to the parcel of real property, free and clear of any Encumbrance, security interest, easement, covenant or other restriction, except recorded easements, covenants, and other restrictions which do not materially and adversely impair the current use or occupancy of the subject property, and zoning and building restrictions. There are no pending or threatened condemnation proceedings, lawsuits or administrative actions relating to the property or similar matters materially and adversely affecting the current use or occupancy thereof. There are no leases, subleases, licenses, concessions or other agreements granting to any party or parties the right of use or occupancy of any portion of the subject property and there are no outstanding options or rights of first refusal to purchase the subject property, or any portion thereof or interest therein.

(b)

Leased Real Property. Exhibit 5.12(b) lists all real property leased or subleased to or by the Company and the leases or subleases in respect thereof. Sellers have delivered to the Purchaser true and correct copies of the leases and subleases listed in Exhibit 5.12(b). Each

lease and sublease listed in Exhibit 5.12(b) is legal, valid, binding, enforceable and in full force and effect. With respect to each lease and sublease listed in Exhibit 5.12(b) except as described in Exhibit 5.12(b): (i) no party to the lease or sublease is in material breach or default, and no event has occurred which, with notice or lapse of time, would constitute a material breach or default or permit termination, material modification or acceleration thereunder; (ii) no party to the lease or sublease has repudiated any material provision thereof, and there are no material disputes, oral agreements or forbearance programs in effect as to the lease or sublease; and (iii) the Company has not assigned, transferred, conveyed, mortgaged or encumbered its interest in the leasehold or subleasehold.

5.13   Agreements

Part 1 of Exhibit 5.13 contains a complete list of the following agreements to which the Company is a party:

•   agreements having a duration of one year or more and which cannot be terminated at any time by a 30-day notice or less;

•   any deferred compensation, severance or other plan or arrangement for the benefit of its current officers, directors or employees, except for those duly provided for in the Company’s books of account pursuant to mandatory provisions of Italian law;

•   any agreement under which the Company has advanced or loaned money to directors, officer or employees;

•   any agreement restricting the right of the Company to do business anywhere in the world;

•   agreements with trade unions and/or their representatives, i.e., works councils (rappresentanze sindacali unitarie (RSU) or rappresentanze sindacali aziendali (RSA));

•   all insurance policies;

•   agreements outside of the ordinary course of business, which imply an annual disbursement by the Company of more than €.100,000 (one hundred thousand euro) or which imply an annual receipt by the Company of more than €.100,000 (one hundred thousand euro).

The Sellers have delivered to the Purchaser a true, correct and complete copy of each agreement listed in Exhibit 5.13. With respect to each such agreement, except as otherwise disclosed Exhibit 5.13, (i) each is enforceable, (ii) no party thereto is in material breach or default, (iii) no event has occurred which, with notice or lapse of time would constitute a material breach or default, or permit termination, material modification or acceleration under the agreement. Further, neither the Closing nor the Purchaser’s ownership of the Company will constitute a material breach or default, or permit termination, material modification or acceleration under the agreement.

5.14   Insurances

All insurance policies of the Company have been regularly paid and are in full force and effect. All such policies have been issued by financially sound, solvent and reputable insurers, unaffiliated with the Company, and are in such amounts and against such risks as is customary of companies in the Company’s line of business. The Company will renew or replace with substantially similar coverage all insurance policies that are scheduled to expire prior to the Closing. Exhibit 5.14 includes a summary of coverage and limits compared to insurable values for all insurance polices. Except as disclosed on Exhibit 5.14, no claim regarding insurance issues is pending and, to the knowledge of the Sellers, there are no circumstances which are likely to give rise to such claims. The Company has not received any notice from any of its insurers of any pending change in coverage, termination thereof, or reservation of rights.

5.15   Compliance with Laws

The Company carries out and has carried out its activities without any breach or violation of any applicable law or regulation.

5.16   Taxes

The Company has paid, or caused to be paid, or adequately reserved for, all applicable taxes, including penalties, if any. All applicable taxes have been paid by both parties in connection with the October 1997 merger between the Company and Progetto 7.

The Company has duly filed, or cause to be filed in a timely manner, all reports or returns relating to or covering any such taxes in respect of any fiscal period.

5.17   Product Liability and Recalls, Product Warranty

Except as disclosed on Exhibit 5.17, there is no (i) claim, action, suit, inquiry or proceeding by or before any court or other governmental authority pending, or (ii) to the knowledge of the Sellers, any such claim, action, suit, inquiry or proceeding or governmental investigation threatened, against the Company, relating to any product alleged to have been designed, manufactured or sold by the Company and alleged to have been defective or improperly designed or manufactured or for which there has been inadequate or improper warnings or labels. To the knowledge of the Sellers there is no pending or threatened government-mandated or manufacturer recall of any product sold by the Company and each product manufactured, sold, leased or delivered by the Company has been in material conformity with all contractual commitments and all express and implied warranties.

5.18   Environmental

The Company, and the facilities related to the Company, fully comply with applicable environmental regulations including, without limitation, the provisions relating to: (i) soil and subsoil contamination, (ii) waste disposal, (iii) wastewater and water supplies, (iv) air pollution and noise reduction, and (v) use or existence of polluting substances and dangerous materials (asbestos, radon etc.).

The Company, and the facilities related to the Company, are managed in compliance with applicable environmental laws and regulations related to the emission, spillage and leakage of polluting materials, waste and waste water and to the production, transformation, distribution, use, treatment, transport and disposal of polluting materials, waste and waste water.

No Seller has any basis to expect, nor has any of them or the Company received, any actual or threatened order, notice, or other communication from (i) any governmental or public body or private person or entity acting in the public interest, or (ii) the current or prior owner or operator of any facilities, of any actual or potential violation or failure to comply with any environmental law, or of any actual or threatened obligation to undertake or bear the cost of any environmental liabilities with respect to any of the Company’s facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has had an interest, or with respect to any property or facility at or to which hazardous materials were generated, manufactured, refined, transferred, imported, used, or processed by the Company. There are no pending or, to the knowledge of the Sellers, threatened claims, Encumbrances, or other restrictions of any nature, resulting from any environmental law, with respect to or affecting any of the Company’s assets.

There has been no environmental investigation, study, audit, test, review or other analysis conducted in relation to any real property of the Company, any facility formerly owned operated or leased by the Company, or any facility to which the Company has sent any hazardous materials, which has not been provided or made available to the Purchaser as of the date of this Agreement.

5.19   Litigation

Except as disclosed in Exhibit 5.19, there are no actions, suits, proceedings or investigations pending or threatened against or affecting the business or properties of the Company before or by any domestic or foreign authority, either public or private (including tax authorities, environmental authorities, labor offices, arbitration panels, etc.). To the knowledge of the Sellers, except as disclosed in Exhibit 5.19, no grounds exist that may give rise to such actions, suits, proceedings or investigation.

5.20   Absence of Unfavorable Effects

Except as disclosed in Exhibit 5.20, neither the execution of this Agreement nor the consummation of the transactions set forth herein has or will have the effect of enabling any party, according to the agreements in force between the Company and such party, to accelerate the maturity dates or to withdraw from or to terminate any such agreements.

5.21   Guarantees in Favor of Third Parties

The Company has not assumed, guaranteed, endorsed or otherwise become liable on any indebtedness of any third party.

5.22   Customers

Except as disclosed in Exhibit 5.22, none of the Company’s largest four customers in 2004, which together represent more than 80% of the Company’s 2004 revenue, has given notice to the Company or to any individual Seller that any material contract or agreement or orders will be terminated or cancelled prior to their expiration date or that it intends to end its relationship with the Company if there is a change in the ownership or control of the Company or if the Company is acquired by the Purchaser. Other than the Company’s largest four customers in 2004 no other customer of the Company in 2004 represented 2% or more of the Company’s 2004 revenues.

5.23   Certain Business Relationships with the Company

Except for the Company’s lease of office space in Milan, Italy from the father of one of the Managers, no Seller or any person controlled by such Seller has been involved in any material business relationship or arrangement with the Company within the past 12 months or any subsidiary of the Company and no Seller owns, directly or indirectly, any asset, tangible or intangible, which is used in the business of the Company. Such office lease is no less favorable to the Company than the Company could obtain in a comparable arm’s-length transaction with an independent third-party lessor.

5.24   Seller Claims

As of the Closing, none of Seller or Vimercati has any claim, demand, cause of action or right, contractual or otherwise, known or unknown, at law or in equity, against the Company that arose on or prior to the Closing or on account of or arising out of any matter, cause or event occurring prior to Closing, including rights to indemnification or reimbursement, other than (i) claims arising under, out of, or resulting from the participation of a Seller or Vimercati (as applicable) in an employee benefit plan or (ii) the payment of current compensation and the reimbursement of reasonable business expenses incurred by a Seller or Vimercati (as applicable) through the Closing, to the extent incurred in the ordinary course of business.

5.25   Corporate Documents

The books of account, the minute books and other records of the Company provided to or made available to the Purchaser or its professional advisors have been maintained in accordance with sound business practices. The Company’s minutes books contain minutes of all meetings of directors, statutory auditors (sindaci) and shareholders since the date of incorporation and reflects all actions by the directors (and any committee of directors), statutory auditors (sindaci) and shareholders with respect to all transactions referred to in such minutes accurately in all material respects. At the Closing, all of those books and records will be in the possession of the Company.

5.26   Full Disclosure

No representation or warranty of the Sellers contained in this Agreement and the Exhibits attached hereto contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were or will be made.

6.	SURVIVAL – INDEMNIFICATION
6.1	Survival of Representation and Warranties

The respective indemnification rights and obligations of the Parties for breach of the representations or warranties contained in Section 5 shall remain in full force and effect for a period of 20 months from the Closing Date.

In any event, it is understood that in case a claim related to any representation and warranty is filed before the corresponding expiration date, or should a controversy arise between the Parties before such date, the expiration date of such representation or warranty shall be postponed until the final disposition of the claim (i.e., waiver of the claim or settlement of the claim or final and binding decision thereupon).

6.2   Indemnification

Each of the Sellers shall indemnify, defend, and hold the Purchaser harmless from and against any actions, suits, proceedings, investigation, charges, complaints, demands, claims, judgments, orders, decrees, rulings, damages, penalties, fines, amounts paid in settlement, liabilities, losses, costs and fees and expenses, including reasonable attorneys’ fees and expenses (the “Damages”) arising out of, or in any way based upon, or in connection with:

•   any errors in the Sellers’ estimate of the Aggregate Borrowings Amount provided pursuant to Section 4.1(j);

•   the non-existence or the even partial existence, of assets as shown in the Interim Balance Sheet;

•   any liability not reflected in the Interim Balance Sheet and finding its origin or cause in acts, omissions, events or circumstances which have taken place on or before the Closing Date;

•   any actual or alleged noncompliance with, or violation of, any environmental law or regulation by the Company on or prior to the Closing Date; and

•   the breach of any representation or warranty of the Sellers contained in Section 5, or any misrepresentation or omission contained in this Agreement or breach of any other representation, warranty or pre-closing covenant rendered by the Sellers under this Agreement.

The liability of the Sellers under this Section 6.2 shall be several and not joint. Therefore, each of the Sellers shall be liable vis-à-vis the Purchaser in proportion to the transferred shareholding as indicated in Section 3.2(f). In any event, the liability of the Sellers shall be subject to the limitations set out in Section 6.3.

6.3   Limitations of Liability

Without prejudice to Article 1229 of the Italian Civil Code and except in the case of fraud or willful concealment on the part of any of the Sellers, the liability and indemnity obligations of the Sellers under the preceding Section 6.2 shall be subject to the following limitations:

(a)	no liability or indemnity obligations shall arise unless and until the aggregate of Damages exceeds the amount of €.200,000 (two hundred thousand euro), it being agreed that, when such threshold is met, the Sellers shall be liable only for the excess;
(b)	the liability and indemnity obligations of the Sellers shall be limited to a maximum aggregate cap equal to €.3,500,000 (three million five hundred thousand euro). Therefore, the liability of each of the Sellers (including Vimercati) shall be subject to the following individual cap:

Shareholder		Cap (euro)
GE			1,155,000
3i Group + 3i Europartners II			1,120,000
Roberto Poli			87,500
Alberto Bombonato			87,500
Aldo Bianchi Vimercati			1,050,000
	TOTAL:		3,500,000

(c)   the indemnities payable to the Purchaser shall be equal to the amount of Damages reduced by (i) any benefit obtained by the Company as a consequence of the Damage (tax savings, insurance indemnities, etc.) and (ii) the amount of any decrease in the liabilities or increase in the assets of the Company occurring after the Closing but finding its origin on or prior thereto (including the Ossona Net Proceeds).

The Parties further agree that:

•   no liability or indemnity obligation shall arise for events disclosed in this Agreement, including those disclosed in the Exhibits;

•   the right to indemnification of the Purchaser under Section 6.2 will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the date of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of any representation and warranty of the Sellers contained in this Agreement. The waiver by the Purchaser of any condition based on the accuracy of any representation or warranty of the Sellers will not affect the right to indemnification of the Purchaser based on such representations and warranties of the Sellers under this Agreement;

•   following the Closing, none of Sellers shall have any right of indemnity, contribution or reimbursement from the Company with respect to any indemnification payments required to be made by any Seller under Section 6 for breaches of representations and warranties or covenants set forth in this Agreement; and

•   the limitations contained in this Section 6.3 shall not apply to breaches or misrepresentations of the Sellers contained in Section 10.1.

6.4 Assessment of Damages

In presence of events giving rise to the Sellers’ indemnity obligations under Section 6.2, the following procedure shall apply:

•   the Purchaser shall deliver by registered letter, return receipt requested, a written request to the Sellers indicating both the estimated indemnity amount and the reasonable details of the claim;

•   within the following 35 days, the Sellers shall notify the Purchaser in writing of any possible opposition;

•   within 20 days after receipt by the Purchaser of the Sellers’ opposition, if any, the Parties shall use all reasonable efforts to try to reach an amicable settlement. Upon expiry of such 20 day term, each Party shall be entitled to submit the matter to arbitration pursuant to Section 11.2.

6.5   Third Party Claims

The Purchaser shall give prompt written notice to the Sellers of any pending or threatened claim or demand by a third party that the Purchaser has determined has given or could give rise to a right of indemnification hereunder (each a “Third Party Claim”), describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim or demand; provided, however, that the failure to provide such notice shall not release the Sellers from any of its obligations under Section 6 except to the extent the Purchaser is materially prejudiced by such failure, it being understood that notices for claims in respect of a breach of a representation or warranty must be delivered prior to the expiration of the applicable survival period specified in Section 6.1 for such representation or warranty.

The Sellers shall have the right, but not the obligation, to direct, through counsel of its own choosing, which counsel shall be reasonably satisfactory to the Purchaser, the defense or settlement of any Third Party Claim the subject of indemnification hereunder at its own expense. If the Sellers elect to assume the defense of any such Third Party Claim, the Purchaser may participate in such defense, but in such case the expenses of the Purchaser shall be paid by the Purchaser. The Purchaser shall provide the Sellers with reasonable access to its records and personnel relating to any such claim, assertion, event or proceeding during normal business hours and shall otherwise cooperate with the Sellers in the defense or settlement thereof, and the Sellers shall reimburse the Purchaser for all its reasonable out-of-pocket expenses in connection therewith.

If the Sellers shall fail to undertake any such defense, the Purchaser shall have the right to undertake the defense or settlement thereof, at the Sellers’ expense. Whether or not the Sellers shall have assumed the defense of a Third Party Claim, the Purchaser shall not admit any liability with respect thereto, or settle, compromise or discharge such Third Party Claim without the Sellers’ prior written consent which shall not be unreasonably delayed or withheld. If the Purchaser assumes the defense of any such Third Party Claim pursuant to this Section 6.5 and proposes to settle such claim or proceeding prior to a final judgment thereon or to forgo any appeal with respect thereto, then the Purchaser shall give the Sellers prompt written notice thereof and the Sellers shall have the right to participate in the settlement or assume or reassume the defense of such claim or proceeding at any time by written notice to the Purchaser.

7	COVENANTS
7.1	Pre-Closing Covenants

As applicable, from the period from the execution of this Agreement through the Closing, the Parties agree as follows:

(a)   The Sellers will cause the Company to give any notices to third parties and to use its reasonable efforts to obtain any third party consents relating to assignment or change of

	control that are required pursuant to the terms of any material agreement listed on the Exhibit 5.13. If required by law, each of the Parties will (and Sellers will cause the Company to) give any notices, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents and approvals of, governments and governmental agencies in connection the transactions contemplated hereby.
(b)	The Sellers will not cause or permit the Company to engage in any practice, take any action or enter into any transaction outside the ordinary course of business, including, without limitation, (i) change or amend the Company’s organizational documents, or (ii) merge or consolidate with any other person or acquire a material amount of assets.
(c)	The Sellers will cause the Company to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions and relationships with lessors, licensors, suppliers, customers and employees, and to conduct the business, operations, activities and practices only in the ordinary course of business consistent with past practice.
(d)	Upon not less than one Business Day’s written notice received by the Sellers, the Sellers will cause the Company to permit representatives of the Purchaser to have reasonable access during normal business hours, but only in a manner so as not to interfere with the normal business operations of the Company, to the premises, properties, personnel, books, records, contracts and documents of or pertaining to the Company, provided, however, that the Purchaser may, at the Sellers’ option, be required to be accompanied by the Sellers or a representative of the Sellers at all times upon the Company’s premises.
(e)	None of the Sellers will (and the Sellers will not cause or permit the Company to) (i) solicit, initiate or encourage the submission of any proposal or offer from any person or entity relating to the acquisition of all or substantially all of the equity securities or assets of the Company (including any acquisition structured as a merger, consolidation or share exchange), or (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person or entity to do or seek any of the foregoing. The Sellers will not vote the Stock in favor of any such acquisition structured as a merger, consolidation or share exchange.
(f)	Except to the extent required by applicable law, the Sellers will cause the Company not to do or agree to do any of the following without the prior written consent of the Purchaser: (i) grant any material increase in compensation or benefits to any employee, except in accordance with the provisions of any applicable program or plan adopted by the Company previously provided to the Purchaser; (ii) adopt or materially amend the terms of any severance or termination agreements, plans, programs, policies or procedures, with or for its employees; (iii) materially effect any change in retirement or any other benefit plans, programs, policies, or procedures for any of its employees that would increase the liabilities of the Purchaser hereunder; or (iv) enter into any contract or agreement, or series of similar contracts or agreements, except ordinary course supply agreements and customer purchase orders, involving an amount greater than €.150,000 (one hundred thousand euro) in the aggregate. The Sellers shall not cause the Company to enter into or modify any employee arrangements, grant bonuses, increase salaries or improve severance or termination pay, except in the ordinary course of business and consistent with past practice, and the Sellers shall not cause the Company to declare or pay any dividend or other similar distribution of any kind (whether in cash, shares, property or a combination thereof). Solely for purposes of this Section 7.1(f), a change, amendment, increase, etc. shall not be deemed to be material unless such change, amendment, increase, etc. involves an amount equal to or greater than €.150,000 (one hundred thousand euro).
(g)	The Sellers will cause the Company not to (i) incur any material indebtedness for borrowed money; (ii) assume, guarantee, endorse, or otherwise become liable or responsible (whether

	directly, contingently or otherwise) for the obligations of any other person or entity; or (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity.
(h)	The Sellers shall cause the Company to maintain its accounts payable, accounts receivable and inventory in the ordinary course of business consistent with past practices.
(i)	No Seller will take any action designed or intended to have the effect of discouraging any material customer, supplier or other business associate of the Company from maintaining substantially the same business relationship with the Company after the Closing as it maintained prior to the Closing.
(j)	The Sellers shall notify the Company’s Board of Directors in accordance with Section 5.2 of the Company’s Bylaws of the execution of this Agreement within one Business Day of the execution and shall cause the Board of Directors to deliver the notice required by Section 5.2 of the Company’s Bylaws to the shareholders of the Company, including Vimercati, within two Business Days of notifying this Agreement to the Board of Directors.
(k)	The Sellers shall cause Vimercati (pursuant to Article 1381 of the Italian Civili Code) to become a Party to this Agreement by executing and delivering to each of the Sellers and the Purchaser a Letter of Adherence in the form attached hereto as Exhibit 7.1(k) (the “Letter of Adherence”) reasonably prior to the Closing, but no later than June 30, 2005.

7.2   Ossona Land Covenants

With respect to the land owned by the Company in Ossona, the Parties agree as follows:

(a)	the Sellers will cause the Company not to sell the Ossona Land on or prior to the Closing nor enter into any new agreement of sale for the Ossona Land on or prior to the Closing;
(b)	the Purchaser will use commercially reasonable efforts to cause the Company to sell the Ossona Land at a fair market value within 20 months from the Closing Date;
(c)	should the Ossona Land be sold within such 20-month period, the Ossona Net Proceeds, as defined below, shall be treated as an in increase in assets according to Section 6.3(c) and shall therefore be deducted from indemnities, if any, payable by the Sellers; and
(d)	“Ossona Net Proceeds” means an amount equal to the sale price of the Ossona Land minus the book value of the Ossona Land at September 30, 2004, minus taxes and other expenses payable in connection with the sale but shall not be greater than €.700,000 (seven hundred thousand euro).

8   CONFIDENTIALITY

The Purchaser and the Sellers, as the case may be, will make all reasonable efforts to consult with one another before issuing or causing to be issued any press release or otherwise making any public statements, if any, with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation except as may be required by applicable law, regulations or by the rules of the New York Stock Exchange. Notwithstanding the foregoing, the parties may, on a confidential basis, advise and release information regarding the existence and content of this Agreement or the transactions contemplated hereby to their respective Affiliates or any of their agents, accountants, attorneys and prospective lenders or investors in connection with or related to the transactions contemplated by this Agreement. The Sellers understand that the Purchaser may be required by law or regulation to file this Agreement with the United States

Securities and Exchange Commission (“SEC”). If required by law or regulation the Sellers agree that the Purchaser may file this Agreement with the SEC.

9	TERMINATION OF AGREEMENT
9.1	Termination

The Parties may terminate this Agreement at any time prior to the Closing as provided below:

(a)	The Purchaser and the Sellers may terminate this Agreement by mutual written consent.
(b)	The Purchaser may terminate this Agreement by giving written notice to the Sellers in the event that the Closing shall not have occurred on or before June 30, 2005 by reason of the failure of any condition precedent under Section 4.1 to be satisfied prior to such date (unless the failure results primarily from the Purchaser breaching any representation, warranty or covenant contained in this Agreement).
(c)	The Sellers (as a group) may terminate this Agreement by giving written notice to the Purchaser in the event that the Closing shall not have occurred on or before June 30, 2005, by reason of the failure of any condition precedent under Section 4.1 to be satisfied prior to such date (unless the failure results primarily from any Seller breaching any representation, warranty or covenant contained in this Agreement).

9.2   Effect of Termination

If the Purchaser terminates this Agreement pursuant to Section 9.1(b) because of the failure of the Closing to occur on or before June 30, 2005, and such failure results from the breach of the covenant set out in Section 7.1(k) or the failure of the condition precedent set out in Section 4.1(l) to be satisfied on or prior to June 30, 2005, then, notwithstanding anything contained in this Agreement to the contrary, the following provisions shall apply:

(a)   Subject to paragraph (b) below, each Fund shall be severally liable to pay to the Purchaser (as liquidated damages pursuant to Articles 1382 ff of the Italian Civil Code) up to €.750,000 (seven hundred fifty thousand euro) for all internal costs and expenses, as well as all direct out-of-pocket expenses, incurred by the Purchaser through the date of such termination (the “Termination Date”) in connection with the transactions contemplated by this Agreement (including salaries, reasonable attorneys’ and accountants’ fees and expenses, including but not limited to fees and expenses incurred in connection with due diligence and the preparation of this Agreement) (collectively, the “Liquidated Damages”), as set out in Purchaser’s written request of payment delivered to the Funds after the Termination Date (“Purchaser Request”). The liability of the Funds under this Section 9.2 shall be several and not joint. Therefore, each of the Funds shall be liable vis-à-vis the Purchaser in proportion to the transferred shareholding as indicated in Section 3.2(f) assuming the Funds were transferring 100% of the Stock. The Purchaser Request shall include a reasonably itemized list of the Liquidated Damages. The Liquidated Damages shall be due by the Funds to the Purchaser as follows:

(i)

on the ninetieth Business Day after the Termination Date, if prior to such Business Day none of the Funds has commenced a legal proceeding against Vimercati (or any of his heirs, successors or assigns) to claim, and/or be indemnified against, all damages, losses or liabilities suffered or incurred by the Funds in connection with, or as a result of, the transactions contemplated by this Agreement (each a “Proceeding”), or

(ii)

if any of the Funds has commenced a Proceeding pursuant to subparagraph (i) above, within two Business Days of (A) the date of receipt by any of the Funds of any amount from Vimercati (or any of his heirs, successors or assigns) in the context of any such Proceeding or settlement thereof (in which case the Liquidated Damages shall be due

only in the amount at any time, and from time to time, so received by the Fund); or (B) the date of termination, extinguishment, abandonment, cessation, waiver, lapse, forfeiture, or settlement of the Proceeding, if such termination, extinguishment, abandonment, cessation, waiver, lapse, forfeiture, or settlement has occurred without the Purchaser’s prior written consent. All amounts transferred by the Funds to the Purchaser pursuant to this Section 9.2(a) shall be net of the reasonable costs and expenses of the Funds incurred by the Funds to collect from Vimercati the amounts so transferred.

The Funds shall provide the Purchaser with reasonable information on the ongoing status of any Proceeding promptly upon the Purchaser’s request, and shall cause the Proceeding not to be terminated, extinguished, abandoned, ceased, waived, lapsed, forfeited, or settled without the prior written consent of the Purchaser, which shall not be unreasonably withheld. Without limiting the generality of the foregoing, the Funds shall appeal any decision rendered in any Proceeding that may adversely affect the right of the Purchaser to recover Liquidated Damages under this Section 9.2, and shall pursue each and every necessary action to enforce any decision rendered against Vimercati in any Proceeding as necessary or expedient to ensure Purchaser’s recovery of Liquidated Damages under this Section 9.2.

For the purposes of subparagraphs (i) and (ii) above, a Proceeding is deemed to have been commenced on the earlier of (x) the date of service to Vimercati of the first writ of summons (atto di citazione), if the Fund(s) acting as plaintiff(s) have chosen to commence an ordinary proceeding (procedimento ordinario), or (y) the date of filing of the applicable petition (ricorso) before the court of competent jurisdiction, if the Fund(s) acting as plaintiff(s) have chosen to commence an urgency proceeding (procedimento di urgenza).

Pursuant to Article 1284, second paragraph, of the Italian Civil Code, interest shall accrue on the Liquidated Damages due to the Purchaser under subparagraph (ii) above, beginning on the Termination Date until payment of the Liquidated Damages, at a rate per annum equal to the Applicable Rate. Interest shall be calculated based on a 360-day year and the actual number of days elapsed. Accrued interest shall be due to the Purchaser at the time Liquidated Damages become due under subparagraph (ii) above.

(b)	If the condition precedent set out in Section 4.1(l) has not occurred and Vimercati has exercised his preemptive right to acquire any equity owned by any of the Sellers, then the Funds shall only be severally liable to pay to the Purchaser (as liquidated damages pursuant to Articles 1382 ff of the Italian Civil Code) an amount not in excess in the aggregate of €250,000 (two hundred fifty thousand euro) for Liquidated Damages. The payment of such Liquidated Damages is not conditioned on any of the Funds’ collecting damages or other moneys from Vimercati and shall be due to the Purchaser within two Business Days of delivery of the Purchaser Request to any of the Funds.
(c)	Any amount due to the Purchaser under this Section 9.2 shall be paid by wire transfer of immediately available funds to the bank account of the Purchaser set out in the Purchaser Request.
(d)	The Purchaser acknowledges and agrees that in the case of the termination of the Agreement pursuant to Section 9.1 that the Purchaser shall have no rights or remedies against the Sellers other than the obligations of the Sellers provided by this Section 9.2, subject to Article 1229 of the Italian Civil Code.

10	OTHER PROVISIONS
10.1	Release

(a)   Each Seller, in consideration of his or its receipt of his or its portion of the consideration relating to the sale of the Stock, on behalf of himself, itself, his spouse and children, heirs, assigns, as applicable, and any Affiliate or company he or it Controls, at the Closing releases and forever discharges the Company and each of its past and present officers, directors and employees (subject to paragraph (b) below), representatives, Affiliates, agents, shareholders, controlling persons, subsidiaries, successors and assigns,

(each, a “Releasee”) from any and all claims, demands, proceedings, causes of action, orders, obligations, contracts, agreements, debts and liabilities whatsoever, known or unknown, suspected or unsuspecting, whether arising out of contract, tort, statute, treaty or otherwise, both at law and in equity, that the Seller now has, has ever had, or may hereafter have against any Releasee arising contemporaneously with or prior to the Closing, including, without limitation, any and all claims for unpaid wages (except for any compensation for services as an employee or director already accrued and duly reflected in the statutory books of account of the Company in accordance with the Company’s ordinary payroll practices but not yet paid) benefits or claims for or interest in any shares of capital stock or any asset of the Company or any claims for any debts or obligations due and owing from the Company.

(b)   The Purchaser acknowledges that each of the Funds will have the right at any time after Closing to enforce a right of claim it may have (whether under this Agreement, in contract or otherwise) against the Managers (each a “Relevant Person”) in respect of any pre-Closing actions or omissions of a Relevant Person or advice or representations given by a Relevant Person which shall include but not limited to acting fraudulently or deceitfully with respect to any matter contemplated under this Agreement.

10.2 Notices and Service

Any notice to be sent with respect to this Agreement shall be made in writing by letter, facsimile or telegram and shall be considered to have been effectively and validly served upon receipt thereof, provided that it has been addressed as follows:

(a)	if to the Sellers, in three originals to:
	for GE Capital Equity Holdings Inc.: c/o GE Equity 30 Berkeley Square London W1J 6EW
	Attn. Sherwood Dodge
	for 3i Group and 3i Europartners II: c/o 3i SGR S.p.A. Via Orefici, 2 20123 Milano
	Attn. Edoardo Professione
	for Roberto Poli Via Foppa, 11 20144 Milano
	for Alberto Bombonato Via Federico Tesio, 23 20151 Milano
	for Aldo Bianchi Vimercati Viale regina Giovanna, 9 20122 Milano
(b)	if to the Purchaser, to:
	Stoneridge, Inc. 9400 East Market Street Warren, Ohio 44484 U.S.A. Attention: Joseph M. Mallak, Chief Financial Officer

With copy to:

Baker & Hostetler LLP
3200 National City Center
1900 E. 9^th Street
Cleveland, Ohio 44114 U.S.A.
Attention: Robert M. Loesch

or to any different address which a Party may communicate to the other subsequent to the date hereof in compliance with the provisions set forth above.

The Parties elect their domicile for all purposes relating to this Agreement, including judicial services, at the aforesaid addresses or at the different addresses they may communicate in the future.

10.3   Benefit

This Agreement shall be binding upon the Parties and their respective successors and assignees.

10.4   Amendments

This Agreement (including its Exhibits) contains the entire agreement between the Parties and supersedes any other previous agreement.

This Agreement may be modified or amended only by an instrument in writing and signed by all of the Parties.

10.5   Brokers

Each Party shall entirely bear all fees of brokers and/or finders possibly appointed by such Party in connection with this Agreement.

10.6   Transaction Expenses

Each Party shall bear its own taxes and expenses, including legal fees, incurred in connection with this Agreement.

10.7   Language

This Agreement has been drafted and executed only in English. Possible translations into other languages shall not be used for purposes of interpretation of this Agreement.

10.8   Severability

If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party (it being acknowledged and agreed that the provisions of Section 4.1(l) or 7.1(k) constitute essential elements of the agreed exchange that is the subject matter of this Agreement; accordingly, if any of these provisions is determined to be invalid, illegal or unenforceable, the remainder of this Agreement shall not be enforceable against the Purchaser). Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

10.9   Waiver

Each of the Sellers and the Purchaser may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained

herein or in any document delivered by such other Party pursuant hereto, or (iii) waive compliance with any of the agreements or conditions of the other Party contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the Party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.

11	GOVERNING LAW — ARBITRATION
11.1	Governing Law

This Agreement shall be governed by and construed in accordance with the laws of Italy.

11.2   Arbitration

Any controversy deriving from this Agreement will referred to an Arbitration Panel composed of three members, one appointed by the Purchaser, one collectively by the Seller(s) and the third, who will act as Chairman, upon mutual agreement of the first two arbitrators.

The Panel shall decide by applying the law in accordance with Article 806 and following of the Italian Code of Civil Procedure; however, without application of Article 838 thereof.

The place of arbitration shall be Milan, Italy. The language to be used in the arbitral proceedings shall be Italian; however, the arbitrators shall be fluent in English and, in particular, shall not require any translation of documents written in English nor the assistance of an interpreter for any oral declaration rendered in English by any person during the proceedings.

* * * * *

This Agreement has been executed on behalf of each Seller, as applicable, by a duly authorized representative of each Seller.

If you are in agreement with the above terms and conditions, please return to us the enclosed copy of this Agreement duly signed by you for acceptance. This Agreement may be signed in counterparts.

[Signatures on following page]

Kind regards,

STONERIDGE, INC.

By:	/s/ Joseph M. Mallak
	Joseph M. Mallak, Vice President
	and Chief Financial Officer

For acceptance:

GE CAPITAL EQUITY HOLDINGS, INC.

By:	/s/ Richard Roberts
	Name: Richard Roberts
	Title: Attorney in Fact

3i GROUP PLC

By:	/s/ Guido Capelli
	Name: Guido Capelli
	Title: Attorney in Fact

3i EUROPARTNERS II LP

By:	/s/ Guido Capelli
	Name: Guido Capelli
	Title: Attorney in Fact

Roberto POLI

By: /s/ Roberto POLI

Alberto BOMBONATO

By: /s/ Alberto BOMBONATO

Exhibit Index          

Exhibit 4.1(k)	Form of Retention, Non-Compete and Confidentiality Agreement
Exhibit 5.3	Authority
Exhibit 5.7	Industrial and Intellectual Property Rights
Exhibit 5.8(a)	2003 Financial Statements
Exhibit 5.8(b)	Interim Balance Sheet
Exhibit 5.9	Absence of Change
Exhibit 5.11	Agents
Exhibit 5.12(a)	Owned Real Property
Exhibit 5.12(b)	Leased Real Property
Exhibit 5.13	Agreements
Exhibit 5.14	Insurance
Exhibit 5.17	Product Liability and Recalls, Product Warranty
Exhibit 5.19	Litigation
Exhibit 5.20	Absence of Unfavorable Events
Exhibit 5.22	Customers
Exhibit 7.1(k)	Form of Letter of Adherence

[The above referenced exhibits are not included in this filing. The Company agrees to furnish supplementally a
copy of any omitted schedule (exhibit) to the Securities and Exchange Commission upon request.]

EX-10.1

EXHIBIT 10.1

SUMMARY OF EXECUTIVE COMPENSATION

On February 10, 2005, the Compensation Committee of the Board of Directors of Stoneridge, Inc. (the “Company”) approved the annual base salaries (for fiscal year 2005) of the Company’s executive officers after a review of performance and competitive market data. The following table sets forth the annual base salary levels of the Company’s Named Executive Officers (which officers were determined by reference to the Company’s proxy statement, dated March 11, 2005) and of the Company’s Chief Financial Officer (who commenced employment with the Company in September 2004) paid in 2004 and to be paid in 2005.

Also, on February 10, 2005, the Compensation Committee authorized the payment of annual incentive (i.e., bonus) awards to each of the Company’s executive for the year ended December 31, 2004. The bonuses paid to the executive officers are also set forth below.

		Base Salary	Bonus
Name and Position	Year	($)	(S)
Gerald V. Pisani,	2004	417,500	300,000
President and Chief Executive Officer	2005	510,000
Edward F. Mosel,	2004	249,917	160,000
Executive Vice President and Chief Operating Officer	2005	330,000
Joseph M. Mallak,	2004	72,917	90,000
Vice President and Chief Financial Officer	2005	270,000
Thomas A. Beaver,	2004	236,000	115,000
Vice President of Global Sales and System Engineering	2005	250,000
Mark J. Tervalon,	2004	202,974	120,000
Vice President and General Manager Stoneridge Electronics Group	2005	235,000
D.M. Draime	2004	200,000	150,000
Chairman of the Board of Directors	2005	200,000

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES–OXLEY ACT OF 2002

I, Gerald V. Pisani, President and Chief Executive Officer, of Stoneridge, Inc. (the “Company”), certify that:

(1)	I have reviewed this quarterly report on Form 10-Q of the Company;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4)	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the Company and we have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and
(d)	Disclosed in this quarterly report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

(5)   The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Gerald V. Pisani

Gerald V. Pisani, President and Chief Executive Officer

May 12, 2005

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES–OXLEY ACT OF 2002

I, Joseph M. Mallak, Vice President and Chief Financial Officer, of Stoneridge, Inc. (the “Company”), certify that:

(1)	I have reviewed this report on Form 10-Q of the Company;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4)	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the Company and we have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this quarterly report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

(5)   The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Joseph M. Mallak

Joseph M. Mallak, Vice President and Chief Financial Officer

May 12, 2005

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Gerald V. Pisani, President and Chief Executive Officer, of Stoneridge, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended April 2, 2005 (“the Report”) which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gerald V. Pisani

Gerald V. Pisani, President and Chief Executive Officer

May 12, 2005

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Joseph M. Mallak, Vice President and Chief Financial Officer, of Stoneridge, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended April 2, 2005 (“the Report”) which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joseph M. Mallak

Joseph M. Mallak, Vice President and Chief Financial Officer

May 12, 2005

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.