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 quarter ended April 1, 2006  
Commission file number: 001-13337

STONERIDGE, INC.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of incorporation or organization) 34-1598949
(I.R.S. Employer Identification No.)

9400 East Market Street, Warren, Ohio (Address of principal executive offices) 44484
(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. þ Yes     o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes     þ No

     The number of Common Shares, without par value, outstanding as of April 28, 2006 was 23,225,266.

STONERIDGE, INC. AND SUBSIDIARIES

INDEX

PART I—FINANCIAL INFORMATION			Page No.
Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of April 1, 2006 (Unaudited) and December 31, 2005		2
		Condensed Consolidated Statements of Operations (Unaudited) For the Thirteen Weeks Ended April 1, 2006 and April 2, 2005		3
		Condensed Consolidated Statements of Cash Flows (Unaudited) For the Thirteen Weeks Ended April 1, 2006 and April 2, 2005		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			25
Item 4.	Controls and Procedures			26
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings			27
Item 1A.	Risk Factors			27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 3.	Defaults Upon Senior Securities			27
Item 4.	Submission of Matters to a Vote of Security Holders			27
Item 5.	Other Information			27
Item 6.	Exhibits			27
Signatures				28
Index to Exhibits				29
EX-10.3 Employment Agreement
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 1,			December 31,
	2006			2005
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash and cash equivalents	$	41,774		$	40,784
Accounts receivable, less allowances for doubtful accounts of $5,135 and $4,562, respectively		121,434			100,362
Inventories, net		55,139			53,791
Prepaid expenses and other		14,842			14,490
Deferred income taxes		9,352			9,253
Total current assets		242,541			218,680
Long-Term Assets:
Property, Plant and Equipment, net		113,170			113,478
Other Assets:
Goodwill		65,176			65,176
Investments and other, net		29,372			26,491
Deferred income taxes		38,600			39,213
Total long-term assets		246,318			244,358
Total Assets	$	488,859		$	463,038
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	—		$	44
Accounts payable		68,788			55,344
Accrued expenses and other		53,016			46,603
Total current liabilities		121,804			101,991
Long-Term Liabilities:
Long-term debt, net of current portion		200,000			200,000
Deferred income taxes		1,477			923
Other liabilities		6,216			6,133
Total long-term liabilities		207,693			207,056
Shareholders’ Equity:
Preferred Shares, without par value, 5,000 authorized, none issued		—			—
Common Shares, without par value, authorized 60,000 shares, issued 23,401 and 23,232 shares and outstanding 23,228 and 23,178, respectively, with no stated value		—			—
Additional paid-in capital		148,074			147,440
Common Shares held in treasury, 173 and 54 shares, respectively, at cost		(133	)		(65	)
Retained earnings		10,955			7,188
Accumulated other comprehensive income (loss)		466			(572	)
Total shareholders’ equity		159,362			153,991
Total Liabilities and Shareholders’ Equity	$	488,859		$	463,038

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 per share data)

	Thirteen Weeks Ended
	April 1,			April 2,
	2006			2005
Net Sales	$	179,634		$	180,827
Costs and Expenses:
Cost of goods sold		138,942			135,592
Selling, general and administrative		31,240			30,372
Provision for doubtful accounts		355			16
Gain on sale of property, plant and equipment		(1,489	)		—
Restructuring charges		224			2,126
Operating Income		10,362			12,721
Interest expense, net		5,919			5,989
Equity in earnings of investees		(1,416	)		(732	)
Other loss (income), net		7			(197	)
Income Before Income Taxes		5,852			7,661
Provision for income taxes		2,085			3,292
Net Income	$	3,767		$	4,369
Basic net income per share	$	0.17		$	0.19
Basic weighted average shares outstanding		22,766			22,683
Diluted net income per share	$	0.16		$	0.19
Diluted weighted average shares outstanding		22,884			22,891

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)

	Thirteen Weeks Ended
	April 1,			April 2,
	2006			2005
OPERATING ACTIVITIES:
Net income	$	3,767		$	4,369
Adjustments to reconcile net income to net cash provided (used) by operating activities —
Depreciation		6,246			6,805
Amortization		403			380
Deferred income taxes		1,143			2,701
Earnings of equity method investees, less dividends received		(1,416	)		(752	)
Gain on sale of property, plant and equipment		(1,489	)		—
Share-based compensation expense		634			327
Changes in operating assets and liabilities —
Accounts receivable, net		(20,674	)		(19,900	)
Inventories, net		(1,093	)		(3,222	)
Prepaid expenses and other		(276	)		(3,331	)
Other assets		204			(617	)
Accounts payable		13,140			5,846
Accrued expenses and other		5,632			2,059
Net cash provided (used) by operating activities		6,221			(5,335	)
INVESTING ACTIVITIES:
Capital expenditures		(6,563	)		(4,054	)
Proceeds from sale of property, plant and equipment		2,266			—
Business acquisitions and other		(1,034	)		—
Net cash used by investing activities		(5,331	)		(4,054	)
FINANCING ACTIVITIES:
Repayments of long-term debt		(44	)		(37	)
Share-based compensation activity		(69	)		42
Other financing costs		(150	)		—
Net cash (used) provided by financing activities		(263	)		5
Effect of exchange rate changes on cash and cash equivalents		363			(631	)
Net change in cash and cash equivalents		990			(10,015	)
Cash and cash equivalents at beginning of period		40,784			52,332
Cash and cash equivalents at end of period	$	41,774		$	42,317

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 per share data, unless otherwise indicated)

(1) Basis of Presentation

     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 Form 10-K for the fiscal year ended December 31, 2005.

     The results of operations for the thirteen weeks ended April 1, 2006 are not necessarily indicative of the results to be expected for the full year.

     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 thirteen-week periods and once every seven years, starting in 2008, the fourth quarter will be 14 weeks in length. The first thirteen-week period of 2006 and 2005 ended on April 1 and April 2, respectively.

     The Company has reclassified the presentation of certain prior-period information to conform to the current presentation.

(2) Common Shares Held in Treasury

     The Company accounts for Common Shares held in treasury under the cost method and includes such shares as a reduction to total shareholders’ equity.

(3) Inventories

     Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (“LIFO”) method for approximately 71% and 72% of the Company’s inventories at April 1, 2006 and December 31, 2005, 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 1,			December 31,
	2006			2005
Raw materials	$	38,077		$	34,026
Work in progress		8,115			8,644
Finished goods		10,355			12,400
Total inventories		56,547			55,070
Less: LIFO reserve		(1,408	)		(1,279	)
Inventories, net	$	55,139		$	53,791

(4) Fair Value of Financial Instruments

     Financial Instruments

     A financial instrument is cash or a contract that imposes an obligation to deliver, or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The estimated fair value of the Company’s senior notes (fixed rate debt) at April 1, 2006, per quoted market sources, was $172.0 million and the carrying value was $200.0 million.

5

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     Derivative Instruments and Hedging Activities

     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 foreign currency denominated intercompany transactions and other known foreign currency exposures. The principal currencies hedged by the Company include the Swedish krona, British pound and the Mexican peso. 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 approximately $24,500 and reduce exposure related to the Company’s Swedish krona and British pound denominated receivables. The estimated fair value of these contracts at April 1, 2006, per quoted market sources, was approximately $(43). The Company’s foreign currency option contracts have a notional value of $70 and reduce the risk associated with the Company’s other known foreign currency exposures related the Mexican peso. The estimated fair value of these contracts at April 1, 2006, per quoted market sources, was approximately $34.

(5) Share-Based Compensation

     At April 1, 2006, the Company had three share-based compensation plans; (1) Long-Term Incentive Plan (the “Incentive Plan”), (2) Directors’ Share Option Plan (the “Director Option Plan”) and (3) the Directors’ Restricted Shares Plan. One plan is for employees and two plans are for non-employee directors. Prior to the second quarter of 2005, the Company accounted for its plans under the fair value recognition provisions of Statement of Financial Accounting Standard (“SFAS”) 123, “Accounting for Stock-Based Compensation,” adopted prospectively for 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.” Because the Company adopted the fair value method on a prospective basis, the cost related to share-based compensation recognized during the fiscal year ended December 31, 2005 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.

     Effective at the beginning of the second quarter of 2005, the Company adopted SFAS 123(R), “Share-Based Payment,” using the modified-prospective-transition method. Because the Company had previously adopted the fair value recognition provisions required by SFAS 123, and all unvested awards at the time of adoption were being recognized under a fair value approach, the adoption of SFAS 123(R) did not impact the Company’s operating income, income before income taxes, net income, cash flow from operating activities, cash flow from financing activities, or basic and diluted net income per share for the thirteen weeks ended April 1, 2006.

     Total compensation expense recognized in the Condensed Consolidated Statements of Operations for share-based compensation arrangements was $634 and $327 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Operations for share-based compensation arrangements was $222 and $123 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. There was no share-based compensation cost capitalized as inventory or fixed assets for either period.

     There were no options granted during the thirteen weeks ended April 1, 2006 or April 2, 2005. As of April 1, 2006, the aggregate intrinsic value of both outstanding and exercisable options was zero.

     The fair value of the non-vested time-based restricted Common Share awards was calculated using the market value of the shares on the date of issuance. The weighted-average grant-date fair value of shares granted during the thirteen weeks ended April 1, 2006 was $6.84. There were no time-based restricted Common Share awards granted during the thirteen weeks ended April 2, 2005.

     The fair value of the non-vested performance-based restricted Common Share awards with a performance condition, requiring the Company to obtain certain net income per share targets, was calculated using the market value of the shares on the date of issuance. The fair value of the non-vested performance-based restricted Common Share awards with a market condition,

6

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

which measures the Company’s performance against a peer group’s performance in terms of total return to shareholders, was calculated using valuation techniques incorporating the Company’s historical total return to shareholders in comparison to its peers to determine the expected outcomes related to these awards.

     A summary of the status of the Company’s non-vested restricted Common Shares as of April 1, 2006, and the changes during the thirteen weeks ended, is presented below:

	Time-Based Awards					Performance-Based Awards
				Weighted-					Weighted-
				Average					Average
				Grant-Date					Grant-Date
Non-vested Restricted Common Shares	Shares			Fair Value		Shares			Fair Value
Non-vested at December 31, 2005		207,251		$	11.47		237,000		$	8.24
Granted		169,000			6.84		—			—
Vested		(73,534	)		9.19		—			—
Forfeited		(5,735	)		11.48		(100,800	)		8.24
Non-vested at April 1, 2006		296,982		$	9.40		136,200		$	8.24

     As of April 1, 2006, total unrecognized compensation cost related to non-vested time-based restricted Common Share awards granted was $534. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total fair value of shares vested based on service conditions during the thirteen weeks ended April 1, 2006 was $470. No time-based restricted Common Share awards vested during the thirteen weeks ended April 2, 2005.

     As of April 1, 2006, total unrecognized compensation cost related to non-vested performance-based restricted Common Share awards granted was $274. That cost is expected to be recognized over a weighted-average period of 2.0 years. No performance-based restricted Common Share awards have vested as of April 1, 2006.

(6) Comprehensive Income

     SFAS 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income. Other comprehensive income includes foreign currency translation adjustments and gains and losses from certain foreign currency transactions, the effective portion of gains and losses on certain hedging activities, minimum pension liability adjustments, and unrealized gains and losses on available-for-sale marketable securities.

     The components of comprehensive income, net of tax were as follows:

	Thirteen Weeks Ended
	April 1,			April 2,
	2006			2005
Net income	$	3,767		$	4,369
Other comprehensive income (loss):
Currency translation adjustments		1,223			(2,071	)
Minimum pension liability adjustments		(37	)		67
Unrealized (loss) gain on marketable securities		(147	)		10
Total other comprehensive income (loss)		1,039			(1,994	)
Comprehensive income	$	4,806		$	2,375

7

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

(7) Long-Term Debt

     On May 1, 2002, the Company issued $200.0 million aggregate principal amount of senior notes. The $200.0 million senior 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.

     On March 7, 2006, the Company amended it's existing credit agreement, which, among other things, provided the Company substantially all of its borrowing capacity on the $100.0 million credit facility. The credit agreement contains various covenants that require, among other things, the maintenance of certain specified ratios of consolidated total debt to consolidated EBITDA and interest coverage. Restrictions also include limits on capital expenditures, operating leases and dividends. The amendment, among other things, utilizes a borrowing base composed of accounts receivable and inventory. The borrowing base limitation expires June 30, 2007. In addition, the Company is prohibited from repurchasing, repaying or redeeming subordinated notes until certain covenant levels are met. As of April 1, 2006, $96.1 million of the $100.0 million credit facility was available to the company. 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 debt to consolidated EBIDTA, as defined.

     Long-term debt consists of the following:

	April 1,		December 31,
	2006		2005
11 1/2% Senior notes, due 2012	$	200,000	$	200,000
Other		—		44
Total debt		200,000		200,044
Less: Current portion		—		(44	)
Total long-term debt less current portion	$	200,000	$	200,000

(8) Net Income Per Share

     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:

	Thirteen Weeks Ended
	April 1,		April 2,
	2006		2005
Basic weighted average shares outstanding		22,766		22,683
Effect of dilutive securities		118		208
Diluted weighted-average shares outstanding		22,884		22,891

8

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     Options to purchase 682 and 279 Common Shares at an average price of $12.13 and $16.10 per share were outstanding at April 1, 2006 and April 2, 2005, respectively. These outstanding options were not included in the computation of diluted net income per share because their respective exercise prices were greater than the average market price of Common Shares and, therefore, their effect would have been anti-dilutive.

(9) Restructuring

     In January 2005, the Company announced restructuring initiatives related to the rationalization of certain manufacturing facilities in Europe and North America. This rationalization is part of the Company’s cost reduction initiatives. In connection with these initiatives, the Company recorded restructuring charges of $224 for the thirteen weeks ended April 1, 2006.

     The restructuring charges related to the Vehicle Management & Power Distribution reportable segment and included the following:

				Asset-
	Severance			Related
	Costs			Charges			Total
Total expected restructuring charges	$	763		$	127		$	890
Balance at December 31, 2004	$	—		$	—		$	—
First quarter charge to expense		88			127			215
Second quarter charge to expense		9			—			9
Third quarter charge to expense		356			—			356
Fourth quarter charge to expense		70			—			70
Cash payments		(111	)		—			(111	)
Non-cash utilization		—			(127	)		(127	)
Balance at December 31, 2005	$	412		$	—		$	412
First quarter charge to expense		176			—			176
Cash payments		(46	)		—			(46	)
Non-cash utilization		—			—			—
Balance at April 1, 2006	$	542		$	—		$	542
Remaining expected restructuring charge	$	64		$	—		$	64

9

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     The restructuring charges related to the Control Devices reportable segment included the following:

				Asset-			Facility			Other
	Severance			Related			Closure			Exit
	Costs			Charges			Costs			Costs			Total
Total expected restructuring charges	$	3,509		$	983		$	1,219		$	651		$	6,352
Balance at March 31, 2004	$	—		$	—		$	—		$	—		$	—
Second quarter charge to expense		—			205			—			—			205
Third quarter charge to expense		—			202			—			118			320
Fourth quarter charge to expense		1,068			207			—			287			1,562
Cash payments		(590	)		—			—			(405	)		(995	)
Non-cash utilization		—			(614	)		—			—			(614	)
Balance at December 31, 2004	$	478		$	—		$	—		$	—		$	478
First quarter charge to expense		1,698			206			—			7			1,911
Second quarter charge to expense		586			163			746			174			1,669
Third quarter charge to expense		214			—			218			35			467
Fourth quarter charge to expense		(57	)		—			140			(18	)		65
Cash payments		(2,722	)		—			(140	)		(198	)		(3,060	)
Non-cash utilization		—			(369	)		—			—			(369	)
Balance at December 31, 2005	$	197		$	—		$	964		$	—		$	1,161
First quarter charge to expense		—			—			—			48			48
Cash payments		(197	)		—			(177	)		(40	)		(414	)
Non-cash utilization		—			—			—			—			—
Balance at April 1, 2006	$	—		$	—		$	787		$	8		$	795
Remaining expected restructuring charge	$	—		$	—		$	115		$	—		$	115

     All restructuring charges, except for the asset-related charges, result in cash outflows. Asset-related charges primarily relate to accelerated depreciation and the write-down of property, plant and equipment, resulting from the closure or streamlining of certain facilities. Severance costs relate to a reduction in workforce. Facility closure costs primarily relate to asset relocation and lease termination costs. Other exit costs include miscellaneous expenditures associated with exiting business activities. The Company expects that these restructuring efforts will be substantially completed during the second quarter of 2006.

(10) Commitments and Contingencies

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

     Customer Bankruptcy

     On March 3, 2006, the Company was notified that one if its customers, Dana Corporation, had filed for Chapter 11 bankruptcy protection. As a result, the Company recorded a charge of approximately $343 for the thirteen weeks ended April 1, 2006. These charges established a reserve for estimated losses expected to result from the bankruptcies and were recorded in the Company’s Condensed Consolidated Statement of Operations as a component of provision of doubtful accounts expense.

10

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

(11) Employee Benefit Plans

     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. The Components of net periodic pension and postretirement benefit cost are as follows:

	Pension Benefit Plan						Postretirement Benefit Plan
	Thirteen Weeks Ended						Thirteen Weeks Ended
	April 1,			April 2,			April 1,		April 2,
	2006			2005			2006		2005
Service cost	$	28		$	19		$	4	$	23
Interest cost		254			257			4		22
Expected return on plan assets		(273	)		(267	)		—		—
Amortization of actuarial loss		65			76			—		—
Net periodic benefit cost	$	74		$	85		$	8	$	45

     The Company previously disclosed in its financial statements for the year ended December 31, 2005, that it expected to contribute $273 to its pension plan in 2006. As of April 1, 2006, contributions of $57 have been made to the pension plan.

(12) Income Taxes

     The Company recognized a provision for income taxes of $2,085, or 35.6% of pre-tax income, and $3,292, or 43.0% of pre-tax income, for federal, state and foreign income taxes for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The decrease in the effective tax rate for the thirteen weeks ended April 1, 2006 compared to the thirteen weeks ended April 2, 2005 was primarily attributable to the improved performance of the United Kingdom operations and the corresponding decrease in the amount of valuation allowance pertaining to the Company’s deferred tax assets.

(13) Accounting Pronouncements

     In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS 133, “Accounting for Derivatives Instruments and Hedging Activities” and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instrument. Management has determined that the implementation of SFAS 155 will not have an effect on the Company’s financial statements.

     In March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement 140”. SFAS 156 will become effective for fiscal years beginning after September 15, 2006. SFAS 156 requires an entity to recognize a servicing asset or servicing liability at fair value, if possible, each time it undertakes an obligation to service a financial asset by entering into a servicing contract under certain conditions. Management has determined that the implementation of SFAS 156 will not have an effect on the Company’s financial statements.

(14) Segment Reporting

     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

11

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

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 and control actuation devices and sensors.

     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, 2005 Form 10-K. The Company’s management evaluates the performance of its reportable segments based primarily on revenues from external customers, capital expenditures and income before income taxes. Inter-segment 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:

	Thirteen Weeks Ended
	April 1,			April 2,
Net Sales	2006			2005
Vehicle Management & Power Distribution	$	100,364		$	99,023
Intersegment sales		4,469			4,819
Vehicle Management & Power Distribution net sales		104,833			103,842
Control Devices		79,270			81,804
Intersegment sales		918			856
Control Devices net sales		80,188			82,660
Eliminations		(5,387	)		(5,675	)
Total consolidated net sales	$	179,634		$	180,827
Income Before Income Taxes
Vehicle Management & Power Distribution	$	6,197		$	9,000
Control Devices		4,409			2,384
Other corporate activities		932			2,136
Corporate interest expense		(5,686	)		(5,859	)
Total consolidated income before income taxes	$	5,852		$	7,661
Depreciation and Amortization
Vehicle Management & Power Distribution	$	1,790		$	2,155
Control Devices		4,430			4,419
Corporate activities		91			98
Total consolidated depreciation and amortization(A)	$	6,311		$	6,672
Interest Expense (Income)
Vehicle Management & Power Distribution	$	(106	)	$	39
Control Devices		339			92
Corporate activities		5,686			5,858
Total consolidated interest expense	$	5,919		$	5,989
Capital Expenditures
Vehicle Management & Power Distribution	$	2,200		$	1,644
Control Devices		4,317			2,317
Corporate activities		46			93
Total consolidated capital expenditures	$	6,563		$	4,054

12

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

	April 1,			December 31,
Total Assets	2006			2005
Vehicle Management & Power Distribution	$	179,176		$	158,203
Control Devices		232,373			222,747
Corporate(B)		247,681			248,739
Eliminations		(170,371	)		(166,651	)
Total consolidated assets	$	488,859		$	463,038

(A)	These amounts represent depreciation and amortization on fixed and certain intangible assets.
(B)	Assets located at Corporate consist primarily of cash, deferred taxes and equity investments.

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

	Thirteen Weeks Ended
	April 1,		April 2,
Net Sales	2006		2005
North America	$	141,024	$	140,294
Europe and other		38,610		40,533
Total consolidated net sales	$	179,634	$	180,827

	April 1,		December 31,
Non-Current Assets	2006		2005
North America	$	218,260	$	216,563
Europe and other		28,058		27,795
Total non-current assets	$	246,318	$	244,358

(15) Investments

     PST Indústria Eletrônica da Amazônia Ltda.

     The Company has a 50% interest in PST Indústria Eletrônica da Amazônia Ltda. (“PST”), a Brazilian electronic components business that specializes in electronic vehicle security devices. The investment is accounted for under the equity method of accounting. The Company’s investment in PST was $19,716 and $17,818 at April 1, 2006 and December 31, 2005, respectively. The Company has a note receivable with PST of $1,148 as of April 1, 2006 and December 31, 2005, respectively. PST operates on a calendar year.

     Condensed financial information for PST is as follows:

	First Quarter ended
	March 31,
	2006		2005
Revenues	$	20,999	$	14,262
Cost of sales	$	10,674	$	8,084
Total pretax income	$	4,196	$	1,638
The Company’s share of pretax income	$	2,098	$	819

     Equity in earnings of PST included in the Condensed Consolidated Statements of Operations was $1,360 and $719 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively.

13

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     Minda Instruments Ltd.

     The Company has a 30% interest in Minda Instruments Ltd. (“Minda”), a company based in India that manufactures electronic instrumentation equipment for the automotive and truck markets. In February 2006, the Company increased its investment in Minda from 20% to 30% by purchasing an additional 10% of Minda’s equity for $980. The investment is accounted for under the equity method of accounting. The Company’s investment in Minda was $1,859 and $828 at April 1, 2006 and December 31, 2005, respectively. Equity in earnings of Minda included in the Condensed Consolidated Statements of Operations were $56 and $13, for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively.

(16) Warranty Reserves

     The Company’s warranty reserve is established based on the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.

     The following is a reconciliation of the changes in the Company’s warranty reserve:

	Thirteen Weeks Ended			Fiscal Year Ended
	April 1,			December 31,
	2006			2005
Warranty reserves at beginning of period	$	4,981		$	5,425
Payments made		(720	)		(2,548	)
Costs recognized for warranties issued during the period		561			1,483
Changes in estimates for preexisting warranties		195			621
Warranty reserves at end of period	$	5,017		$	4,981

(17) Guarantor Financial Information

     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 do not guarantee the senior notes and the credit facility (Non-Guarantor Subsidiaries).

     Presented below are summarized consolidating financial statements of the Parent (which includes certain of the Company’s operating units), the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a condensed consolidated basis, at April 1, 2006 and April 2, 2005 and for each of the thirteen weeks ended April 1, 2006 and April 2, 2005.

     These summarized condensed consolidating financial statements are prepared under 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.

14

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

	April 1, 2006
							Non-
				Guarantor			Guarantor
	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	4,464		$	53		$	37,257	$	—		$	41,774
Accounts receivable, net		54,716			37,964			28,825		(71	)		121,434
Inventories, net		26,597			12,551			15,991		—			55,139
Prepaid expenses and other		(268,914	)		254,164			29,592		—			14,842
Deferred income taxes		(3,971	)		12,876			447		—			9,352
Total current assets		(187,108	)		317,608			112,112		(71	)		242,541
Long-Term Assets:
Property, Plant and Equipment, net		60,890			33,626			18,654		—			113,170
Other Assets:
Goodwill		44,585			20,591			—		—			65,176
Investments and other, net		40,871			494			180		(12,173	)		29,372
Deferred income taxes		43,871			(5,738	)		467		—			38,600
Investment in subsidiaries		406,763			—			—		(406,763	)		—
Total long-term assets		596,980			48,973			19,301		(418,936	)		246,318
Total Assets	$	409,872		$	366,581		$	131,413	$	(419,007	)	$	488,859
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	24,876		$	22,029		$	21,883	$	—		$	68,788
Accrued expenses and other		25,634			10,935			16,518		(71	)		53,016
Total current liabilities		50,510			32,964			38,401		(71	)		121,804
Long-Term Liabilities:
Long-term debt		200,000			—			12,173		(12,173	)		200,000
Deferred income taxes		—			—			1,477		—			1,477
Other liabilities		—			2,050			4,166		—			6,216
Total long-term liabilities		200,000			2,050			17,816		(12,173	)		207,693
Shareholders’ Equity		159,362			331,567			75,196		(406,763	)		159,362
Total Liabilities and Shareholders’ Equity	$	409,872		$	366,581		$	131,413	$	(419,007	)	$	488,859

15

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     Supplemental condensed consolidating financial statements (continued):

	December 31, 2005
							Non-
				Guarantor			Guarantor
	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	7,754		$	47		$	32,983	$	—		$	40,784
Accounts receivable, net		46,505			30,883			23,043		(69	)		100,362
Inventories, net		25,662			12,804			15,325		—			53,791
Prepaid expenses and other		(274,706	)		258,203			30,993		—			14,490
Deferred income taxes		4,713			4,116			424		—			9,253
Total current assets		(190,072	)		306,053			102,768		(69	)		218,680
Long-Term Assets:
Property, Plant and Equipment, net		61,620			33,683			18,175		—			113,478
Other Assets:
Goodwill		44,585			20,591			—		—			65,176
Investments and other, net		38,004			460			46		(12,019	)		26,491
Deferred income taxes		41,547			(3,781	)		1,447		—			39,213
Investment in subsidiaries		399,536			—			—		(399,536	)		—
Total long-term assets		585,292			50,953			19,668		(411,555	)		244,358
Total Assets	$	395,220		$	357,006		$	122,436	$	(411,624	)	$	463,038
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	—		$	—		$	44	$	—		$	44
Accounts payable		20,350			17,358			17,636		—			55,344
Accrued expenses and other		20,879			10,351			15,442		(69	)		46,603
Total current liabilities		41,229			27,709			33,122		(69	)		101,991
Long-Term Liabilities:
Long-term debt, net of current portion		200,000			—			12,019		(12,019	)		200,000
Deferred income taxes		—			—			923		—			923
Other liabilities		—			2,043			4,090		—			6,133
Total long-term liabilities		200,000			2,043			17,032		(12,019	)		207,056
Shareholders’ Equity		153,991			327,254			72,282		(399,536	)		153,991
Total Liabilities and Shareholders’ Equity	$	395,220		$	357,006		$	122,436	$	(411,624	)	$	463,038

16

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     Supplemental condensed consolidating financial statements (continued):

	Thirteen Weeks Ended April 1, 2006
							Non-
				Guarantor			Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net Sales	$	90,327		$	58,860		$	52,600		$	(22,153	)	$	179,634
Costs and Expenses:
Cost of goods sold		77,798			43,364			39,253			(21,473	)		138,942
Selling, general and administrative		16,536			6,741			8,998			(680	)		31,595
Gain on sale of property, plant and equipment		—			(1,489	)		—			—			(1,489	)
Restructuring charges		176			47			1			—			224
Operating Income (Loss)		(4,183	)		10,197			4,348			—			10,362
Interest expense		5,879			—			40			—			5,919
Other income		(1,147	)		—			(262	)		—			(1,409	)
Equity earnings from subsidiaries		(13,245	)		—			—			13,245			—
Income (Loss) Before Income Taxes		4,330			10,197			4,570			(13,245	)		5,852
Provision for income taxes		563			19			1,503			—			2,085
Net Income (Loss)	$	3,767		$	10,178		$	3,067		$	(13,245	)	$	3,767

	Thirteen Weeks Ended April 2, 2005
							Non-
				Guarantor			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 (income), net		6,022			—			(33	)		—			5,989
Other expense (income), net		(2,505	)		1,658			(82	)		—			(926	)
Equity earnings from subsidiaries		(8,418	)		—			—			8,418			—
Income Before Income Taxes		7,139			7,526			1,414			(8,418	)		7,661
Provision (benefit) for income taxes		2,770			(509	)		1,031			—			3,292
Net Income	$	4,369		$	8,035		$	383		$	(8,418	)	$	4,369

17

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

     Supplemental condensed consolidating financial statements (continued):

	Thirteen Weeks Ended April 1, 2006
							Non-
				Guarantor			Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	(5,398	)	$	4,773		$	6,691		$	155		$	6,221
INVESTING ACTIVITIES:
Capital expenditures		(2,891	)		(1,977	)		(1,695	)		—			(6,563	)
Proceeds from sale of fixed assets		2,266			—			—			—			2,266
Business acquisitions and other		(1,720	)		(63	)		—			749			(1,034	)
Net cash used by investing activities		(2,345	)		(2,040	)		(1,695	)		749			(5,331	)
FINANCING ACTIVITIES:
Repayments of long-term debt		348			—			(237	)		(155	)		(44	)
Share-based compensation activity		4,255			(2,728	)		(847	)		(749	)		(69	)
Other financing costs		(150	)		—			—			—			(150	)
Net cash provided (used) by financing activities		4,453			(2,728	)		(1,084	)		(904	)		(263	)
Effect of exchange rate changes on cash and cash equivalents		—			—			363			—			363
Net change in cash and cash equivalents		(3,290	)		5			4,275			—			990
Cash and cash equivalents at beginning of period		7,754			48			32,982			—			40,784
Cash and cash equivalents at end of period.	$	4,464		$	53		$	37,257		$	—		$	41,774

	Thirteen Weeks Ended April 2, 2005
							Non-
				Guarantor			Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net cash provided (used) 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-based compensation activity		42			—			—			—			42
Other financing costs		—			—			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

18

STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data, unless otherwise indicated)

(18) Subsequent Event

     On April 24, 2006, the shareholders of Stoneridge, Inc. approved the Company’s Amended and Restated Long-Term Incentive Plan (the “2006 Plan”), which had been unanimously approved on February 18, 2006 by the Board of Directors upon the recommendation of the Board’s Compensation Committee. The 2006 Plan will replace the Company’s current equity incentive plan when the current plan expires in June 2007.

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Overview

     The following Management Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. This MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements.

     We are an 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 net income for the period ending April 1, 2006 was $3.8 million, or $0.16 per diluted share, compared with net income of $4.4 million, or $0.19 per diluted share, for the period ending April 2, 2005.

     Our first quarter 2006 operating results were unfavorably affected by a number of challenging industry-wide issues, including intense competition, product price reductions, higher commodity costs, and customer bankruptcies. We continuously work to address these challenges by implementing a broad range of initiatives aimed to improve operating performance. During the first quarter of 2006, we implemented focused teams to implement best practices in our underperforming operations and we have realigned our purchasing organization to reduce our direct material procurement costs. These challenges were favorably offset by a number of items in the first quarter, including a $1.9 million pretax reduction in our restructuring expense and $1.5 million pretax gain on the sale of a fixed asset. Our PST joint venture in Brazil continued to perform well during the quarter, resulting in equity earnings of $1.4 million compared with $0.7 million in the previous year.

     Significant factors inherent to our markets that could affect our results for 2006 include our ability to successfully execute our planned productivity and cost reduction initiatives and the financial stability of our customers and suppliers. We are undertaking these initiatives to mitigate commodity price increases and customer demanded price reductions. Our results for 2006 also depend on conditions in the automotive and commercial vehicle industries, which are generally dependent on domestic and global economies.

     Results of Operations

     We are primarily organized by markets served and products produced. Under this organization structure, our operations 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 that 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 our operations that design and manufacture electronic and electromechanical switches, control actuation devices and sensors.

     Beginning in 2005, we changed from a calendar year-end to a 52-53 week fiscal year-end. Our fiscal quarters are now comprised of thirteen-week periods and once every seven years, starting in 2008, the fourth quarter will be 14 weeks in length. The first thirteen-week period of 2006 and 2005 ended on April 1 and April 2, respectively.

     Thirteen Weeks Ended April 1, 2006 Compared to Thirteen Weeks Ended April 2, 2005

     Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the thirteen weeks ended April 1, 2006 and April 2, 2005 are summarized in the following table:

	Thirteen Weeks Ended
	April 1,		April 2,		$ Increase /			% Increase /
	2006		2005		(Decrease)			(Decrease)
Vehicle Management & Power Distribution	$	100,364	$	99,023	$	1,341			1.4	%
Control Devices		79,270		81,804		(2,534	)		(3.1	)%
Total net sales	$	179,634	$	180,827	$	(1,193	)		(0.7	)%

20

     The increase in net sales for our Vehicle Management & Power Distribution reportable segment was primarily due to increased sales to our commercial vehicle customers as North American demand was strong in the quarter. This increase was offset by an unfavorable $3.4 million impact from foreign currency exchange in the quarter and ongoing product price reductions.

     The decrease in net sales for our Control Devices reportable segment was primarily attributable an unfavorable North American light vehicle production mix and product price reductions. In addition, unfavorable foreign currency exchange translation reduced our sales by $0.6 million during the quarter.

     Net sales by geographic location for the thirteen weeks ended April 1, 2006 and April 2, 2005 are summarized in the following table:

	Thirteen Weeks Ended
	April 1,		April 2,		$ Increase /			% Increase /
	2006		2005		(Decrease)			(Decrease)
North America	$	141,024	$	140,294	$	730			0.5	%
Europe and other		38,610		40,533		(1,923	)		(4.7	)%
Total net sales	$	179,634	$	180,827	$	(1,193	)		(0.7	)%

     North American sales accounted for 79% of total net sales in the first thirteen weeks of 2006 compared with 78% for the same period in 2005. The increase in North American sales was primarily attributable to increased sales to our commercial vehicle customers as a result of strong North American demand in the quarter. The increase was partially offset by an unfavorable North American light vehicle production mix and product price reductions. Net sales outside North America accounted for 21% of total net sales for the thirteen weeks ended April 1, 2006 compared to 22% for the same period in 2005. Our sales outside of North America declined primarily due to unfavorable foreign currency exchange rates. The unfavorable effect of these exchange rates totaled $4.0 million in the quarter.

     Cost of Goods Sold. Cost of goods sold for the thirteen weeks ended April 1, 2006 increased by $3.3 million, or 2.5%, to $138.9 million from $135.6 million for the same period in 2005. As a percentage of sales, cost of goods sold increased to 77.3% from 75.0%. This increase as a percentage of sales was predominately due to unfavorable material price variances resulting from raw material price increases, continued operating inefficiencies at some of our facilities in Mexico and product price reductions. Going forward, we expect that pricing and raw material price challenges will continue to affect our gross margin through 2006. Our management team is working to offset these pressures through our focused operational improvement efforts, purchasing programs and, in some cases, commodity hedging programs.

     Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses for the thirteen weeks ended April 1, 2006 increased by $0.8 million, or 2.6%, to $31.2 million from $30.4 million for the first thirteen weeks of 2005. Offsetting the net increase in SG&A expense for the period was a decrease of $0.7 million in product development expenses. Product development expenses were $10.3 million for the thirteen weeks ended April 1, 2006 and $11.0 million for the thirteen weeks ended April 2, 2005, respectively. Included in product development expenses in the thirteen weeks ended April 1, 2005, was expenditures incurred to obtain certification for a key product in Europe, which was certified in 2005. Offsetting the decrease in product development expenses was an increase in SG&A expenses. The increase in non-product development SG&A expenses in 2006 compared with 2005 is primarily attributable to the non-recurrence of a favorable legal settlement in 2005. As a percentage of sales, SG&A expenses increased to 17.4% for the first thirteen weeks of 2006 from 16.8% for the same period in 2005.

     Provision for Doubtful Accounts. The provision for doubtful accounts increased $0.3 million compared to the same time period in 2005 primarily due to the Chapter 11 bankruptcy filing of Dana Corporation on March 3, 2006.

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     Restructuring Charges. In January 2005, we announced that we would undertake restructuring efforts related to the rationalization of certain manufacturing facilities in the high cost regions of Europe and North America. This rationalization is a result of our cost reduction initiatives. Restructuring charges recorded by reportable segment during the thirteen weeks ended April 1, 2006 and April 2, 2005 were as follows:

	Thirteen Weeks Ended April 1, 2006
	Vehicle Management				Total Consolidated
	& Power				Restructuring
	Distribution		Control Devices		Charges
Severance costs	$	176	$	—	$	176
Other exit costs		—		48		48
Total restructuring charges.	$	176	$	48	$	224

	Thirteen Weeks Ended April 2, 2005
	Vehicle Management				Total Consolidated
	& Power				Restructuring
	Distribution		Control Devices		Charges
Severance costs	$	88	$	1,698	$	1,786
Asset-related charges		127		206		333
Other exit costs		—		7		7
Total restructuring charges.	$	215	$	1,911	$	2,126

     All restructuring charges, except for the asset-related charges, result in cash outflows. Asset-related charges relate primarily to accelerated depreciation and the write-down of property, plant and equipment, resulting from the closure or streamlining of certain facilities. Severance costs relate to a reduction in workforce. Facility closure costs primarily relate to asset relocation and lease termination costs. Other costs include miscellaneous expenditures associated with exiting business activities.

     Gain on Sale of Property, Plant and Equipment. Gain on sale of property, plant and equipment was $1.5 million for the thirteen weeks ended April 1, 2006 and is the result of the sale of land and a building adjacent to our Sarasota, Florida location.

     Equity in Earnings of Investees. Equity in earnings of investees was $1.4 million and $0.7 million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The increase of $0.7 million was predominately attributable to the increase in equity earnings recognized from our PST joint venture in Brazil. The increase primarily reflects higher volume and pricing for PST’s security product lines.

     Income Before Income Taxes. Income before income taxes is summarized in the following table by reportable segment.

	Thirteen Weeks Ended
	April 1,			April 2,			$ Increase /			% Increase /
	2006			2005			(Decrease)			(Decrease)
Vehicle Management & Power Distribution	$	6,197		$	9,000		$	(2,803	)		(31.1	)%
Control Devices		4,409			2,384			2,025			84.9	%
Other corporate activities		932			2,136			(1,204	)		(56.4	)%
Corporate interest expense		(5,686	)		(5,859	)		(173	)		(3.0	)%
Income before income taxes	$	5,852		$	7,661		$	(1,809	)		(23.6	)%

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     The decrease in income before income taxes at the Vehicle Management & Power Distribution reportable segment was primarily the result of unfavorable raw material variances, ongoing operating inefficiencies at our Mexican operations and product price reductions. These factors were partially offset by increased volume in the quarter.

     The increase in income before income taxes at the Control Devices reportable segment was primarily the result of improved operating efficiencies at our United Kingdom operation and a reduction in restructuring expenses in the quarter. These factors were partially offset by ongoing product price reductions and increased raw material costs.

     Income before income taxes for the thirteen weeks ended April 1, 2006 for North America decreased by $5.1 million to $2.7 million from $7.8 million for the same period in 2005. The decrease in our profitability in North America was primarily attributable to unfavorable raw material variances, ongoing operating inefficiencies at our Mexican operations and product price reductions. Income before income taxes for 2005 outside North America increased by $3.3 million to $3.2 million from $(0.1) million in 2005. The increase in our profitability outside North America was primarily due to the operational improvement at our United Kingdom operations, which experienced significant operational inefficiencies in the 2005 period.

     Provision for Income Taxes. We recognized a provision for income taxes of $2.1 million, or 35.6% of pre-tax income, and $3.3 million, or 43.0% of the pre-tax income, for federal, state and foreign income taxes for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The decrease in the effective tax rate for the thirteen weeks ended April 1, 2006 compared to the thirteen weeks ended April 2, 2005 was primarily attributable to the improved performance of the United Kingdom operations and the corresponding decrease in the amount of valuation allowance pertaining to the Company’s deferred tax assets.

     Liquidity and Capital Resources

     Net cash provided by operating activities was $6.2 million and $(5.3) million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The increase in net cash provided by operating activities of $11.5 million was primarily due to improvements in working capital management in the areas of accounts payable and accrued expenses. The cash provided from accounts payable resulted from better matching of our accounts receivable and accounts payable in the quarter compared with the prior year.

     Net cash used by investing activities was $5.3 million and $4.1 million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The increase in net cash used by investing activities of $1.2 million was attributable to an increase in capital expenditures during the quarter. This increase in capital expenditures is predominantly related to the launch of new products in the areas of customer-actuated switches, power distribution systems and sensor products. In addition, in February 2006, we invested approximately $1.0 million for an additional 10% stake in our Minda Instruments Limited joint venture. We now maintain a 30% interest in the venture. The increase in capital spending and investment spending was offset by $2.3 million in proceeds from a property sale.

     Net cash used by financing activities for the thirteen weeks ended April 1, 2006 was $(0.3) million, and primarily related to fees for the completion of our credit agreement amendment during the quarter.

     As discussed in Note 4 to our consolidated financial statements, we have entered into foreign currency forward contracts with a notional value of $24,500 to reduce exposure related to our Swedish krona- and British pound-denominated receivables. The estimated fair value of these contracts at April 1, 2006, per quoted market sources, was approximately $(43). The Company’s foreign currency option contracts have a notional value of $70 and reduce the risk associated with the Company’s other known foreign currency exposures related to the Mexican peso. The estimated fair value of these contracts at April 1, 2006, per quoted market sources, was approximately $34.

     Our credit facilities contain various covenants that require, among other things, the maintenance of certain specified ratios of consolidated total debt to consolidated EBITDA, interest coverage and fixed charge coverage. Restrictions also include limits on capital expenditures, operating leases and dividends. We were in compliance with all covenants at April 1, 2006. On March 7, 2006, we amended our credit agreement dated May 1, 2002. The amendment modifies certain financial covenant requirements, changes certain reporting requirements, sets borrowing levels based on certain asset levels and prohibits us from repurchasing, repaying or redeeming any of our outstanding subordinated notes unless certain covenant levels are met.

     Future capital expenditures are expected to be consistent with recent levels 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

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and believes that cash flows from operations and the availability of funds from our credit facilities will provide sufficient liquidity to meet our future growth and operating needs. As outlined in Note 7 to our financial statements, the Company is a party to a $100.0 million revolving credit facility. On March 7, 2006, the Company amended the credit agreement, which, among other things, gave the Company substantially all of its borrowing capacity on the $100.0 million credit facility. As of April 1, 2006, $96.1 of the $100.0 million was available.

     Inflation and International Presence

     Given the current economic climate and recent increases in certain commodity prices, we believe that a continuation of such price increases would significantly affect our profitability. Furthermore, by operating internationally, we are affected by the economic conditions of certain countries. Based on the current economic conditions in these countries, we believe we are 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, our directors or officers with respect to, among other things, our (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 or supplier;

• the costs and timing of facility closures, business realignment, or similar actions;

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

• our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;

• a significant change in general economic conditions in any of the various countries in which we operate;

• labor disruptions at our facilities or at any of our significant customers or suppliers;

• the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis;

• the amount of debt and the restrictive covenants contained in our credit facility;

• customer acceptance of new products;

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

• the successful integration of any acquired businesses;

• the occurrence or non-occurrence of circumstances beyond our control; and

• those items described in Part I, Item IA (“Risk Factors”) of the Company’s 2005 Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Interest Rate Risk

     From time to time, we are exposed to certain market risks, primarily resulting from the effects of changes in interest rates. At April 1, 2006, however, all of our debt was fixed rate debt. At this time, we do not intend to use financial instruments to manage this risk.

     Commodity Price Risk

     Given the current economic climate and the recent increases in certain commodity costs, we currently are experiencing an increased risk, particularly with respect to the purchase of copper, zinc, resins and certain other commodities. We manage this risk through a combination of fixed price agreements, staggered short-term contract maturities and commercial negotiations with our suppliers. We may also consider pursuing alternative commodities or alternative suppliers to mitigate this risk over a period of time. On February 2, 2006, the Company entered into a fixed price contract to purchase zinc. The initial notional value of the contract was $849, while the estimated fair market value of the contract as of April 1, 2006, was $855. The recent increases in certain commodity costs have negatively affected our operating results, and a continuation of such price increases could significantly affect our profitability. Going forward, we believe that our mitigation efforts will offset a substantial portion of the financial impact of these increased costs. However, no assurances can be given that the magnitude or duration of these increased costs will not have a material impact on our future operating results.

     Foreign Currency Exchange Risk

     Our risks related to foreign currency exchange rates have historically not been material; however, given the current economic climate, we are monitoring this risk. We use derivative financial instruments, including foreign currency forward and option contracts, to mitigate our exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions and other known foreign currency exposures. As discussed in Note 4 to our condensed consolidated financial statements, we have entered into foreign currency forward contracts with a notional value of $24,500 to reduce exposure related to our Swedish krona- and British pound-denominated intercompany loans. The estimated fair value of these contracts at April 1, 2006, per quoted market sources, was approximately $(43). Our foreign currency option contracts have a notional value of $70 and reduce the risk associated with our other known foreign currency exposures related to the Mexican peso. The estimated fair value of these contracts at April 1, 2006, per quoted market sources, was approximately $34. We do 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 we operate. Furthermore, a hypothetical pre-tax gain or loss in fair value from a 10.0% favorable or adverse change in quoted exchange rates would not significantly affect our results of operations, financial position or cash flows.

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Item 4. Controls and Procedures.

     Evaluation of Disclosure Controls and Procedures

     As of April 1, 2006, 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 1, 2006.

     Changes in Internal Control Over Financial Reporting

     There were no changes in the Company’s internal control over financial reporting during the thirteen weeks ended April 1, 2006 that materially affected, or are 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.

     The Company is involved in certain legal actions and claims arising in the ordinary course of business. The Company, however, does not believe that any of the litigation in which it is currently engaged, either individually or in the aggregate, will have a material adverse effect on its business, condensed consolidated financial position or results of operations. The Company is subject to the risk of exposure to product liability claims in the event that the failure of any of its products causes personal injury or death to users of the Company’s products and there can be no assurance that the Company will not experience any material product liability losses in the future. In addition, if any of the Company’s products prove to be defective, the Company may be required to participate in the government-imposed or OEM-instituted recall involving such products. The Company maintains insurance against such liability claims.

Item 1A. Risk Factors.

     There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

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.

     No matters were submitted to a vote of security holders during the thirteen weeks ended April 1, 2006.

Item 5. Other Information.

     None.

Item 6. Exhibits.

     Reference is made to the separate, “Index to Exhibits,” filed herewith.

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SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	STONERIDGE, INC.
Date: May 5, 2006	/s/ John C. Corey
	John C. Corey
	President, Chief Executive Officer and Director (Principal Executive Officer)
Date: May 5, 2006	/s/ George E. Strickler
	George E. Strickler
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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INDEX TO EXHIBITS

Exhibit
Number	Exhibit
10.1	Form of Change in Control Agreement (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005).
10.2	Severance and Consulting Agreement for Gerald V. Pisani, dated February 28, 2006, (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on March 3, 2006).
10.3	Employment agreement between the Company and John C. Corey, filed herewith.
10.4	Amendment No. 5 dated March 7, 2006 to Credit Agreement dated as of May 1, 2002 by and among the Company as Borrower, the Lending Institutions Named Therein, as Lenders, National City Bank, as Administrative Agent, a Joint Lead Arranger and Collateral Agent, Deutsche Bank Securities Inc., as a Joint Lead Arranger, Comerica Bank and PNC Bank, National Association, as the Co-Documentation Agents (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on March 10, 2006).
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-10.3

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

BETWEEN

STONERIDGE, INC.

AND

JOHN C. COREY

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (this “Employment Agreement”) is entered into as of the 28^th day of February, 2006 (the “Effective Date”), between Stoneridge, Inc., an Ohio corporation (“the Company”), and John C. Corey (the “Executive”).

Recital

          The Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and subject to the conditions set forth herein.

Agreements

          NOW, THEREFORE, in consideration of the mutual promises and mutual covenants herein contained and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties agree as follows:

          1. Employment.

               (a) The Company hereby employs the Executive as its President and Chief Executive Officer and the Executive hereby accepts such employment for the Term (as defined below), in the positions and with the duties and responsibilities set forth herein, all subject to the terms and conditions hereinafter set forth. The Executive shall be located at the Company’s Warren, Ohio corporate headquarters.

               (b) The term of Executive’s employment under this Employment Agreement (the “Term”) shall commence as of the Effective Date and shall continue until terminated in accordance with, and subject to, the terms and condition of this Employment Agreement. During the Term of this Employment Agreement and any renewal hereof (all references herein to the Term of this Employment Agreement, except as otherwise specifically provided, shall include references to the period of renewal hereof, if any), the Executive shall be and have the title of President and Chief Executive Officer and shall devote his full working time, attention, energy and all reasonable efforts to his employment and to the affairs of the Company, its subsidiaries and divisions, and perform faithfully and diligently his duties hereunder and such duties as are customarily performed by Presidents and Chief Executive Officers of companies similar in size to the Company or whose equity securities are listed on the New York Stock Exchange, together with such other duties as may be reasonably requested from time to time by the Board of Directors of the Company (the “Board”), which duties shall be consistent with his positions as set forth above and as provided in Section 2. To the extent such policies, procedures and practices do not conflict with this Agreement the Executive agrees to comply with and be bound by the Company’s operational policies, procedures and practices from time to time in effect during the Term.

1

               (c) This Employment Agreement shall not be construed as preventing the Executive from serving as an outside director of any other company (but no more than two (2) other companies without Board approval) or from investing his assets in such form or manner as will not require a material amount of his time, in each case subject to the confidentiality, non-competition and non-solicitation obligations contained in Section 6(a) below.

          2. Term and Positions.

               (a) Subject to the provisions for renewal and termination hereinafter provided, (i) the Term of this Employment Agreement shall begin on the Effective Date shall continue until December 31, 2007 and (ii) provided the Executive is less than 65 years old as of the first day of each succeeding calendar year after December 31, 2007, such Term automatically shall be extended for one (1) additional calendar year, beginning with the calendar year commencing January 1, 2008. This Employment Agreement may be terminated at any time as provided in Section 5 or by either the Executive or the Company at the end of the then current Term upon written notice of termination of this Employment Agreement given to the other party at least 90 days before the end of the then current Term.

               (b) The Executive shall be entitled to serve as the President and Chief Executive Officer of the Company. Without limiting the generality of any of the foregoing, except as hereafter expressly agreed in writing by the Executive: (i) the Executive shall not be required to report to any single individual and shall report only to the Board as an entire body, (ii) no other individual shall be elected or appointed as President or Chief Executive Officer of the Company, (iii) the other senior executive officers of the Company, with the exception of the Director of Internal Audit, shall report to no individual other than the Executive, and (iv) no individual or group of individuals (including a committee established or other designee appointed by the Board) shall have any authority over or equal to the authority of the Executive in his role as President and Chief Executive Officer, and neither the Company, the Board, nor any member of the Board shall take any action which will or could have the effect of, or appear to have the effect of, giving such authority to any such individual or group. For service as a director, officer and employee of the Company, the Executive shall be entitled to the fullest indemnification permitted by law, including the full protection of the applicable indemnification provisions of the articles of incorporation and code of regulations of the Company, as the same may be amended from time to time.

               (c) If:

          (i) the Company materially changes the Executive’s duties and responsibilities as set forth in Section 1(b) and 2(b) without his consent (including, without limitation, by violating any of the provisions of clauses (i), (ii), (iii) and (iv) of Section 2(b));

          (ii) the Executive’s place of employment or the principal executive offices of the Company are located more than (100) miles from the geographical center of Warren, Ohio; or

          (iii) there occurs a material breach by the Company of any of its obligations under this Employment Agreement, which breach has not been cured in all material respects within ten (10) days after the Executive gives notice thereof to the Company,

then in any such event the Executive shall have the right to terminate his employment with the Company, but such termination shall not be considered a voluntary resignation or termination of such employment or of this Employment Agreement by the Executive but rather a discharge of the Executive by the Company “without cause” (as defined in Section 5(a)).

               (d) The Executive shall be deemed not to have consented to any written proposal calling for a material change in his duties and responsibilities unless he shall give written notice of his consent thereto to the Board within fifteen (15) days after receipt of such written proposal. If the Executive shall not have given such consent, the Company shall have the opportunity to withdraw such proposed material change by written notice to the Executive given within ten (10) days after the end of said fifteen (15) day period.

               (e) At all times during the term of his employment hereunder, the Executive shall be entitled to nominate himself to the Board, and the Company shall take all actions required for the Executive to be elected to the Board.

2

          3. Compensation and Benefits.

               During the Term of this Employment Agreement the Company shall pay or provide, as the case may be, to the Executive the compensation and other benefits and rights set forth in this Section 3.

               (a) The Company shall pay to the Executive a base salary payable in accordance with the Company’s usual pay practices (and in any event no less frequently than monthly) of not less than Five Hundred and Twenty-Five Thousand Dollars ($525,000) per annum.

               (b) For the Company’s 2006 fiscal year the Executive shall participate in the Company’s Annual Incentive Plan (the “AIP”), in effect at the time and approved by the Compensation Committee of the Board (the “Committee”), at a target equal to 70% of base salary; provided, however, notwithstanding the 2006 fiscal year target, if the Executive is employed by the Company on December 15, 2006, or, provided the Executive has been employed for at least six (6) months if this Agreement is terminated because of the Executive’s death or permanent disability (defined below), the Company shall pay to the Executive or his estate, as applicable, incentive or bonus compensation under the AIP for the 2006 fiscal year of not less than Two Hundred and Fifty Thousand Dollars ($250,000) and the payment of Two Hundred and Fifty Thousand Dollars ($250,000) may be made on or before December 31, 2006 at the Company’s discretion. If the Two Hundred and Fifty Thousand Dollars ($250,000) is not paid in 2006 the Company shall pay to the Executive incentive or bonus compensation for the Company’s 2006 fiscal year (including any amount earned above $250,000 if the $250,000 has been paid in 2006) not later than 90 days following the end of the fiscal year or the termination of the employment, as the case may be, prorated on a per diem basis for the partial year; provided, however, if the Executive’s employment and this Employment Agreement is terminated for “cause” the Executive shall not be entitled to be paid any incentive or bonus compensation.

               (c) For the Company’s 2007 fiscal year and fiscal years thereafter, the Company shall pay, if earned, to the Executive bonus or incentive compensation each fiscal year of the Company, not later than 90 days following the end of each fiscal year. In the event the Executive’s employment is terminated other than for “cause” the Executive shall be eligible for incentive or bonus compensation, if any, prorated on a per diem basis for partial fiscal years. If the Executive’s employment is terminated for “cause” the Executive shall not be entitled to be paid any incentive or bonus compensation. Executive’s annual incentive or bonus compensation entitlement for each of the fiscal years during the Term generally shall be pursuant to the terms of the AIP, in effect at the time, at the target level approved by the Committee, or in accordance with a formula or other bonus plan established by the Committee for such fiscal year; provided, however, that with respect only to termination of employment by reason of death, permanent disability, or termination of employment other than for “cause” (including retirement provided the Executive has been employed by the Company at least three (3) years), and provided that such termination occurs more than six months after the beginning of the then current fiscal year, then the Executive (or his beneficiary) shall also be entitled to a pro-rated annual bonus based upon the proportion of the fiscal year during which the Executive was actively employed, but payable only if and when the annual bonus would have been paid if no termination had occurred. Other than for the 2006 fiscal year as provided for in Section 3(b) nothing in this Employment Agreement guarantees that the Executive shall be paid incentive or bonus compensation; provided, however, the Executive shall be entitled to participate in the AIP or other incentive compensation plans, if any, if approved by the Committee for the Company’s management employees.

               (d) The Company shall provide to the Executive such life, medical, and hospitalization insurance for himself, his spouse and eligible dependents, as offered to the Company’s senior management employees; provided, however, during the Term the Company shall also reimburse the Executive, upon presentation of appropriate vouchers or receipts, for reimbursement covering Executive and his eligible dependents under the Company’s generally available medical plan for uncovered expenses, including deductibles and co-pays, up to five thousand dollars ($5,000.00) per eligible dependent per year.

               (e) The Company shall pay the Executive, each month, a monthly automobile allowance of Twelve Hundred Dollars ($1,200.00) to pay for the costs associated with the Executive’s transportation expenses.

               (f) The Executive shall be entitled to participate in all retirement and other benefit plans, including 401(k) plans, of the Company generally available from time to time to employees of the Company and for which the Executive qualifies under the terms thereof (and nothing in this Agreement shall or shall be deemed to in any way effect the Executive’s right and benefits thereunder except as expressly provided herein).

               (g) The Company shall reimburse the Executive, monthly, for his country club fees, assessments and dues in an amount not to exceed Five Hundred Dollars ($500) per month. The Company shall also pay, on behalf of the

3

Executive, for country club initiation fees in an amount not to exceed a one-time payment of Thirty-Five Thousand Dollars ($35,000); provided, however, such country club must be within 100 miles of Warren, Ohio.

               (h) The Company shall reimburse the Executive, upon presentation of appropriate vouchers or receipts, for premiums paid by the Executive to maintain in effect a life insurance policy or policies covering the Executive, the beneficiary of such insurance policy shall be designated by the Executive; provided, however, that the amounts to be reimbursed by the Company under this Section 3(h) shall not exceed Fifteen Thousand Dollars ($15,000) per annum.

               (i) The Executive shall be entitled to such vacation with pay during each year of his employment hereunder consistent with the policies of the Company, but in no event less than four (4) weeks in any such calendar year (pro-rated as necessary for partial calendar years during the Term); provided, however, that the vacation days taken do not interfere with the operations of the Company. Such vacation may be taken, in the Executive’s discretion, at such time or times as are not inconsistent with the reasonable business needs of the Company. The Executive shall not be entitled to any compensation in lieu of vacation in the event that the Executive, for whatever reason, including termination of employment, fails to take such vacation during any year of his employment hereunder. The Executive shall also be entitled to all paid holidays given by the Company to its executive officers.

               (j) The Executive shall be entitled to participate in any equity or other employee benefit plan, including the Company’s Long-Term Incentive Plan, that is generally available to executive officers. The Executive’s participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan. Grants or awards made under any such plan, if any, shall be made at the discretion of the Committee, the Board or such other appropriate committee of the Board.

               (k) (1) The Company shall provide the Executive with the Company’s standard relocation benefits for senior management personnel in connection with the Executive’s relocation to the Warren, Ohio area. In addition, upon the Executive’s death, permanent disability (defined below) or termination without cause or upon the Executive’s retirement (provided in the case of retirement he has been employed hereunder for at least three (3) years or otherwise as approved in advance by the Committee) the Company shall provide the Executive and his spouse or his spouse (if the spouse survives the Executive), as the case may be, with the Company’s standard relocation benefits for senior management (which benefits shall be substantially similar to the benefit provided to move the Executive to the Warren, Ohio area) to relocate the Executive and/or his spouse, as the case may be, from the Warren, Ohio area to another location at the Executive’s or his spouse’s discretion, as the case may be, within the lower 48 states of the United States of America.

                     (2) If not already provided for pursuant to the Company’s standard relocation benefits for senior management in connection with the relocation benefits set forth in this Section 3(k) the Company shall (i) pay for temporary housing for the Executive and his spouse and dependants for a reasonable period of time during a search for permanent housing, (ii) reimburse the Executive and his wife for reasonable transportation costs, upon presentation of appropriate vouchers or receipts, in connection with no more than three (3) trips to the Warren, Ohio area to search for permanent housing, (iii) pay the Executive upon completion of his move to the Warren, Ohio area, upon the Executive’s request, up to Twenty-Five Thousand Dollars ($25,000) to cover the Executive’s and his family’s miscellaneous moving expenses, (iv) pay for the Executive’s travel to and from South Carolina for weekend visits until April 30, 2006 or the Executive’s relocation to the Warren, Ohio area whichever occurs first, (v) reimburse the cost of full value insurance coverage for household goods to maximum value of One Hundred and Fifty Thousand ($150,000) (this insurance is offer by the moving company); (vi) ensure that the appraisers used to value the Executive’s current house are (notwithstanding the current relocation policy) instructed to appraise the house assuming 180 days to sell the house; and (vii) reimburse the Executive the cost of moving two vehicles. The Chairman of the Compensation may (but is not obligated to) approve other deviations from the Company’s standard relocation policy upon request of the Executive.

                     (3) The Executive agrees to reimburse the Company in full for all amounts paid to the Executive and the value of the relocation benefit to the Executive for the relocation of the Executive and his family upon his retirement from the Warren, Ohio area pursuant to this Section 3(k) if within 365 days from his retirement from the Company the Executive becomes employed by another employer.

               (l) The Company shall reimburse the Executive or provide him with an expense allowance during the term of this Employment Agreement for travel, entertainment and other expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. The Executive shall furnish such documentation with respect to reimbursement to be paid hereunder as the Company shall reasonably request.

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          4. Payment in the Event of a Termination Without Cause.

               (a) Provided that a “Change in Control” (as defined in a separate Change in Control Agreement, dated January 16, 2006, by and between the Executive and the Company (the “CIC Agreement”)(a copy of the CIC Agreement is attached hereto as Appendix A)) has not occurred, at the time that the Executive’s employment under this Employment Agreement is terminated other than for “cause” (as set forth in Section 5(a)) or as a result of the Executive’s death or permanent disability (defined in Section 5(c)), then the Company shall commence, upon the receipt of the release described in Section 4(e), severance payments to the Executive (which will be in addition to any other compensation or remuneration to which the Executive is, or becomes, entitled to receive from the Company);

               (b) The severance payments shall be made monthly for a period of twenty-four (24) months on the last business day of the month and shall commence on the last business day of the month immediately following the termination of employment; provided, however, that in the event the Executive is a “specified employee” under Internal Revenue Code (the “Code”) Section 409A, the payments under this Agreement and related benefits, as require, will be delayed in accordance with Code Section 409A(2). The monthly payments shall be made in immediately available funds in an amount equal to 1/24^th of the sum of (i) two times the Executive’s Annual Compensation (as defined in the CIC Agreement) plus (ii) two times the Executive’s Annual Bonus (as defined in the CIC Agreement).

               (c) In addition to making the monthly payments described above, the Company shall pay the Executive a lump sum payment equal to the Executive Pro Rata Annual Bonus (as defined in the CIC Agreement) at the same time it makes the first monthly payment described above. In addition, the Company shall, at its expense, provide the Executive, and his eligible dependents with life and health insurance, including the reimbursements of life insurance premiums set forth in Section 3(h) (“Health and Welfare Benefits”) in an amount not less than that provided on the date on which the Change in Control occurred for a period of twenty-four (24) months following the termination without cause; provided, however, the Company shall not be obligated to pay for Health and Welfare Benefits after the date on which the Executive shall be eligible to receive benefits from another employer which are substantially equivalent to or greater than the benefits the Executive and his family received from Company; provided, further, that if the Executive’s continuation in some or all of the Company’s Health and Welfare Benefits is not available, then the Company shall make additional monthly payments to the Executive at the same time it makes the above monthly payments described above equal to the cost of the coverage, as determined solely by the Company for similarly situated employees of the Employer, over a period of twenty-four (24) months with respect to those benefits among the Health and Welfare Benefits not available. All payments pursuant to this Employment Agreement shall be made less standard required deductions and withholdings.

               (d) Notwithstanding anything in this Employment Agreement to the contrary, if there shall occur a “Change in Control” and a “Triggering Event” (as those terms are defined in the CIC Agreement), then the Company or the Executive shall have the right to terminate the employment of the Executive with the Company and, in the event of such termination, the payments to be made to the Executive in connection therewith shall be governed by the CIC Agreement and not this Section 4 of this Employment Agreement and the Executive shall be entitled to no further compensation or other benefits under this Employment Agreement, except (i) unpaid base salary (but no bonus or incentive compensation), vacation, un-reimbursed expenses, (ii) the relocation benefit set forth in Section 3(k), and (iii) the payment, if any, set forth in Section 4(e), below.

               (e) In connection with the Executive’s acceptance of the Company’s offer to become the Company’s President and Chief Executive Officer the Executive was granted 150,000 restricted common shares in the Company (the “Restricted Shares”) on January 16, 2006. The Company agrees upon a Change in Control (as defined in the CIC Agreement), whether or not a Triggering Event (as defined in the CIC Agreement) has occurred (i) if the Executive does not receive at least One Million Dollars ($1,000,000) in cash or in the value of marketable securities at the time of the Change in Control for the Restricted Shares in the Change in Control transaction, or (ii) if the Executive’s Restricted Share are not part of the Change in Control transaction and the Executive’s Restricted Shares do not have an aggregate value, based upon the market price of the Company’s Common Shares on the New York Stock Exchange or such other exchange or market, as applicable, of at least One Million Dollars ($1,000,000) at or anytime within the first thirty (30) day period following the Change in Control, then the Company shall pay to the Executive the difference between (A) the highest pre-tax aggregate value of the Restricted Shares during the period based on the market price of the Company’s common shares, determined as set forth above, or, if the Restricted Shares are part of the Change in Control transaction, the amount realized (pre-tax) by the Executive for the Restricted Shares in the Change in Control transaction, and (B) One Million Dollars ($1,000,000). This Section 4(e) shall become null and void if the Executive sells, transfers or otherwise disposes of any of the Restricted Shares in advance of a Change in Control.

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               (f) Notwithstanding anything in the Employment Agreement to the contrary, as a condition to the payment by the Company to the Executive of the severance payments set forth in this Section 4, the Executive shall deliver a signed release of claims against the Company. Such release shall be in a form and substance reasonably satisfactory to the Company and it shall include operative language substantially similar to the language set forth in Section 9 of the CIC Agreement. Under no circumstances there shall be duplication of payments under this Employment Agreement and the CIC Agreement.

          5. Termination.

               (a) In addition to the termination of this Employment Agreement pursuant to Section 2(a) at the end of the then current Term, the employment of the Executive under this Employment Agreement, and the Term hereof, may be terminated by the Company:

(i)	on the death or permanent disability of the Executive, or
(ii)	“without cause” or for “cause” at any time by action of the Board.

In the event the Executive is terminated for cause, the Executive shall only be paid his unpaid base salary (but no bonus or incentive compensation) through the date of termination.

For purposes hereof, the term “cause” shall mean the Executive’s:

(1)	intentional misappropriation of funds from the Company;
(2)	conviction of a felony;
(3)	commission of a crime or act or series of acts involving moral turpitude;
(4)	commission of an act or series of acts of dishonesty that are materially inimical to the best interests of the Company;
(5)	breach of any material term of this Employment Agreement;
(6)	willful and repeated failure to perform the duties associated with the Executive’s position, which failure has not been cured within thirty (30) days after the Company gives notice thereof to the Executive; or
(7)	failure to cooperate with any Company investigation or with any investigation, inquiry, hearing or similar proceedings by any governmental authority having jurisdiction over the Executive or the Company.

Provided, however, the Executive shall have been provided with written notice that there is a basis for termination for cause under clauses (1) and clauses (4)-(7), above. The notice shall set forth the facts regarding the basis for termination. The Executive shall be afforded a reasonable amount of time under the circumstances after the delivery of the notice before the Board meets to consider any possible termination for cause (which amount of time the parties acknowledge may be very limited depending on the circumstances). At or prior to the meeting of the Board to consider the matters described in the written notice the Executive will be afforded an opportunity to express his views to the Board on the subject matter of the notice. Notwithstanding the Executive’s views, the Board’s determination concerning a “for cause” termination hereunder shall be made at the sole discretion of the Board.

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     Any other termination of the Executive’s employment by the Company shall be deemed to be “without cause.” Also, in addition to the events described in Section 2(c), the Executive may terminate his employment under this Employment Agreement with the Company and such termination shall be deemed to be a termination by the Company “without cause” if:

(1)	The Executive is younger than 64 years old and the Company provides notice of its intent to terminate the agreement at the end of the then current term;
(2)	The Company reduces the Executive’s title, responsibilities, power or authority in comparison with the Executive’s title, responsibilities, power or authority on the Effective Date;
(3)	The Company assigns the Executive duties which are inconsistent with the duties assigned to the Executive on the Effective Date and which duties the Company persists in assigning to the Executive despite the Executive’s prior written objection;
(4)	The Company changes the Executive’s reporting responsibilities so that the Executive is no longer the chief executive officer of the Company reporting directly to the Board; or
(5)	The Company reduces the Executive’s annual base compensation, or materially reduces the Executive’s health, life, disability or other insurance programs, the Executive’s pension, retirement or profit-sharing benefits or any benefits provided by the Company, or excludes the Executive from any plan, program or arrangement, including but not limited to bonus or incentive plans (unless such decrease is proportionate with a decrease in the base compensation or various benefit plans provided or available to the officers of the Company as a group);

Upon any termination of this Employment Agreement, the Executive shall be deemed to have resigned from all offices and directorships held by the Executive in the Company or its subsidiaries.

          (b) In the event of termination for reason of death (in the case of death the Executive’s employment hereunder shall be terminated as of the date of his death) the Executive’s designated beneficiary, or, in the absence of such designation, the estate or other legal representative of the Executive shall be paid the Executive’s unpaid base salary (but no bonus or incentive compensation except as specifically provided in Section 3(a) or 3(b) with respect to a pro-rated annual bonus) through the end of the month in which the death occurs. No other benefits shall be payable under this Section 5 due to the Executive’s termination in the event of death other than the relocation benefit set forth in Section 3(k).

          (c) In the event that the Executive is reasonably determined to be permanently disabled, the Company shall have the right to terminate Executive’s employment under this Employment Agreement by giving the Executive ten (10) days’ prior written notice. If the Executive’s employment hereunder is so terminated, the Executive shall continue to receive his base salary for a period of three (3) months (but no bonus or incentive compensation except as specifically provided in Section 3(a) or 3(b) with respect to a pro-rated annual bonus). No other benefits shall be payable under this Section 5 due to the Executive’s termination in the event the Committee reasonably determines that the Company’s termination of the Executive’s employment was due to his permanent disability other than the relocation benefit set forth in Section 3(k). For purposes of this Employment Agreement, the Executive’s “permanent disability” shall be deemed to have occurred after one hundred twenty (120) days in the aggregate during any consecutive twelve (12) month period, or after ninety (90) consecutive days, during which one hundred twenty (120) or ninety (90) days, as the case may be, the Executive, by reason of his physical or mental disability or illness, shall have been unable to discharge his duties under this Employment Agreement. The date of permanent disability shall be such one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In the event either the Company or the Executive, after receipt of notice of the Executive’s permanent disability from the other, dispute that the Executive’s permanent disability shall have occurred, the Executive shall promptly submit to a physical examination by the chief of medicine (or the physician designed by such individual) of any major accredited hospital in the Cleveland, Ohio, area and, unless such physician shall issue his written statement to the effect that in his opinion, based on his diagnosis, the Executive is capable of resuming his employment and devoting his full time and energy to discharging his duties within thirty (30) days after the date of such statement, such permanent disability shall be deemed to have occurred.

          (d) If the Executive terminates his employment voluntarily, other than a termination that shall be deemed to be a termination “without cause” pursuant to Section 5(a) (i.e., a constructive termination), the Executive shall be paid

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his unpaid base salary (but no bonus or incentive compensation except as specifically provided in Section 3(b) with respect to retirement and with respect to a pro-rated annual bonus).

          6. Covenants, Non-Competition and Confidential Information.

               (a) The Executive acknowledges the Company’s reliance and expectation of the Executive’s continued commitment to performance of his duties and responsibilities during the term of this Employment Agreement. In light of such reliance and expectation on the part of the Company, during the Term of this Employment Agreement, while the Executive is receiving payments hereunder and for a period of two (2) years after the Executive has received his last payment hereunder (and, as to clauses (iii) and (iv) of this subsection (a), at any time during and after the Term of this Employment Agreement), the Executive shall not, directly or indirectly, do or suffer any of the following:

                  (i) Own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity (1) that has material operations which are engaged in any business activity competitive (directly or indirectly) with the business of the Company or (2) engaged in the business of designing and/or manufacturing of engineered electrical and electronic components, modules and systems for the automotive, medium- and heavy-duty truck, agricultural and off-highway vehicle markets; provided, however, that the ownership of not more than one percent (1%) of any class of publicly traded securities of any entity shall not be deemed a violation of this covenant;

                  (ii) Without the prior written consent of the Company, on his own behalf or on behalf of any person or entity, directly or indirectly, hire or solicit the employment of any employee who has been employed by the Company or its subsidiaries at any time during the six (6) months immediately preceding such date of hiring or solicitation;

                  (iii) Use, disclose or make accessible to any other person, firm, partnership, corporation or any other entity any Confidential Information (as defined below) pertaining to the business of the Company or any entity controlling, controlled by or under common control with the Company (each an “Affiliate”) except (i) while employed by the Company in the business of and for the benefit of the Company or its Affiliates or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company or its Affiliates, or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order the Company or its Affiliates to divulge, disclose or make accessible such information. For purposes of this Employment Agreement, “Confidential Information” shall mean non-public information concerning the Company’s financial data, statistical data, strategic business plans, product development (or other proprietary product data), customer and supplier lists, customer and supplier information, pricing data, information relating to governmental relations, discoveries, practices, processes, methods, trade secrets, developments, marketing plans and other non-public, proprietary and confidential information of the Company or its Affiliates, that, in any case, is not otherwise generally available to the public and has not been disclosed by the Company, or its Affiliates, as the case may be, to others not subject to confidentiality agreements. In the event the Executive’s employment is terminated hereunder for any reason, the Executive immediately shall return to the Company all Confidential Information in his possession; or

                  (iv) Disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, the Company, any Confidential Information relating to the Company’s operations, properties or otherwise to its particular business or other trade secrets of the Company, it being acknowledged by the Executive that all such information regarding the business of the Company compiled or obtained by, or furnished to, the Executive while the Executive shall have been employed by or associated with the Company is confidential information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information (1) is clearly obtainable in the public domain, (2) becomes obtainable in the public domain, except by reason of the breach by the Executive of the terms hereof, (3) was not acquired by the Executive in connection with his employment or affiliation with the Company, (4) was not acquired by the Executive from the Company or its representatives, or (5) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

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               (b) The Executive agrees and understands that the remedy at law for any breach by him of this Section 6 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of the Executive’s violation of any legally enforceable provision of this Section 6, the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 6 shall be deemed to limit the Company’s remedies at law or in equity for any breach by the Executive of any of the provisions of this Section 6, which may be pursued or availed of by the Company.

               (c) The Executive and the Company agree that the covenants of non-competition and non-solicitation are reasonable covenants under the circumstances, and further agree that if, in the opinion of any court of competent jurisdiction such covenants are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of these covenants as to the court shall appear not reasonable and to enforce the remainder of these covenants as so amended.

               (d) The Executive has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon the Company under this Section 6, and hereby acknowledges and agrees that the same are reasonable in time and otherwise, are designed to eliminate competition which otherwise would be unfair to the Company, do not stifle the inherent skill and experience of the Executive, would not operate as a bar to the Executive’s sole means of support, are fully required to protect the legitimate interests of the Company and do not confer a benefit upon the Company disproportionate to the detriment to the Executive.

               (e) The provisions of this Section 6 shall survive any termination of this Employment Agreement.

               (f) Notwithstanding anything else in this Employment Agreement, the cash component and benefits component of any severance payments made pursuant to Section 4 under this Employment Agreement shall cease in the event that the Executive breaches any covenant of this Section 6.

          7. Representations and Warranties of the Company.

               (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and has all requisite corporate power and authority to enter into, execute and deliver this Employment Agreement, fulfill its obligations hereunder and consummate the transactions contemplated hereby.

               (b) The execution and delivery of, performance of obligations under, and consummation of the transactions contemplated by, this Employment Agreement have been duly authorized and approved by all requisite corporate action by or in respect of the Company, and this Employment Agreement constitutes the legally valid and binding obligation of the Company, enforceable by the Executive in accordance with its terms.

               (c) No provision of the Company’s governing documents or any agreement to which its is a party or by which it is bound or of any material law or regulation of the kind usually applicable and binding upon the Company prohibits or limits its ability to enter into, execute and deliver this Employment Agreement, fulfill its respective obligations hereunder and consummate the transactions contemplated hereby.

          8. Miscellaneous.

               (a) The Executive represents and warrants that he is not a party to any agreement, contract or understanding, whether employment or otherwise, which would restrict or prohibit him from undertaking or performing employment in accordance with the terms and conditions of this Employment Agreement.

               (b) The provisions of this Employment Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provision to the extent enforceable in any jurisdiction nevertheless shall be binding and enforceable.

               (c) The rights and obligations of the Company under this Employment Agreement shall inure to the benefit of, and shall be binding on, the Company and its successors and assigns, and the rights and obligations (other than

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obligations to perform services) of the Executive under this Employment Agreement shall inure to the benefit of, and shall be binding upon, the Executive and his heirs, personal representatives and assigns. “Successors and assigns” shall mean, in the case of the Company, any successor pursuant to a merger, consolidation, or sale, or other transfer of all or substantially all of the assets or common shares of the Company.

               (d) Any controversy or claim arising out of or relating to this Employment Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then pertaining in the County of Cuyahoga, Ohio, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess the powers to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Section 8(d) shall be construed so as to deny the Company the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of his covenants contained in Section 6 hereof.

               (e) All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered personally or sent by facsimile transmission, overnight courier, or certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally or sent by facsimile transmission (provided that a confirmation copy is sent by overnight courier), one day after deposit with an overnight courier, or if mailed, five (5) days after the date of deposit in the United States mails, as follows:

To the Company:

Stoneridge, Inc.
9400 East Market Street
Warren, Ohio 44484
Telephone: (330) 856-2443
Attention: Secretary

With copy to:

Robert M. Loesch
Baker & Hostetler LLP
3200 National City Center
1900 E. 9th Street
Cleveland, Ohio 44114
Telephone (216) 861-7594
Fax (216) 696-0740

To Executive:

John C. Corey
c/o Stoneridge, Inc.
9400 East Market Street
Warren, Ohio 44484

With copy to:

Cary H. Hall
Wyche Law Firm
P.O. Box 728
Greenville, SC 29602
Telephone (864) 242-8299
Fax (864) 235-8900

               (f) The failure of either party to enforce any provision or provisions of this Employment Agreement shall not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Employment Agreement. The rights

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granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party’s right to assert all other legal remedies available to it under the circumstances.

               (g) This Employment Agreement supersedes all prior agreements and understandings between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing and signed by the party against whom the same is sought to be enforced.

               (h) This Employment Agreement shall not be assignable or otherwise transferable by Executive. The Company shall have the right to assign this Agreement to any successor which agrees to be bound by the terms hereof.

               (i) This Employment Agreement shall be governed by and construed according to the laws of the State of Ohio.

               (j) Captions and Section headings used herein are for convenience and are not a part of this Employment Agreement and shall not be used in construing it.

               (k) Where necessary or appropriate to the meaning hereof, the singular and plural shall be deemed to include each other, and the masculine, feminine and neuter shall be deemed to include each other.

               (l) This Employment Agreement may be executed in one or more counterparts, which together shall constitute one agreement. It shall not be necessary for each party to sign each counterpart so long as each party has signed at least one counterpart.

          IN WITNESS WHEREOF, the parties have executed this Employment Agreement on the day and year first set forth above.

Stoneridge, Inc., an Ohio corporation
By:
	George E. Strickler Executive Vice President and Chief Financial Officer
John C. Corey

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Appendix A

STONERIDGE, INC.

CHANGE IN CONTROL AGREEMENT

     THIS CHANGE IN CONTROL AGREEMENT (the “Agreement”) is by and between Stoneridge, Inc., an Ohio corporation (“Employer”), and                      (“Executive”), made this 6^th day of January, 2006.

RECITALS

     A. Executive is presently employed by Employer as its                     ;

     B. Employer wishes to induce Executive to continue as its                      and, accordingly, to provide certain employment security to Executive in the event of a “Change in Control” (as hereinafter defined);

     C. Employer believes that it is in the best interest of its shareholders for Executive to continue in his position on an objective and impartial basis and without distraction, whether based upon individual financial uncertainties or otherwise, or conflict of interest as a result of a possible or actual Change in Control; and

     D. In consideration of this Agreement, Executive is willing to continue as Employer’s                     ;

     NOW THEREFORE, in consideration of Executive continuing as the                      of Employer and of the mutual promises herein contained, Executive and Employer, intending to be legally bound, hereby agree as follows;

SECTION 1

DEFINITIONS

     1. A “Change in Control” for the purpose of this Agreement will be deemed to have occurred if, at any time:

          (a) the Board of Directors or shareholders of Employer approve a consolidation or merger that results in the shareholders of Employer, immediately prior to the transaction giving rise to the consolidation or merger, owning less than 50% of the total combined voting power of all classes of equity securities entitled to vote of the surviving entity immediately after the consummation of the transaction giving rise to the merger or consolidation;

          (b) the Board of Directors or shareholders of Employer approve the sale of substantially all of the assets of Employer or the liquidation or dissolution of Employer;

          (c) any person or other entity (other than Employer or a subsidiary of Employer or any Employer employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) purchases any common shares (or securities convertible into common shares) pursuant to a tender or exchange offer without the prior consent of the Board of Directors, or becomes the beneficial owner of securities of Employer representing 35% or more of the voting power of Employer’s outstanding securities; or

          (d) during any two-year period, individuals who at the beginning of such period constitute the entire Board of Directors cease to constitute a majority of the Board of Directors, unless the election or the nomination for election of each new director is approved by the Nominating and Corporate Governance Committee (if comprised entirely of directors who were in office at the beginning of that period) or at least two-thirds of the directors then still in office who were directors at the beginning of that period.

     2. A “Triggering Event” for the purpose of this Agreement will be deemed to have occurred if within two years after the date on which the Change in Control occurred:

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          (a) Employer separates Executive from the service of Employer, other than in the case of a Termination For Cause, as hereafter defined;

          (b) Executive separates from the service of Employer after Employer reduces Executive’s title, responsibilities, power or authority in comparison with his title, responsibilities, power or authority at or about the time of the Change in Control;

          (c) Executive separates from service with Employer after Employer assigns Executive duties which are inconsistent with the duties assigned to Executive on the date on which the Change in Control occurred, and which duties Employer persists in assigning to Executive despite the prior written objection of Executive;

          (d) Executive separates from service with Employer after Employer reduces Executive’s base compensation (unless such decrease is proportionate with a decrease in the base compensation of the executive officers of Employer as a group), or materially reduces his group health, life, disability or other insurance programs (including any such benefits provided to Executive’s family), his pension, retirement or profit-sharing benefits or any benefits provided by Employer’s Long-Term Incentive Plan or any substitute therefor, or excludes him from any plan, program or arrangement, including but not limited to bonus or incentive plans, in which the other executive officers of Employer are included; or

          (f) Executive separates from service with Employer after Employer requires Executive to be based at or generally work from any location more than 100 miles from the geographical center of the city where Executive worked on the date on which the Change of Control occurred (the “Location of Employment”) or Employer over the course of any calendar month requires Executive to be away from his Location of Employment for more than 50% of the business days during that month.

For purposes of this paragraph 2, the term “separates from the service of Employer” shall mean Executive’s death, retirement or termination of employment with Employer. However, the employment relationship shall not be treated as terminated and is treated as continuing intact while Executive is on sick leave or other bona fide leave of absence if the period of leave does not exceed six months, or, if longer, the right to continued employment is guaranteed by contract. Executive will not be treated as having terminated employment to the extent Executive provides more than insignificant services as defined by Internal Revenue Code Section 409A and the regulations thereunder.

     3. A “Termination For Cause” for the purposes of this Agreement will be deemed to have occurred if, and only if, the Board of Directors of Employer, or its designee, in good faith determines that termination is because of any one or more of the following:

          Executive’s:

          (a) misappropriation of funds from Employer;

          (b) conviction of a felony;

          (c) commission of a crime or act or series of acts involving moral turpitude;

          (d) commission of an act or series of acts of dishonesty that are materially inimical to the best interests of Employer;

          (e) willful and repeated failure to perform the duties associated with Executive’s position, which failure has not been cured within thirty (30) days after Employer gives notice thereof to Executive; or

          (f) failure to cooperate with any Employer investigation or with any investigation, inquiry, hearing or similar proceedings by any governmental authority having jurisdiction over Employer or Executive.

     4. “Executive’s Annual Bonus” means the greater of Executive’s average annual bonus over the last three completed fiscal years or the last five completed fiscal years. If Executive has not been employed by Employer for three completed fiscal years, Executive’s Annual Bonus means the average annual bonus awarded to Executive for the completed fiscal

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years during his employment, or if Executive has not been employed for a complete fiscal year, Executive’s Annual Bonus means an amount equal to the incentive compensation Executive would have been entitled to in the year the Triggering Event occurred calculated upon the assumption that 100% of personal and Employer targets or performance goals were achieved in that year.

     5. “Executive’s Annual Salary” means the greater of Executive’s annual base salary at the time of a Triggering Event or at the time of the occurrence of a Change in Control.

     6. “Executive Pro Rata Annual Bonus” means an amount equal to the pro rata amount of incentive compensation Executive would have been entitled to at the time of a Triggering Event calculated on the assumption that 100% of personal and Employer targets or performance goals were achieved in the year in which the Triggering Event occurred.

SECTION 2

TRIGGERING EVENT PAYMENTS

     1. Upon the earliest occurrence of a Triggering Event and upon the receipt of the release described in Section 9, Employer shall commence payments to Executive of a benefit, which will be in addition to any other compensation or remuneration to which Executive is, or becomes, entitled to receive from Employer. The payment of the benefit shall be made monthly for a period of twenty-four (24) months on the last business day of the month and shall commence on the last business day of the month immediately following the later to occur of a Triggering Event and the delivery of the release described in Section 9. The monthly payments shall be made in immediately available funds in an amount equal to 1/24^th of the sum of (i) two times Executive’s Annual Compensation plus (ii) two times Executive’s Annual Bonus. In addition to making the monthly payments described above, Employer shall pay Executive a lump sum payment equal to the Executive Pro Rata Annual Bonus at the same time it makes the first monthly payment described above. In addition, Employer shall, at its expense, provide Executive, and his family with life and health insurance (“Health and Welfare Benefits”) in an amount not less than that provided on the date on which the Change in Control occurred for a period of twenty-four (24) months following the later to occur of a Triggering Event and the delivery of the release described in Section 9; provided, however, Employer shall not be obligated to pay for Health and Welfare Benefits after the date on which Executive shall be eligible to receive benefits from another employer which are substantially equivalent to or greater than the benefits Executive and his family received from Employer; provided, further, that if Executive’s continuation in some or all of Employer Health and Welfare Benefits is not available, then Employer shall make additional monthly payments to Executive at the same time it makes the above monthly payments described above equal to the cost of the coverage, as determined solely by Employer for similarly situated employees of Employer, over a period of twenty-four (24) months with respect to those benefits among the Health and Welfare Benefits not available. All payments pursuant to this Agreement shall be made less standard required deductions and withholdings. Notwithstanding the above, if Executive is a “specified employee” (within the meaning of Section 409A of the Internal Revenue Code (the “Code”)), Executive’s date of payment shall be made or commence, as applicable, on the date which is six (6) months after the date of Executive’s separation from service with Employer or (b) Executive’s death.

     2. Notwithstanding anything to the contrary above, if any portion of the compensation under the payments pursuant to this Agreement, or under any other agreement with, plan or program of, Employer (in the aggregate “Total Payments”) would constitute an “excess parachute payment” under Section 280G of the Code, then the payments to which Executive is entitled under paragraph 1 of this Section 2 above shall be the value of the aggregate total payments that Executive is entitled to receive under paragraph 1, or under any other agreement with, plan or program of, Employer, up to the maximum amount of payments allowed under Section 280G of the Code without being an “excess parachute payment” less 3% of the Total Payments so that Executive is not subject to the tax imposed by Section 4999 of the Code and Employer does not lose its deduction under Section 280G of the Code. The calculation of such potential excise tax liability, as well as the method in which the compensation reduction is applied, shall be conducted and determined by a national accounting firm selected by Employer and those determinations shall be binding on all parties; provided, however, that if the calculation of such national accounting firm will result in a reduction in the payments to be made to Executive, prior to issuance of the final and binding determination, Executive shall be given a reasonable opportunity to (i) review and comment upon all of the material, information and documentation provided to the national accounting firm by Employer and (ii) offer such input as Executive may determine to be helpful to the national accounting firm’s preliminary determination.

     3. If, notwithstanding the determination of the national accounting firm, the Total Payments are determined by the Internal Revenue Service to be an “excess parachute payment” within the meaning of Section 280G of the Code that are subject to

14

the excise tax imposed by Section 4999 of the Code (or any similar tax or assessment), the amounts payable to Executive by Employer shall be increased to the extent necessary to place Executive in the same after-tax position as Executive would have been in had no such tax been imposed on any such amount paid or payable to Executive under this Agreement.

     4. If in any future year a determination is made that the decrease described in Section 2, paragraph 2 is not required in order to satisfy such paragraph 2, such payment shall be made as soon as administratively feasible.

SECTION 3

SETOFF

     No amounts otherwise due or payable under this Agreement will be subject to setoff or counterclaim by either party hereto.

SECTION 4

ATTORNEY’S FEES

     All attorney’s reasonable fees and related expenses incurred in good faith by Executive in connection with or relating to the enforcement by him of his rights under this Agreement will be paid for by Employer.

SECTION 5

SUCCESSORS AND PARTIES IN INTEREST

     This Agreement will be binding upon and will inure to the benefit of Employer and its successors and assigns, including, without limitation, any corporation or other person which acquires, directly or indirectly, by purchase, merger, consolidation or otherwise, all or substantially all of the business or assets of Employer. Without limitation of the foregoing, Employer will require any such successor, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that it is required to be performed by Employer. This Agreement will be binding upon and will inure to the benefit of Executive, his heirs at law and his personal representatives.

SECTION 6

ATTACHMENT

     Neither this Agreement nor any benefits payable hereunder will be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge or to execution, attachment, levy or similar process at law, whether voluntary or involuntary.

SECTION 7

NO EMPLOYMENT CONTRACT; TERMINATION

     This Agreement will not in any way constitute an employment agreement between Employer and Executive and it will not oblige Executive to continue in the employ of Employer, nor will it oblige Employer to continue to employ Executive, but it will merely require Employer to pay benefits hereunder to Executive under the agreed upon circumstances. In addition, provided a Change in Control has not occurred, this Agreement shall terminate and be of no further force or effect one year from the date Executive ceases to be a Board-elected officer or key employee (as determined by the Board of Directors of Employer in its sole discretion and reflected in the minutes of Board of Directors after notice to such Executive) of Employer.

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SECTION 8

RIGHTS UNDER OTHER PLANS AND AGREEMENTS

     The Change in Control benefits herein provided will be in addition to, and are not intended to reduce, restrict or eliminate any benefit to which Executive may otherwise be entitled by virtue of his termination of employment or otherwise.

SECTION 9

RELEASE

     As a condition to the payment of the benefits by Employer to Executive pursuant to this Agreement, Executive shall deliver a signed release of claims against Employer. Such release shall be delivered to Employer no later than thirty (30) days following a Triggering Event and shall be in a form and substance reasonably satisfactory to Employer and it must include the operative language substantially similar to the following:

In exchange for the payments set forth in the Change in Control Agreement by and between Stoneridge, Inc. (the “Employer”) and me (the “CIC Agreement”), I and my heirs, personal representatives, successors and assigns, hereby forever release, remise and discharge Employer and each of its past, present, and future officers, directors, shareholders, members, employees, trustees, agents, representatives, affiliates, successors and assigns (collectively the “Employer Released Parties”) from any and all claims, claims for relief, demands, actions and causes of action of any kind or description whatsoever, known or unknown, whether arising out of contract, tort, statute, treaty or otherwise, in law or in equity, which I now have, have had, or may hereafter have against any of the Employer Released Parties from the beginning of my employment with Employer to the date of this release, arising from, connected with, or in any way growing out of, directly or indirectly, my employment by Employer, my service as an officer or key employee, as the case may be, of Employer, the services provided by me to Employer, or any transaction prior to the date of this release and all effects, consequences, losses and damages relating thereto, including, but not limited to, all claims arising under the Civil Rights Acts of 1866 and 1964, the Fair Labor Standards Act of 1938, the Equal Pay Act of 1963, the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the Older Workers Benefit Protection Act of 1990, the Americans with Disabilities Act of 1990, the Civil Rights Act of 1991, the Family and Medical Leave Act of 1993, the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), Title 4112 of the Ohio Revised Code, and all other federal or state laws governing employers and employees; provided, however, that nothing in this release will bar, impair or affect the obligations, covenants and agreements of Employer set forth in the CIC Agreement.

If the release described in this Section 9 is not timely delivered by Executive to Employer, then this Agreement shall terminate and be of no further force or effect.

SECTION 10

NOTICES

     All notices and other communications required to be given hereunder shall be in writing and will be deemed to have been delivered or made when mailed, by certified mail, return receipt requested, if to Executive, to the last address which Executive shall provide to Employer, in writing, for this purpose, but if Executive has not then provided such an address, then to the last address of Executive then on file with Employer; and if to Employer, then to the last address which Employer shall provide to Executive, in writing, for this purpose, but if Employer has not then provided Executive with such an address, then to:

Secretary
Stoneridge, Inc.
9400 East Market Street
Warren, Ohio 44484

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EX-31.1

EXHIBIT 31.1

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

	I, John C. Corey, President, Chief Executive Officer and Director, 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 report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this 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 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 report based on such evaluation; and
(d)	Disclosed in this 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/ John C. Corey

John C. Corey, President, Chief Executive Officer and Director

May 5, 2006

EX-31.2

EXHIBIT 31.2

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

	I, George E. Strickler, Executive Vice President and Chief Financial 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 report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this 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 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 report based on such evaluation; and
(d)	Disclosed in this 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/ George E. Strickler

George E. Strickler, Executive Vice President and Chief Financial Officer

May 5, 2006

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, John C. Corey, President, Chief Executive Officer and Director, 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 report on Form 10-Q of the Company for the thirteen weeks ended April 1, 2006 (“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/ John C. Corey

John C. Corey, President, Chief Executive Officer and Director

May 5, 2006

     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, George E. Strickler, Executive 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 report on Form 10-Q of the Company for the thirteen weeks ended April 1, 2006 (“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/ George E. Strickler

George E. Strickler, Executive Vice President and Chief Financial Officer

May 5, 2006

     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.