-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HGuTwpseEwtexbnDumMKyb8b03oSPinYEORc4mNvCQbVn0JeTj1hMGo3Rw6kC1Xt t1TQCaGa0DNzfucA3Hu3QA== 0000950124-01-001654.txt : 20010328 0000950124-01-001654.hdr.sgml : 20010328 ACCESSION NUMBER: 0000950124-01-001654 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED ACCESSORY SYSTEMS LLC CENTRAL INDEX KEY: 0001057836 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 133848156 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-49011 FILM NUMBER: 1580915 BUSINESS ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 BUSINESS PHONE: 8109972900 MAIL ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 10-K 1 k61038e10-k.txt FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ------------ COMMISSION FILE NUMBER 333-49011 ------------- [ADVANCED ACCESSORY SYSTEMS LOGO] ADVANCED ACCESSORY SYSTEMS, LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3848156 -------- ---------- (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313 ------------------------------------------------ ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (810) 997-2900 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate fair market value of the registrant's Class A and A-1 Units held by non-affiliates of the registrant as of March 19, 2001, based upon the good faith determination of the Board of Managers was approximately $8,540,000. For purposes of this disclosure, shares of Class A and A-1 Units held by persons who hold more than 5% of the outstanding Class A and A-1 Units and Class A and A-1 Units held by officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes. The number of the registrant's Class A and A-1 Units, outstanding at March 19, 2001 was 9,236 and 5,133, respectively. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ 2 ADVANCED ACCESSORY SYSTEMS, LLC FORM 10-K YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS
PART I Item 1. BUSINESS................................................................................1 Item 2. PROPERTIES..............................................................................10 Item 3. LEGAL PROCEEDINGS.......................................................................10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................10 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS' MATTERS........................................................................11 Item 6. SELECTED FINANCIAL DATA.................................................................12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................14 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................20 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................20 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................48 PART III Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................48 Item 11. EXECUTIVE COMPENSATION..................................................................49 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................................................................51 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................52 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................................................53 SIGNATURES.......................................................................................56
i 3 FORWARD-LOOKING STATEMENTS THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K CONTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS, AND SUCH DIFFERENCES MAY BE MATERIAL. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." PART I ITEM 1. BUSINESS GENERAL Advanced Accessory Systems, LLC (together with its subsidiaries, the "Company" or "AAS") is one of the world's largest suppliers of towing and rack systems and related accessories for the automotive original equipment manufacturer ("OEM") market and the automotive aftermarket. The Company's products include a comprehensive line of towing systems including accessories such as trailer balls, ball mounts, electrical harnesses, safety chains and locking hitch pins. The Company's broad offering of rack systems includes fixed and detachable racks and accessories which can be installed on vehicles to carry items such as bicycles, skis, luggage, surfboards and sailboards. The Company's products are sold as standard accessories or options for a variety of light vehicles. In 2000, the Company estimates that more than 50% of its net sales were generated from products sold for light trucks. For the year ended December 31, 2000, the Company's net sales and EBITDA, as adjusted, were $318.8 million and $44.5 million, respectively. In September 1995, the Company, through its SportRack, LLC subsidiary ("SportRack"), acquired substantially all of the net assets of the MascoTech Accessories division (the "MascoTech Division") of MascoTech, Inc. ("MascoTech" or the "Predecessor"). The MascoTech Division was a North American supplier of rack systems and accessories to the automotive OEM market and aftermarket. In October 1996, the Company acquired (the "Brink Acquisition") all of the capital stock of Brink B.V., a private company with limited liability incorporated under the laws of The Netherlands and a European supplier of towing systems to the automotive OEM market and aftermarket. In December 1996, ownership of Brink B.V. and its subsidiaries was transferred to a newly formed subsidiary of the Company, Brink International B.V. ("Brink"). In August 1997, the Company formed Valley Industries, LLC ("Valley") to acquire (the "Valley Acquisition") the net assets of Valley Industries, Inc. ("Valley Industries"), a North American supplier of towing systems to the automotive OEM market and aftermarket. Two smaller acquisitions were completed in July 1997 by SportRack International, Inc. ("SportRack International"), a subsidiary of SportRack. SportRack International acquired from Bell Sports Corporation ("Bell") the net assets of its sportrack division, a Canadian supplier of rack systems and accessories to the automotive aftermarket. An affiliate of J.P. Morgan Partners, LLC ("JPMP") which is also an affiliate of the Company, at that time was a significant equity investor in Bell. SportRack International also acquired the capital stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian supplier of rack systems and accessories to the automotive OEM market and aftermarket. The acquisitions of the sportrack division of Bell and Nomadic are collectively referred to in this Form 10-K as the "SportRack International Acquisition." In January 1998, the Company through Brink, acquired (the "Ellebi Acquisition") the net assets of the towbar segment of Ellebi S.p.A. ("Ellebi"). Ellebi is an Italian supplier of towing systems to the automotive OEM market and aftermarket. In February 1998, the Company through SportRack International, acquired (the "Tranfo-Rakzs Acquisition") the net assets of Transfo-Rakzs, Inc. ("Transfo-Rakzs"). Transfo-Rakzs is a Canadian supplier of rear hitch rack carrying systems and related products to the automotive aftermarket. In February 2000, the Company through Valley, acquired (the "Titan Acquisition") the net assets of Titan Industries, Inc. ("Titan"). Titan is a North American Supplier of trailer balls and other towing related accessories to the automotive aftermarket. In September 2000, the Company through SportRack International, acquired (the "Barrecrafters Acquisition") the net assets of the Wiswall Hill Corporation ("Wiswall Hill" or "Barrecrafters"). Wiswall Hill is a North American supplier of rack systems and accessories to the automotive aftermarket under its popular brand name, Barrecrafters. 1 4 PRODUCTS The principal product lines of the Company are towing systems, rack systems and related accessories. In 2000, towing systems and towing accessories constituted approximately 59% and rack systems and rack accessories constituted approximately 41% of the Company's net sales. The Company believes it offers a more comprehensive product line than most of its competitors. The Company has devoted considerable resources to the engineering and designing of its products and, as a result, considers itself a market leader in the research and new product development of towing systems and rack systems. Towing Systems. The Company designs, manufactures and supplies towing systems to automotive OEMs and the automotive aftermarket which fit almost every light vehicle used for towing in North America and Europe. In the aggregate, the Company supplies over 2,000 different towing systems, as well as a line of towing accessories. The Company's towing systems sold in Europe are installed primarily on passenger cars. The Company's primary product within the European market is the fixed ball towbar that is specifically designed to be mounted on a particular car model in accordance with the OEM's specified mounting points. The Company also markets sophisticated detachable ball systems which are popular with owners of more expensive cars or cars on which the license plate would otherwise be blocked by a fixed ball towbar. The Company's towing systems sold in Europe currently undergo rigorous safety testing in order to satisfy European Community ("EC") regulatory standards. The Company's towing systems sold in North America are installed primarily on light trucks. As new vehicles are introduced, the Company designs towing systems to match the specific vehicle design. The Company has introduced many innovative product designs such as the tubular trailer hitch which is lighter in weight, less obtrusive and stronger than the conventional hitch. Many of the Company's product innovations have enabled the Company to improve the functionality and safety of towing systems while, at the same time, enhancing the overall appearance of vehicles utilizing these towing products. The Company also offers a line of towing accessories, including trailer balls, ball mounts, electrical harnesses, safety chains and locking hitch pins. Fixed Rack Systems. The Company supplies fixed roof rack systems for individual vehicle models that are generally sold to the automotive OEMs for installation at the factory or dealership. These rack systems are typically installed on a model for the life of its design, which generally ranges from four to six years. The Company has been an industry leader in developing designs which not only complement the styling themes of a particular vehicle, but also increase the utility and functionality of the rack system. Most of the fixed rack systems sold by the Company are composed of side rails which run along both sides of the vehicle's roof, feet which mount the side rails to the vehicle's roof, and cross rails which run between the side rails. Cross rails, which are attached to the side rails with stanchions, are typically movable and can be used to carry a load. The Company uses advanced materials such as lightweight, high strength plastics and roll formed aluminum to develop durable rack systems that optimize vehicle performance. Many of these products incorporate innovative features such as push button and pull lever stanchions, which allow easy movement of the cross rails to accommodate various size loads. These rack systems are utilized on a large number of light trucks, including Jeep Grand Cherokee and Cherokee, DaimlerChrysler minivans, Dodge Durango, GM Suburban, Tahoe and Yukon, Mercedes Benz M-Class and BMW X5. Detachable Rack Systems. The Company supplies a full line of detachable roof rack systems for distribution in both the automotive and sporting accessory aftermarkets. A detachable rack system typically consists of cross rails which are attached to the roof of a vehicle by removable mounting clips. Rack System Accessories. The Company designs and manufactures lifestyle accessories for distribution in both the automotive and sporting accessory aftermarkets. These accessories typically attach to the Company's towing systems or rack systems and are used for carrying items such as bicycles, skis, luggage, surfboards and sailboards. 2 5 CUSTOMERS AND MARKETING Management believes that the Company has strong and diverse industry relationships which are based on its reputation for high service levels, strong technical support, innovative product development, high quality and competitive pricing. Sales to OEM and aftermarket customers represented approximately 68% and 32% of the Company's net sales, respectively, in 2000. In addition, sales to DaimlerChrysler and General Motors were approximately 32% and 11%, respectively, of the Company's aggregate net sales in 2000. Automotive OEMs. The Company obtains most of its new orders through a presourcing process by which the customer invites one or a few preferred suppliers to design and manufacture a component or system that meets certain price, timing, functional and aesthetic parameters. Upon selection at the development stage, the Company and the customer typically agree to cooperate in developing the product to meet the specified parameters. Upon completion of the development stage and the award of the manufacturing business, the Company receives a purchase order that covers parts to be supplied for a particular car model. Such supply arrangements typically involve annual renewals of the purchase order over the life of the model, which is generally four to six years. In addition, the Company enters into long-term contracts with certain OEM customers which require the Company to make annual price reductions. The Company competes to supply parts for successor models even though the Company may currently supply parts on the predecessor model. Sales to OEMs are made directly by the Company's internal sales staff and outside sales representatives. The Company sells its products to most of the automotive OEMs selling light vehicles in North America and/or Europe, including DaimlerChrysler, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan, Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler with substantially all of its North American towing systems and rack systems and accessories. The Company also supplies approximately 50% of the rack system requirements of General Motors. The following chart sets forth information regarding vehicle models on which the Company's products are used or for which the Company has been awarded business.
AWARDED BUSINESS ON PRODUCT OEM CUSTOMER 2000 PRODUCTION(A) FUTURE PRODUCTION(b) --------------- ------------------ ------------------------------------ -------------------------- Towing Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty Voyager, Town & Country, Dodge Ram Pick-up, Dakota, Wrangler, Durango, Neon, PT Cruiser, Plymouth Prowler, Ram Van, 300M, Voyager, Stratus, Sebring General Motors CK Pick-up, ML Van, S-10, Cavlier, Sunfire Frontera, Corsa, Arena (van),Vectra Blazer, APV Vans, Bravada, Jimmy, Geo Tracker, Blazer, Corsa, Astra, Grand Priz (hatchback), Astra (Sedan), Cadilac Seville Astra (Station wagon), Calibra, Vectra (Hatchback), Vectra (Sedan), Vectra (Station wagon), Omega (Sedan), Omega (Station wagon), Campo, Frontera, Monterey, Zafira, Chevrolet Malibu Ford Explorer, Ranger, Focus Wagon, Ranger, Windstar Minivan, Focus Mondeo, Explorer Mondeo, Mondeo (Wagon), Scorpio (Sedan), Scorpio (Wagon), Maverick, Transit Renault Laguna (Station wagon), Laguna, Laguna, Matra Isuzu Rodeo, Trooper Toyota 4-Runner, RAV4, Tacoma Pick-up, Seniena Landcrusier pick-up Previa, 355N Minivan Sequoia SUV, Tundra Pick-up Corolla, Corolla Wagon Camry, Hi-Lux, Picnic, Previa, Carina Hi-Ace, Celica, Yaris Verso Nissan Pathfinder, Pick-up, Quest, Primera, Primera Wagon, Infiniti, XTerra Vehicle, QW Truck, Micra, Sunny, Patrol, Terrano, MPV, Micra Frontier Almera, Primera, Maxima, King Cab, Almera, Almera MPV, Tino MPV Terrano, Mavric, Patrol, Serena, Vanette Mazda 121, MPV, J54, J16, 626, 323 626 Wagon, 323, Demio Honda Passport, Accura MDX, CRV PF Van, Honda HP Mitsubishi Montero, Montero Sport, Carisma, Pajero L200 FIAT Almost all models Alpha Romeo Almost all models Lancia Almost all models Subaru Outback, Legacy, Forester 79V Range Rover Range Rover, Land Rover Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
3 6
AWARDED BUSINESS ON PRODUCT OEM CUSTOMER 2000 PRODUCTION(a) FUTURE PRODUCTION(b) --------------- ------------------ ---------------------------------------- -------------------------- Towing Systems Volvo (continued) (Station wagon), 850 (Sedan), 850 (continued) SAAB 9000 series, 900 series 900 series, 9000 series, 9000 station wagon, small car 9-3, small car 9-5, small station wagon Hyundai Lantra, Sonata, Starex 4WD, Accent, Atos Trajet, Lantra, Joyce Verna Peugeot 106, 306, 406 (Sedan), 406 (Station 206, 206 Sport, 207, 306 Break wagon), 406 (Coupe), 605, 806, J5 (Van), Boxer (Van) Suzuki Carry Daihatsu Gran Move, Move LCX Mini Van KIA Clarus, Frontiers, Carnivall SEAT Toledo Skoda SK240 Volkswagen Golf 4, Caddy, Transporter, Polo, Euro Daewoo Nubira U 100 Rack Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty, Durango, CS Voyager, Town & Country, Durango, Mercedes M-Class, PT Cruiser, BW 72 General Motors Suburban, Yukon, Tahoe, Astro, Hummer, Trans Port, Venture, Safari Montana Escalade, Denali, Avalanche, Z-71 Saturn SUV SUV Envoy, Trail Blazer, Bravada Ford D219 Honda Accura MDX Honda HP Nissan Pathfinder, Infinity QX4 Toyota Tacoma Mitsubishi Montero Sport Subaru Outback, Impreza, Legacy, Forester KIA Sportage Sadona Hyundi Santa Fe, Alantra, Sanada, Accent SEAT Vario GP99 Scoda Octavia Opel Astra Vectra, Astra BMW E-53 (SUV)
- ------------- (a) Represents models for which the Company produced products in 2000. (b) The amount of products produced under these awards is dependent on the number of vehicles manufactured by the OEMs. Many of the models are versions of vehicles not yet in production. There can be no assurance that any of these vehicles will be produced or that the Company will generate certain revenues under these awards even if the models are produced. Automotive Aftermarket. The Company sells its products directly into the automotive aftermarket through a number of channels, including wholesalers, retailers and installers, through its internal sales force and outside sales representatives. The largest of the Company's aftermarket customers include U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire. The Company believes that it has established a reputation as a highly reliable aftermarket supplier able to meet its customers' requirements for on-time deliveries while minimizing the carrying levels of inventory. For example, Valley began supplying towing systems to U-Haul (which the Company believes, is the largest installer of towing systems in the United States) in 1994 and for the year ended December 31, 2000, supplied approximately 50% of U-Haul's towing system requirements. PRODUCT DESIGN, DEVELOPMENT AND TESTING The Company believes that it is a leader in the design of towing systems and rack systems and accessories. The Company believes it offers products that possess greater quality, reliability and performance than the products sold by many of its competitors. The 128 members of the Company's engineering and design staff possess strong technical skills. The Company currently holds more than 125 U.S. and foreign patents, and has numerous patent applications pending. The expiration of such patents are not expected to have a material adverse effect on the Company's operations. The Company spent $9.8 million, $10.3 million and $9.6 million on engineering, research and development in 2000, 1999 and 1998, respectively. The Company works closely with OEMs to constantly improve design and manufacturing technology and product functionality. When an OEM is in the process of developing a new model, it typically approaches an established or incumbent supplier with a request to supply the required towing system or rack system. The Company is typically contacted two to four years prior to the 4 7 start of production of the new model. The Company's product development engineers then work closely with the OEM to develop a product that satisfies the OEM's aesthetic and functional requirements. This relationship also provides the Company with a competitive advantage in the aftermarket because, in many cases, the Company already possesses the knowledge to create a system compatible with new model vehicles prior to release. The Company has extensive testing capabilities which enable it to test and certify its products. The Company subjects its products to tests which it believes are more demanding than conditions which would occur during normal use. The Company has specialized equipment which it has purchased or developed for use in its testing laboratories. Since May 1994, 14 European countries enacted the new EC regulatory standards which require that towing systems undergo significant safety testing prior to gaining approval for sale. This safety testing requires that a towing system be extensively tested for fatigue and includes subjecting a towing system to upwards of two million high load pulses. The Company does its testing in its own laboratory under the control of an independent institute that is authorized by the EC to approve the towing systems for sale. The quality assurance system is regularly audited by an independent institute and by the automotive OEMs themselves. The Company has continually been awarded the highest distinction of achievement by the independent institute. MANUFACTURING PROCESS The Company's manufacturing operations are directed toward achieving ongoing quality improvements, reducing manufacturing and overhead costs, realizing efficiencies and adding flexibility. The Company has organized its production process to minimize the number of manufacturing functions and the frequency of material handling, thereby improving quality and reducing costs. In addition, the Company uses cellular manufacturing which improves scheduling flexibility, productivity and quality while reducing work in process and costs. The manufacturing operations utilized by the Company include metal cutting, bending, cold forming, roll forming, stamping, welding, plastic injection molding, painting, assembly and packaging. The Company performs most manufacturing operations in-house but outsources certain processes depending on the capabilities and capacities of individual plants and cost considerations. For example, while some of the Company's towing systems manufacturing facilities have painting capabilities, the Company has chosen to outsource the painting of its rack systems. The Company has established quality procedures at each of its facilities and strives to manufacture the highest quality product possible. The Company has achieved ISO-9000 or QS-9000 certification for 13 of its 21 manufacturing and engineering facilities and is in the process of obtaining certification for other of its facilities. The Company has received numerous quality and performance awards from its OEM customers, including DaimlerChrysler's Gold Award, General Motors's Supplier of the Year Award, Ford's Q-1 Award, Toyota's Distinguished Supplier Award, KIA's Preferred Supplier Award and the Nissan Superior Supplier Performance Award. RAW MATERIALS The principal raw material used in the Company's products is steel, which is purchased in sheets, rolls, bars or tubes and represents approximately 50% of the Company's raw material costs. The Company also purchases significant amounts of aluminum and plastics. The Company has various suppliers globally and has not had difficulties in procuring raw materials nor does it expect to have any problems in the future. The Company is committed to supplier development and long-term supplier relationships. However, most of the Company's raw material demands are for commodities and, as such, can be purchased on the open market on an as needed basis. The Company selects among available suppliers by comparing cost, consistent quality and timely delivery as well as compliance with QS-9000 and ISO-9000 standards. The Company customarily obtains its supplies through individual purchase orders. In some instances, the Company will enter into short-term contracts with its suppliers which generally run one year or less. However, the Company has signed a long-term supply agreement which terminates in 2004 with one of its painting suppliers, Crown Group, Inc. ("Crown"), under which Crown opened a state-of-the-art paint line in a facility adjacent to the Company's Port Huron, Michigan facility. 5 8 NORTH AMERICAN AUTOMOTIVE INDUSTRY During the later part of 2000, sales in the North American automotive industry began to decline and some of the Company's major customers adjusted production in the 4th quarter of 2000 to reduce their inventory of unsold vehicles. This lowering of production negatively impacted the Company's sales during the 4th quarter of 2000. This trend has continued during the early part of 2001. It is anticipated that U.S. auto sales for 2001 will be in the range of 15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000. In addition, DaimlerChrysler, the Company's largest customer, incurred substantial losses at its North American, Chrysler Group. During the first quarter of 2001, DaimlerChrysler announced a restructuring plan to return the Chrysler Group to profitability in 2002. This restructuring plan includes the reduction of 26,000 employees and a 15% reduction in material cost by 2003. Effective January 1, 2001, the Company agreed to reduce prices on products sold to DaimlerChrysler and has been able to partially offset these price reductions through reductions in its material costs. The Company continues to work with DaimlerChrysler to help identify other potential cost savings. AUTOMOTIVE OEM AND AFTERMARKET TRENDS As automobile and light truck manufacturers have faced increased global competition, they have sought to significantly improve quality, reduce costs and shorten the development time required for new vehicle models. These changes have altered the OEM/supplier relationship and benefited larger suppliers that have strong product engineering and development capabilities, superior quality products, lower unit costs and the ability to deliver products on a timely basis. As a result, the Company believes that it has benefited and will continue to benefit from the following automotive OEM and aftermarket trends. Consolidation of Supplier Base by OEMs. The OEMs have significantly consolidated their supplier base in an effort to reduce their procurement-related costs, ensure high quality and accelerate new model development. As a result, many smaller, poorly capitalized suppliers with limited product lines and engineering and design capabilities have been eliminated as direct suppliers to OEMs. Consequently, larger suppliers with broad product lines, in-house design and engineering capabilities and the ability to effectively manage their own supplier bases, have been able to significantly increase their market share. The consolidation by OEMs has altered the typical structure of supplier contracts. In the past, OEMs supplied all design, development and manufacturing expertise for accessory parts and were responsible for consistency of quality and reliability of delivery. Today, however, the OEMs typically involve potential suppliers earlier in the design and development process to encourage suppliers to share design and development responsibility. In some cases, sole-source supply contracts, which cover the life of a vehicle or platform, are awarded. Both OEMs and suppliers benefit from the consolidation trend. Suppliers are able to devote the resources necessary for proprietary product development with the expectation that they will have the opportunity to profit on such investment over the multi-year life of a contract. OEMs benefit from shared manufacturing cost savings attributable to long, multi-year production runs at high capacity utilization levels. Emergence of European Community Regulatory Standards. Trends within the European towing systems market result primarily from EC regulatory standards and the corresponding legislative framework. Such standards provide that a towing system must fit all the vehicle manufacturer's recommended fitting points, must not interfere with the vision of the number plate when not in use and must meet strict testing criteria for durability and safety. These standards have been adopted by The Netherlands, Germany, Sweden, Italy, the United Kingdom, France, Belgium, Luxembourg, Spain, Austria, Switzerland and Scandinavia. Other EC countries are expected to adopt the legislation. All of the Company's towing systems sold in Europe currently undergo rigorous safety testing in order to satisfy these EC regulatory standards. Increased Levels of Manufacturing in North America by Transplants. As a result of the relative cost advantage of producing vehicles in North America, many foreign automobile manufacturers with manufacturing operations in the United States ("transplants") have increased their share of North American light vehicle production from approximately 6% in 1986 to approximately 24% in 2000. Industry sources forecast that this trend will continue. For example, BMW commenced manufacturing in the U.S. in 1996 and launched production of its E-53 SUV in 1999. In addition, Toyota launched production of its Tundra pickup truck in Indiana during 1999 and launched production of its Sequoia SUV during 2000, Honda began production of its Odyssey minivan in North America during 1999 and began production of its Acura MD SUV during 2000. The Company believes that increased levels of manufacturing of light trucks in North America by transplants will benefit full service, high quality suppliers with North American operations such as the Company. 6 9 COMPETITION The Company's industry is highly competitive. A large number of actual or potential competitors exist, some of which are larger than the Company and have substantially greater resources than the Company. The Company competes primarily on the basis of product quality, cost, timely delivery, customer service, engineering and design capabilities and new product innovation in both the OEM market and the automotive aftermarket. The Company believes that as OEMs continue to strive to reduce new model development cost and time, innovation and design and engineering capabilities will become more important as a basis for distinguishing competitors. The Company believes it has an outstanding reputation in both of these areas. In the automotive aftermarket, the Company believes that its wide range of product applications is a competitive advantage. For example, the Company has developed towing systems to fit almost every light vehicle used for towing in North America and Europe. The Company believes its competitive advantage in the aftermarket is enhanced by its close relationship with OEMs, allowing the Company access to automobile design at an earlier time than its competitors. In the towing systems market, the Company competes with Draw-Tite Inc. and Reese Products Inc., both of which are subsidiaries of Metaldyne Corporation, Bosal Holding B.V., The Oris Group, Production Stamping Inc. and numerous smaller competitors. In the rack systems and accessories market, the Company's competitors include JAC Holding Corp., Thule International S.A., Yakima Products, Inc., Graber Products Inc. and several smaller competitors. COMPETITIVE ADVANTAGES Leading Global Market Position. Based on its knowledge of the industry, the Company believes that it is one of the world's largest suppliers of towing systems and one of the world's largest suppliers of rack systems. The Company also believes, based on its knowledge of the industry, that it is the largest supplier of towing systems in Europe and the second largest supplier of towing systems in North America. The Company also believes that it is one of the two largest suppliers of rack systems sold to automotive OEMs in North America. The Company has 27 facilities strategically located in North America and Europe. By virtue of its size and global presence, the Company believes it benefits from several competitive advantages, including the ability to (i) satisfy local design, production, quality and timing requirements of global OEMs; (ii) provide "one-stop shopping" for customers' product and service requirements; (iii) optimize plant production; (iv) maximize its raw material purchasing power; (v) spread its selling, administrative and product development expenses over a large base of net sales; and (vi) develop and maintain state-of-the-art production facilities. Strong Relationships with Diverse Customer Base. The Company has an established position as a Tier 1 supplier of towing and/or rack systems to most of the OEMs manufacturing in North America and/or Europe including DaimlerChrysler, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan, Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler with substantially all its North American towing systems and rack systems and accessories. The Company also supplies approximately 50% of the rack system requirements of General Motors. Tier 1 status and strong customer relationships are important elements in achieving continued profitable growth because, as OEMs narrow their supplier bases, well regarded, existing suppliers have an advantage in gaining new contracts. The evolution of OEM relationships into strategic partnerships provides a significant advantage to Tier 1 suppliers with system integration capabilities (such as the Company) in retaining existing contracts as well as in participating during the design phase for new vehicles, which is integral to becoming a supplier for such new platforms. The Company is also a leading supplier of towing and rack systems to automotive aftermarket wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire. Comprehensive Product Line. The Company continues to position itself as a leading supplier to its customers for a growing range of products and services. Through its offering of over 2,000 towing system models, the Company's products fit almost every light vehicle produced in North America and Europe. The Company is one of a limited number of European manufacturers with such a broad product line that also satisfies EC regulatory standards. Competitors whose products do not satisfy such standards face substantial design and testing costs to offer a comparable product line that meets these safety standards. The Company has provided OEMs with fixed rack systems for approximately half of the light truck models produced in North America that utilize vehicle-specific fixed racks. The Company believes that its broad product offerings also facilitate strategic partnerships with automotive aftermarket wholesalers, retailers and installers. 7 10 Design and Engineering Expertise. The Company has an engineering and research and development staff that develops new products and processing technologies. The Company works directly with OEM designers to create innovative solutions that simplify vehicle assembly and reduce vehicle cost and weight. The Company is responsible for many industry innovations, including lighter, less obtrusive, round tube towing hitches as well as push button and pull lever stanchions on fixed rack systems. The Company believes its design and engineering capabilities provide significant value to its customers by (i) shortening OEM new product development cycles; (ii) lowering OEM manufacturing costs; (iii) providing technical expertise; and (iv) permitting aftermarket customers to maintain lower inventory levels. The Company also believes that its design innovations have created value for end users by providing products that are durable and easy to install and that enhance vehicle utility and appearance. High Quality, Low Cost Manufacturing Position. The Company believes that it is one of the highest quality, lowest cost suppliers of towing and rack systems in North America and Europe. The Company has received numerous quality and performance awards, including DaimlerChrysler's Gold Award, General Motor's Supplier of the Year Award, Ford's Q-1 Award, Toyota's Distinguished Supplier Award, Kia's Preferred Supplier Award and Nissan's Superior Supplier Performance Award. Supplier quality systems are currently being standardized across OEMs through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or QS-9000 certification for 12 of its 21 manufacturing and engineering facilities and is in the process of obtaining certification for other of its facilities. The Company's low cost position is a result of its strict cost controls and continuous improvement programs designed to enhance productivity. OEMs typically prefer stable suppliers who can generate productivity gains that can be shared to reduce OEM costs. The Company's cost controls are closely integrated with its quality driven manufacturing operations, thereby allowing it to profitably deliver high quality, easy to install and competitively-priced components on a just-in-time basis. The Company's focus on low cost manufacturing also provides benefits when selling products to the automotive aftermarket. BUSINESS STRATEGY The Company's objective is to strengthen its position as a leading global supplier of automotive exterior accessories, thereby increasing revenue and cash flow. In order to accomplish its goal, the Company intends to pursue the following strategies. Increase Global Market Share. The Company intends to capitalize on its expanded presence in North America and Europe by marketing products to its global automotive OEM customers. Through its past acquisitions of complementary product lines, the Company is able to offer an expanded range of products and services to its extended customer base. The Company also expects to secure new customers by virtue of its expanded market presence and broad product and service offerings. The Company believes its continued emphasis on new technology (both product and process), will result in the development of innovative, towing and rack system products which it expects to market to its expanding customer base. Maintain and Enhance Strong Customer Relationships. The Company intends to strengthen and expand its relationships with global automotive OEMs and aftermarket customers by (i) continuing its commitment to innovative design and development of products during the early stages of vehicle design and redesign; (ii) building on its position as a low cost supplier of quality accessory products; (iii) offering new products in existing and new geographic areas by taking advantage of existing OEM relationships; and (iv) working with aftermarket customers to develop new products and marketing strategies. Pursue Strategic Acquisitions. In response to the trend in the OEM market toward systems suppliers, the Company is focused on making strategic acquisitions that will enhance its ability to provide integrated systems (such as a towing or rack system) or otherwise leverage its existing business by providing additional product, manufacturing and service capabilities. The Company also intends to pursue acquisitions which will expand its customer base by providing an entree to new customers, including expansion into selected geographic areas. The Company believes that such acquisitions should provide additional opportunities for increased net sales and cash flow by enhancing the Company's manufacturing and marketing capabilities. ENVIRONMENTAL REGULATION The Company's operations are subject to foreign, state and local environmental laws and regulations that limit the discharges into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage, and disposal of certain materials, substances and wastes. In many jurisdictions, these laws are complex, change frequently and have tended to become stronger over time. In jurisdictions such as the United States, such obligations, including but not limited to those under the Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA"), may be joint and several and may apply to conditions at properties presently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which waste or other contamination attributable to an entity or its predecessors have been sent or otherwise come to be located. The 8 11 Company believes that its operations are in substantial compliance with the terms of all applicable environmental laws and regulations as currently interpreted. In addition, to the best of the Company's knowledge, there are no existing or potential environmental claims against the Company nor has the Company received any notification nor is there any current investigation regarding, the disposal, release, or threatened release at any location of any hazardous substance generated or transported by the Company. However, the Company cannot predict with any certainty that it will not in the future incur liability under environmental laws and regulations with respect to contamination of sites currently or formerly owned or operated by the Company (including contamination caused by prior owners and operators of such sites), or the off-site disposal of hazardous substances. While historically the Company has not had to make significant capital expenditures for environmental compliance, the Company cannot predict with any certainty its future capital expenditures for environmental compliance because of continually changing compliance standards and technology. Future events, such as changes in existing environmental laws and regulations or unknown contamination of sites owned or operated by the Company (including contamination caused by prior owners and operators of such sites), may give rise to additional compliance costs which could have a material adverse effect on the Company's financial condition. Furthermore, actions by foreign, federal, state and local governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the products manufactured by the Company or otherwise adversely affect the demand for its products. Additionally, the Company does not currently have any insurance coverage for environmental liabilities and does not anticipate obtaining such coverage in the future. EMPLOYEES At December 31, 2000, the Company had approximately 2,200 employees of whom approximately 1,700 are hourly employees and approximately 500 are salaried personnel. Approximately 150 of the Company's employees in the United States at the Port Huron, Michigan facility are represented by the Teamsters Union. Collective bargaining agreements with the Teamsters Union affecting these employees expire in April 2004. As is common in many European jurisdictions, substantially all of the Company's employees in Europe are covered by country-wide collective bargaining agreements. The Company believes that its relations with its employees are good. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS For financial information about foreign and domestic operations of the Company, see "Note 14" of the Company's "Notes to Consolidated Financial Statements". 9 12 ITEM 2. PROPERTIES The Company's executive offices are located in 14,550 square feet of leased space in Sterling Heights, Michigan. The Company has 27 facilities with a total of 2,252,954 square feet of space. The Company believes that substantially all of its property and equipment is in good condition and that it has sufficient capacity to meet its current and projected manufacturing and distribution needs. The Company's facilities are as follows:
SQUARE OWNED/ LEASE LOCATION PRINCIPAL FUNCTIONS FEET LEASED EXPIRATION** --------------------------- ----------------------------- --------- --------- -------------- North America ------------- Shelby Township, Michigan* Manufacturing 74,800 Owned -- Shelby Township, Michigan* Manufacturing 13,000 Leased 2008 Port Huron, Michigan* Manufacturing 200,000 Owned -- Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003 Madison Heights, Michigan* Administration and 90,000 Leased 2002 manufacturing Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2002 Shelburne, Vermont Administration, manufacturing 73,000 Leased 2001 and engineering Wyandot, Michigan Manufacturing 5,000 Leased 2002 Lodi, California Administration, manufacturing and 150,000 Owned -- engineering Lodi, California Warehousing 77,760 Leased 2002 Grove City, Ohio Warehousing 70,644 Leased 2006 Dallas, Texas Warehousing 23,800 Leased 2005 Granby, Quebec Administration, manufacturing and 88,200 Leased 2003 warehousing Bromptonville, Quebec Manufacturing 2,000 Leased 2000 Hamer Bay, Ontario Manufacturing 15,000 Owned -- Europe Sandhausen, Germany* Administration and engineering 5,000 Leased Month to Month Barcelona, Spain Manufacturing 6,200 Leased Month to Month Bakov nad Jizerou, Czech Manufacturing 6,000 Leased Month to Month Republic* Staphorst, The Netherlands* Administration, engineering 405,000 Owned -- manufacturing, and warehousing Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned -- Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned -- Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned -- Vanersborg, Sweden* Manufacturing and warehousing 160,000 Leased 2004 Wolsztyn, Poland Warehousing 5,000 Leased Month to Month Reims, France Manufacturing and warehousing 115,000 Owned -- St. Victoria di Gualtieri, Italy Administration, engineering, 170,000 Leased 2003 manufacturing and warehousing St. Victoria di Gualtieri, Italy Manufacturing 110,000 Leased 2003
- ----------------- * QS 9000 and/or ISO 9000 certification. ** Gives effect to all renewal options. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is subject to legal proceedings and other claims arising in the ordinary course of its business. The Company believes that it is not presently a party to any litigation the outcome of which would have a material adverse effect on its financial condition or results of operations. The Company maintains insurance coverage against claims in an amount which it believes to be adequate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS' MATTERS There is no established public trading market for the Company's Class A or Class A-1 Units. At March 19, 2000, there were 19 holders of record of Class A Units and one holder of record of Class A-1 Units. Except as set forth below with respect to quarterly tax distributions to Members, the Company has never declared or paid dividends (or made any other distributions) on the Class A Units or the Class A-1 Units and does not anticipate doing so in the foreseeable future. Under certain loan agreements, the Company is prohibited from declaring or paying any cash dividend or making distributions thereon, except for quarterly distributions to Members to the extent of any tax liability with respect to the Class A Units and Class A-1 Units and except for repurchases of Class A Units from employees upon a termination of their employment with the Company pursuant to an Employment Agreement and the Operating Agreement. As listed below, since January 1, 1998, the Company has issued unregistered securities to investors and to certain other individuals. Each such issuance was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, contained in Section 4(2) of the Securities Act on the basis that such transactions did not involve a public offering. 1) On April 22, 1998 pursuant to their respective subscription agreements, the Company issued an aggregate of 43 of its Class A Units for an aggregate purchase price of approximately $150,000, to Gerrit de Graaf and J. Wim Rengelink. 2) On May 18, 1999 pursuant to a subscription agreement, the Company issued 25 of its Class A Units for an aggregate purchase price of $100,000 to Bryan A Fletcher. 3) On January 1, 2000, the Company issued 3,655 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC in exchange for 3,655 Class A Units. 4) On November 11, 2000 the Company issued 1,478 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC in exchange for 1,478 Class A Units. 11 14 ITEM 6. SELECTED FINANCIAL DATA The information below presents consolidated financial data of the Company and includes (i) the operations of Brink subsequent to the Brink Acquisition on October 30, 1996; (ii) the operations of the sportrack division of Bell and Nomadic subsequent to the SportRack International Acquisition on July 2, 1997 and July 24, 1997, respectively, (iii) the operations of Valley subsequent to the Valley Acquisition on August 5, 1997, (iv) the operations of Ellebi subsequent to the Ellebi Acquisition on January 2, 1998, (v) the operations of Tranfo-Rakzs subsequent to the Tranfo-Rakzs Acquisition on February 7, 1998, (vi) the operations of Titan subsequent to the Titan Acquisition on February 22, 2000 and (vii) the operations of Barrecrafters subsequent to the Barrecrafters Acquisition on September 5, 2000, and have been derived from the audited financial statements of the Company. The following table should be read in conjunction with the consolidated financial statements of the Company and notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 2000(4) 1999 1998(3) 1997(2) 1996(1) ------------ ------------ ------------ -------------- ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales .................................... $ 318,817 $ 314,142 $ 292,145 $ 189,352 $ 81,466 Cost of sales(5) ............................. 239,090 227,889 215,441 136,230 53,607 --------- --------- --------- --------- --------- Gross profit ............................... 79,727 86,253 76,704 53,122 27,859 Selling, administrative and product development expenses(5) .................... 45,527 50,258 50,839 31,350 13,413 Amortization of intangible assets ............ 3,297 3,245 3,551 2,336 2,475 Impairment charge(5) ......................... -- -- 7,863 -- -- --------- --------- --------- --------- --------- Operating income ........................... 30,903 32,750 14,451 19,436 11,971 Other (income) expense Interest expense ........................... 17,950 17,453 18,633 12,627 4,312 Foreign currency (gain) loss(6) ............ 5,386 7,912 (4,995) 6,097 1,330 Other, net ................................. 52 1,990 -- -- (80) --------- --------- --------- --------- --------- Income before minority interest, extraordinary charge and income taxes .................................... 7,515 5,395 813 712 6,409 Provision (benefit) for income taxes(7) ................................... (278) 417 903 (2,856) (491) --------- --------- --------- --------- --------- Income before minority interest and ........ 7,793 4,978 (90) 3,568 6,900 extraordinary charge Minority interest ............................ -- -- -- 97 69 --------- --------- --------- --------- --------- Income before extraordinary charge ................................... 7,793 4,978 (90) 3,471 6,831 Extraordinary charge(8) ...................... -- -- -- 7,416 1,970 --------- --------- --------- --------- --------- Net income (loss) .......................... $ 7,793 $ 4,978 $ (90) $ (3,945) $ 4,861 ========= ========= ========= ========= ========= OTHER DATA: Cash flows from operating Activities ................................. $ 21,416 $ 25,014 $ 21,879 $ 6,982 $ 9,917 EBITDA(9) .................................... 44,546 46,539 38,364 27,916 16,448 Depreciation ................................. 10,346 10,418 10,857 6,144 2,002 Capital expenditures ......................... 10,445 11,775 9,998 7,751 3,124 Ratio of EBITDA to interest expense .......... 2.48x 2.67x 2.06x 2.21x 3.81x Ratio of earnings to fixed charges(10) ....... 1.36x 1.29x 1.04x 1.06x 2.43x BALANCE SHEET DATA (AT END OF PERIOD) Cash ......................................... $ 3,315 $ 8,718 $ 11,240 $ 27,348 $ 2,514 Working capital .............................. 34,791 36,825 49,232 65,803 14,368 Total assets ................................. 242,497 251,213 258,981 265,558 148,359 Total debt, including current maturities ..... 175,635 178,498 187,524 197,126 93,142 Mandatorily redeemable warrants .............. 5,010 4,810 4,409 3,507 3,498 Distributions to Members' .................... 6,090 4,720 195 2,945 3,692 Members' equity .............................. 5,896 10,331 15,147 16,444 18,463
- -------------- (1) In October 1996, the Company acquired Brink. The Brink Acquisition has been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Brink are included in the consolidated operating results of the Company subsequent to October 30, 1996. (2) The Company acquired the net assets of the sportrack division of Bell on July 2, 1997, Nomadic on July 24, 1997, and the net assets of Valley Industries on August 5, 1997. The SportRack International Acquisition and Valley Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of SportRack International and Valley are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. 12 15 (3) The Company acquired the towbar segment of Ellebi S.p.A. on January 2, 1998 and the net assets of Tranfo-Rakzs on February 7, 1998. The Ellebi Acquisition and Transfo-Rakzs Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Ellebi and Tranfo-Rakzs are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. (4) The Company acquired the net assets of Titan Industries, Inc. on February 22, 2000 and the net assets of Barrecrafters on September 5, 2000. The Titan Acquisition and Barrecrafters Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Titan and Barrecrafters are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. (5) In June 1998, information became available that indicated that certain assets acquired from Bell (accounts receivable, inventory and tooling) had a fair value less than originally recorded. The SportRack International purchase was renegotiated and a $2.0 million reimbursement was received from Bell. Accounts receivable, inventory and tooling were reduced by $6.5 million and additional goodwill of $4.5 million, net of the $2.0 million reimbursement from Bell, was recorded. During the second half of 1998, management further reassessed the operations of SportRack International, took actions to restructure the operations, and recorded restructuring charges totaling $1.9 million. Restructuring charges have been included in cost of sales ($1.1 million) and in selling, administrative and product development expenses ($832,000) in the Company's consolidated statement of operations. All restructuring costs have been incurred as of December 31, 1998. Concurrent with the reassessment of the SportRack International operations, management reviewed the carrying value of goodwill and other intangible assets, determined that future cash flows would not be sufficient to recover recorded amounts, and recorded an impairment charge of $7.9 million. (6) Primarily represents net currency gains and loss on indebtedness of the Company's foreign subsidiaries denominated in currencies other than their functional currency. (7) The Company is a limited liability corporation and, as such, the earnings of the Company and its domestic subsidiaries, except for AAS Holdings, Inc. (a holding company for Brink) which is a C corporation, are included in the taxable income of the Company's unitholders and no federal income tax provision is required. The Company's foreign and taxable domestic subsidiaries provide for income taxes on their results of operations. (8) In connection with the indebtedness extinguished as a result of the Brink Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt issuance costs of $1.8 million were charged to operations during 1996. In connection with indebtedness extinguished as a result of issuing the Notes (as defined below), a prepayment penalty of $1.4 million, $3.1 million of unamortized debt discount, and unamortized deferred debt issuance costs of $3.2 million were charged to operations during 1997. The debt extinguishment charges in 1997 were reduced by $365,000 representing the income tax benefit recognized by Brink. (9) EBITDA is defined as operating income plus depreciation and amortization adjusted in 1998 for the non-cash portion of impairment and restructuring charges ($9.5 million for the year ended December 31, 1998), which definition may not be comparable to similarly titled measures reported by other companies. EBITDA is presented because it is generally accepted as providing useful information regarding a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered in isolation from or as an alternative to net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. In addition, funds depicted by the EBITDA measurement are not fully available for discretionary use because of debt service requirements, expenditures for capital replacement and expansion, and the need to conserve funds for other commitments and uncertainties. (10) For purposes of determining the ratio of earnings to fixed charges, "earnings" are defined as income (loss) before minority interest, extraordinary charge and income taxes, plus fixed charges. "Fixed charges" consist of interest expense on all indebtedness (including amortization of deferred debt issuance costs) and the component of operating lease rental expense that management believes is representative of the interest component of rent expense. 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the financial statements and notes thereto of the Company included elsewhere in this Form 10-K. This Form 10-K contains forward-looking statements. Discussions containing such forward-looking statements may be found in the material set forth above and under "Business," as well as in this Form 10-K generally. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors set forth in this Form 10-K generally. GENERAL An affiliate of JPMP and certain members of the Company's management formed the Company in September 1995 to make strategic acquisitions of automotive exterior accessory manufacturers and to integrate those acquisitions into a global enterprise that would be a preferred supplier to the automotive industry. RECENT ACQUISITIONS In January 1998, the Company through Brink International B.V., acquired the net assets of the towbar segment Ellebi S.p.A., an Italian supplier of towing systems to the automotive OEM market and aftermarket. In February 1998, the Company through SportRack International, Inc., acquired the net assets of Transfo-Rakzs, a Canadian supplier of rear hitch rack carrying systems and related products to the automotive aftermarket. In February 2000, the Company through Valley, acquired the net assets of Titan Industries, Inc. ("Titan"). Titan is a North American Supplier of trailer balls and other towing related accessories to the automotive aftermarket. In September 2000, the Company through SportRack International, acquired the net assets of the Wiswall Hill Corporation ("Wiswall Hill" or "Barrecrafters"). Wiswall Hill is a North American supplier of rack systems and accessories to the automotive aftermarket under its popular brand name, Barrecrafters. SUMMARY RESULTS OF OPERATIONS The following table presents the major components of the statement of operations together with percentages of each component as a percentage of net sales.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 2000 1999 1998 ------------------------ ------------------------ ------------------------ (DOLLARS IN THOUSANDS) Net sales ......................... $ 318,817 100.0% $ 314,142 100.0% $ 292,145 100.0% Gross profit .................... 79,727 25.0% 86,253 27.5% 76,704 26.3% Selling, administrative and product development expenses............. 45,527 14.3% 50,258 16.0% 50,839 17.4% Amortization of intangible assets.. 3,297 1.0% 3,245 1.0% 3,551 1.2% Impairment charge ................. -- -- -- -- 7,863 2.7% Operating income ................ 30,903 9.7% 32,750 10.4% 14,451 4.9% Interest expense .................. 17,950 5.6% 17,453 5.6% 18,633 6.4% Foreign currency (gain) loss ...... 5,386 1.7% 7,912 2.5% (4,995) (1.7%) Income before income taxes ........ 7,515 2.4% 5,395 1.7% 813 0.3% Income tax provision (benefit) ... (278) 0.1% 417 0.1% 903 0.3% Net income (loss) ................. 7,793 2.4% 4,978 1.6% (90) 0.0%
14 17 RESULTS OF OPERATIONS 2000 COMPARED TO 1999 Net sales. Net sales for 2000 were $318.8 million, representing an increase of $4.7 million, or 1.5%, over net sales for 1999. This increase resulted from increased sales to OEMs of approximately $14.5 million and increased sales to the aftermarket of $2.4 million. Partially offsetting the Company's increased sales volume was the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries totaling $12.2 million. For example the average value of the European Euro, the functional currency of Brink, as compared to the U.S. Dollar declined by 13.4% during 2000 as compared to 1999 resulting in a similar decrease in sales as reported in U.S. Dollars. During the fourth quarter of 2000, the Company's sales to North American OEM's were lower than expected as a result of several temporary plant shut-downs. The shut-downs were instituted by the OEM's as a measure to reduce inventory levels which had increased as a result of lower automotive sales during the period. Gross profit. Gross profit for 2000 was $79.7 million, representing a decrease of $6.5 million, or 7.6%, from the gross profit for 1999. Gross profit as a percentage of net sales was 25.0% in 2000 compared to 27.5% in 1999. The decrease in the gross margin percentage is attributable to decreased productivity for the North American OEM towing business related to a reorganization of the manufacturing facility in order to better meet customer delivery and quality requirements. Additionally, higher costs were incurred during the year at the same facility due to an increase in outsourcing of component parts. Brink had higher material costs during the year attributable to increased cost of steel during the year as compared with that of 1999. The gross profit percentage was also reduced due to proportionately lower sales for Brink which has a greater gross margin percentage as compared with the Company as a whole. Reduced sales for Brink are attributable to the decline in the exchange rate between the Dutch Guilder and the U.S. Dollar for 2000 compared with 1999. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2000 were $45.5 million, representing a decrease of $4.7 million, or 9.4%, compared with the selling, administrative and product development expenses for 1999. Selling, administrative and product development expenses as a percentage of net sales decreased to 14.3% in 2000 from 16.0% in 1999. This decrease is partly due to a decrease of an estimated liability related to a contingent obligation to a customer totaling $1.9 million. The reduction was also attributable to reduced corporate expenditures including severance compensation recorded during the first quarter of 1999 related to the departure of the Company's former President and Chief Executive Officer and proportionately lower sales of Brink which has greater selling, administrative and product development expenses as a percentage of sales as compared with the Company as a whole. Offsetting the lower percent were legal and accounting costs of approximately $900,000 related to a potential recapitalization of the Company's equity securities during the year. Operating income. Operating income for 2000 was $30.9 million, a decrease of $1.8 million, or 5.6%, compared with operating income for 1999. Operating income as a percentage of net sales decreased to 9.7% in 2000 from 10.4% in 1999. This decrease reflects the decrease in gross profit, partially offset by the decrease in selling, general and product development expenses as a percentage of net sales. Interest expense. Interest expense for 2000 was $18.0 million, an increase of $497,000 from interest expense for 1999. The increase is due to interest costs totaling $450,000 recorded for an estimated contingent legal liability which is more fully discussed below in the discussion of other expense. The effect of reduced average borrowings during 2000 as compared with 1999 was offset by higher interest rates charged on the Company's variable rate indebtedness. Foreign currency loss. Foreign currency loss in 2000 was $5.4 million, compared to a foreign currency loss of $7.9 million in 1999. The Company's foreign currency loss is primarily related to Brink which has indebtedness denominated in U.S. Dollars. During 2000 the U.S. Dollar strengthened significantly in relation to the European Euro, the functional currency of Brink. At December 31, 1999, the exchange rate of the European Euro to the U.S. Dollar was 0.99:1, whereas at December 31, 2000 the exchange rate was 1.06:1, or a 7.1% decline in the relative value of the Euro during the period. In 1999, the relationship between the two currencies was more volatile. At December 31, 1998, the exchange rate of the European Euro to the U.S. Dollar was 0.85:1, whereas at December 31, 1999 the exchange rate was 0.99:1, or a 16.5% decline in the relative value of the Euro. Other expense. In February 1996, the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreement with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999, a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the Company and awarded the individuals approximately $3.8 million plus interest and reasonable attorney fees. The Company plans to file an appeal once a judgment is made by the court. During the First quarter of 1999, the Company increased its estimated accrual for this matter by $2.0 million which charge is included in other expense. No amounts have been paid as of December 31, 2000. 15 18 Provision (benefit) for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During 2000, the Company had a loss before income taxes for its taxable subsidiaries totaling $3.0 million and recorded a benefit for income taxes of $278,000. The effective tax rate differs from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack Accessories and differences in the tax rates of foreign countries. During 1999, the Company had a loss before income taxes for its taxable subsidiaries totaling $5.6 million and recorded a provision for income taxes of $403,000. Net income. Net income for 2000 was $7.8 million, as compared to net income of $5.0 million in 1999, an increase of $2.8 million. The change in net income is primarily attributable to decreases in operating expenses, foreign currency losses and other expense offset by a decrease in gross profit. Other. During the second quarter of 2000 one of the Company's significant OEM customers recalled approximately 380,000 trucks to replace or reinforce their trailer hitches, which were supplied by the Company. The recall affects 1998-2000 model year vehicles built between January 1998 and September 1999. The Company worked with the customer to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact will be to the Company, if any, as a result of the recall. 1999 COMPARED TO 1998 Net Sales. Net sales for 1999 were $314.1 million, representing an increase of $22.0 million, or 7.5%, over net sales for 1998. This increase resulted from increased sales to OEM's of approximately $10.1 million and increased aftermarket sales of $10.9 million. Increased OEM sales are attributable to higher production volumes by the OEM's on the Company's existing programs. Increases in aftermarket sales are primarily attributable to new customers in the retail market and new business with an existing customer in the installer business. Offsetting the Company's increased sales volume is a decrease of approximately $3.1 million related to the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries. Gross Profit. Gross profit for 1999 was $86.3 million, representing an increase of $9.5 million, or 12.4%, over the gross profit for 1998. This increase resulted from the increase in net sales. Gross profit as a percentage of net sales was 27.5% in 1999 compared to 26.3% in 1998. The increase in the gross profit percent resulted primarily from reduced material costs, primarily steel, and the effect of higher net sales on fixed overhead costs. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 1999 were $50.3 million, representing a decrease of $581,000, or 1.1%, over the selling, administrative and product development expenses for 1998. Selling, administrative and product development expenses as a percentage of net sales decreased to 16.0% in 1999 from 17.4% in 1998. This decrease resulted primarily from the effect of higher net sales on fixed costs, decreased selling, administrative and product development expenses of SportRack International resulting from the restructuring of the subsidiary's operations during the fourth quarter of 1998 and the restructuring charges (as further discussed below) related to the operations of SportRack Accessories incurred in 1998. Operating income. Operating income for 1999 was $32.8 million, an increase of $18.3 million, or 126.6%, over operating income for 1998. In addition to the increase in net sales, this increase was due to an impairment and restructuring charge in 1998. Excluding the impairment and restructuring charges, operating income in 1998 would have been $24.2 million and there would have been an increase in operating income during 1999 of $8.6. Operating income as a percentage of net sales increased to 10.5% in 1999 from 8.3% in 1998, excluding the impairment and restructuring charge. This increase reflects the increase in gross profit, and decrease in selling, general and product development expenses as a percentage of net sales. Interest expense. Interest expense for 1999 was $17.5 million, a decrease of $1.2 million, or 6.3%, compared to interest expense for 1998. The decrease was primarily due to lower outstanding senior indebtedness attributable to scheduled principal payments made during 1999 partially offset by higher average line of credit borrowings during 1999 as compared with 1998, and higher interest rates on the Company's variable rate debt. Foreign currency (gain) loss. Foreign currency loss in 1999 was $7.9 million, compared to a foreign currency gain of $5.0 million in 1998. The Company's foreign currency loss is primarily related to Brink which has indebtedness denominated in U.S. Dollars. During 1999 the U.S. Dollar strengthened significantly in relation to the European Euro, the functional currency of Brink. At December 31, 1998, the exchange rate of the European Euro to the U.S. Dollar was 0.85:1, whereas at December 31, 1999 the exchange rate was 0.99:1, or a 16.5% decline in the relative value of the Euro. 16 19 Provision for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During 1999, the Company had a loss before income taxes for its taxable subsidiaries totaling $5.6 million and recorded a provision for income taxes of $417,000. The effective tax rate differs from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack International recorded during 1999, non-deductible goodwill and differences in the tax rates of foreign countries. During 1998, the Company had a loss before income taxes for its taxable subsidiaries totaling $9.2 million and recorded a provision for income taxes of $903,000. Net income. Net income for 1999 was $5.0 million, as compared to a net loss of $90,000 in 1998, an increase of $5.1 million. The change in net income is primarily attributable to increased operating income, decreased interest expense and decreased provision for income taxes offset by a foreign currency loss in 1999 compared with the foreign currency gain during 1998. NORTH AMERICAN AUTOMOTIVE INDUSTRY During the later part of 2000, sales in the North American automotive industry began to decline and some of the Company's major customers adjusted production in the 4th quarter of 2000 to reduce their inventory of unsold vehicles. This lowering of production negatively impacted the Company's sales during the 4th quarter of 2000. This trend has continued during the early part of 2001. It is anticipated that U.S. auto sales for 2001 will be in the range of 15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000. In addition, DaimlerChrysler, the Company's largest customer, incurred substantial losses at its North American, Chrysler Group. During the first quarter of 2001, DaimlerChrysler announced a restructuring plan to return the Chrysler Group to profitability in 2002. This restructuring plan includes the reduction of 26,000 employees and a 15% reduction in material cost by 2003. Effective January 1, 2001, the Company agreed to reduce prices on products sold to DaimlerChrysler and has been able to partially offset these price reductions through reductions in its material costs. The Company continues to work with DaimlerChrysler to help identify other potential cost savings. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are to service its debt and meet its working capital and capital expenditure needs. The Company's indebtedness at December 31, 2000 was $175.6 million including current maturities of $11.8 million. The Company expects to be able to meet its liquidity requirements through cash provided by operations and through borrowings available under the Second Amended and Restated Credit Agreement ("U.S. Credit Facility"). Working Capital and Cash Flows Working capital and key elements of the consolidated statement of cash flows are:
2000 1999 1998 ------------------- ------------------- ------------------- (IN THOUSANDS) Working Capital................ $ 34,791 $ 36,825 $ 46,370 Cash flows provided by operating activities................... 21,416 25,014 21,879 Cash flows (used for) investing activities................... (13,249) (11,775) (31,618) Cash flows provided by (used for) financing activities.... (14,982) (18,185) (8,367)
Working Capital Working capital decreased by $2.0 million to $34.7 million at December 31, 2000 from $36.8 million at December 31, 1999 due to decreases in cash and accounts receivable of $5.4 million and $3.4 million, respectively, and decreases attributable to the decline of the exchange rates between the functional currencies of the Company's foreign subsidiaries against the U.S. Dollar totaling $400,000. These decreases were offset by increases in inventory and other current assets of $4.1 million and $1.5 million, respectively, and decreases in accounts payable and accrued liabilities of $199,000 and $763,000, respectively, and a decrease in the current maturities of long-term debt of $638,000. Cash decreased by $5.4 million to $3.3 million at December 31, 2000 from $8.7 million at December 31, 1999 primarily due to investing and financing activities of $13.2 million and $15.0 million, respectively, offset by cash provided by operating activities of 17 20 $21.0 million. Accounts receivable decreased primarily as a result of a reduction in sales levels during the fourth quarter of 2000 as compared with the fourth quarter of 1999. This sales decline was primarily due to reduced sales to North American OEM's during the period as they reduced production schedules and closed several plants on a temporary basis to correct for their growing inventory levels and to adjust for a slowing automotive sales market. This trend continued in the first quarter of 2001. The increase in inventory is primarily related to a greater quantity of hitches on hand to ensure timely delivery to OEM and aftermarket customers and reflecting an increased cost per hitch attributable to lower productivity levels. The increase in other current assets is primarily related to increased investment in customer reimbursable tooling reflecting a greater number of new products under development as of December 31, 2000 as compared with 1999. Operating Activities Cash flow provided by operating activities for 2000 was $21.4 million, compared to $25.0 million in 1999 and $21.9 million in 1998. Cash flow for 2000 decreased from 1999 due to an increased investment in working capital and non-current assets and the declining exchange rate between the U.S. Dollar and the functional currency of the Company's foreign subsidiaries. Cash flow provided by operating activities increased in 1999 from that of 1998 due to improved operating performance for the year and lower working capital for the year. The Company's European and Canadian subsidiaries have income tax net operating loss carryforwards ("NOLs") of approximately $7.3 million and $10.8 million, respectively, at December 31, 2000. The European NOLs have no expiration date and the Canadian NOLs expire in 2004 through 2007. Management believes that it is more likely than not that a portion of the deferred tax assets of the Canadian subsidiaries will not be realized and a valuation allowance of $4.9 million has been recorded against such assets. No valuation allowance has been recorded for the European NOLs as it is management's belief that it is more likely than not that the related deferred tax asset will be realized. Investing Activities Investing cash flows include acquisitions of property and equipment of $10.4 million, $11.8 million and $10.0 million in 2000, 1999 and 1998, respectively. The higher capital expenditures during 1999 was primarily due to the expansion of the Company's manufacturing facility in Shelby Township, Michigan to accommodate increased manufacturing capacity needs for new and existing OEM roof rack programs. The Company estimates that capital expenditures for 2001 will be primarily for the expansion of capacity, productivity and process improvements and maintenance. The Company's 2001 capital expenditures are anticipated to include approximately $5.0 million for replacing and upgrading existing equipment. The Company's ability to make capital expenditures is subject to restrictions in the Amended and Restated Credit Agreement, including a maximum of $12.5 million of capital expenditures annually. Investing cash flows in 2000 and 1998 include $2.8 million and $22.8 million, respectively, for the acquisitions of Titan and Barrecrafters during 2000 and the acquisitions of the Ellebi and Tranfo-Rakzs during 1998. Financing Activities During 2000, financing cash flows included net borrowings on the Company's revolving line of credit totaling $11.3 million offset by payments of principal on the Company's term indebtedness of $13.9 million, distributions to members in amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members totaling $6.1 million and repurchase of membership units of $6.4 million. Principal payments included $12.5 million in scheduled repayments and a $1.4 million mandatory prepayment required as a result of the Company having excess cash flows during 1999 as defined by the Second Amended and Restated Credit Agreement. During 1999, financing cash flows included payments of principal on the Company's term indebtedness of $9.3 million, distributions to members in amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members totaling $4.7 million and repurchase of membership units of $4.3 million. Principal payments included $5.9 million in scheduled repayments and a $3.4 million mandatory prepayment required as a result of the Company having excess cash flows during 1998 as defined by the Second Amended and Restated Credit Agreement. Repurchase of membership units included repurchases from the Company's former Chief Executive Officer of $4.3 million. During 1998, financing cash flows were primarily limited to scheduled payments of principal on the Company's term indebtedness of $3.7 million and net repayments of borrowings under the Company's revolving loans of $4.5 million. 18 21 Debt and Credit Sources Borrowings under the Company's U.S. Credit Facility and the Company's First Amended and Restated Credit Agreement ("Canadian Credit Facility") bear interest at floating rates, which require interest payments on varying dates depending on the interest rate option selected by the Company. Under the terms of these credit facilities, the Company will be required to make principal payments totaling approximately $11.8 million in 2001, $10.1 million in 2002, $20.5 million in 2003 and $8.7 million in 2004. The Notes bear interest at 9.75% which is payable semiannually in arrears. See "Note 4" to the Company's "Consolidated Financial Statements" for additional information regarding the U.S. Credit Facility, the Canadian Credit Facility and the Senior Subordinated Notes. The Company expects that its primary sources of cash will be from operating activities and borrowings under the U.S. Credit Facility and Canadian Credit Facility each of which provide the Company with revolving notes. As of December 31, 2000, the Company had $11.3 million borrowed under the revolving note of the U.S. Credit Facility and had an outstanding letter of credit of $6.4 million. No amounts were borrowed under the revolving note of the Canadian Credit Facility. Available borrowing capacity under the revolving notes was $7.3 million As of December 31, 2000. Future acquisitions, if any, may require additional third party financing and there can be no assurances that such funds would be available on terms satisfactory to the Company, if at all. The Company's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business, and other factors, certain of which are beyond its control, as well as the availability of revolving credit borrowings under the Amended and Restated Credit Agreement or a successor facility. The Company anticipates that, based on current and expected levels of operations, its operating cash flow, together with borrowings under the U.S. Credit Facility and the Canadian Credit Facility, should be sufficient to meet its debt service, working capital and capital expenditure requirements for the foreseeable future, although no assurances can be given in this regard, including as to the ability to increase revenues or profit margins. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all, including, whether, and on what terms, the Company could raise equity capital. See "Forward Looking Statements". The Company conducts operations in several foreign countries including Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany, Poland, Spain, the Czech Republic and, Italy. Net sales from international operations during 2000 were approximately $96.7 million, or 30.3% of the Company's net sales. At December 31, 2000, assets associated with these operations were approximately 38.4% of total assets, and the Company had indebtedness denominated in currencies other than the U.S. dollar of approximately $7.5 million. The Company's international operations may be subject to volatility because of currency fluctuations, inflation and changes in political and economic conditions in these countries. Most of the revenues and costs and expenses of the Company's operations in these countries are denominated in the local currencies. The financial position and results of operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Certain of the Company's foreign subsidiaries have debt denominated in currencies other than their functional currency. As the exchange rates between the currency of the debt and the subsidiaries functional currency change the Company is subject to foreign currency gains and losses. The Company may periodically use foreign currency forward option contracts to offset the effects of exchange rate fluctuations on cash flows denominated in foreign currencies. The Company has no outstanding foreign currency forward options at December 31, 2000 and does not use derivative financial instruments for trading or speculative purposes. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The Company adopted this statement at the beginning of fiscal 2001. This pronouncement is not expected to have a material impact on the Company's results of operations. 19 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the London Interbank Offered Rate ("LIBOR"). The Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Accountants........................................................................... 21 Consolidated Balance Sheets -- December 31, 2000 and 1999................................................... 22 Consolidated Statements of Operations -- Years Ended December 31, 2000, 1999 and 1998....................... 23 Consolidated Statements of Cash Flows -- Years Ended December 31, 2000, 1999 and 1998....................... 24 Consolidated Statements of Changes in Members' Equity -- Years Ended December 31, 2000, 1999 and 1998....... 25 Notes to Consolidated Financial Statements.................................................................. 26
20 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Managers and Members of Advanced Accessory Systems, LLC In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Advanced Accessory Systems, LLC and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Detroit, Michigan March 19, 2001 21 24 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------- 2000 1999 ---- ---- (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash..................................................... $ 3,315 $ 8,718 Accounts receivable, less reserves of $2,140 and $4,997, respectively.......................................... 42,942 46,918 Inventories.............................................. 42,094 38,437 Deferred income taxes.................................... 1,775 1,804 Other current assets..................................... 6,874 4,879 -------- -------- Total current assets................................ 97,000 100,756 Property and equipment, net................................ 58,232 59,316 Goodwill, net.............................................. 77,391 80,674 Other intangible assets, net............................... 5,030 5,729 Deferred income taxes...................................... 2,020 1,922 Other noncurrent assets.................................... 2,824 2,816 -------- -------- $242,497 $251,213 ======== ======== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt..................... $ 11,811 $ 12,449 Accounts payable......................................... 24,996 26,715 Accrued liabilities...................................... 25,402 24,767 -------- -------- Total current liabilities........................... 62,209 63,931 -------- -------- Noncurrent liabilities Deferred income taxes.................................... 1,001 1,772 Other noncurrent liabilities............................. 4,557 4,320 Long-term debt, less current maturities.................. 163,824 166,049 -------- -------- Total noncurrent liabilities........................ 169,382 172,141 -------- -------- Commitments and contingencies (Note 12) Mandatorily redeemable warrants............................ 5,010 4,810 -------- -------- Members' equity Class A Units 25,000 authorized, 9,236 and 15,869 issued at December 31, 2000 and 1999, respectively............. 7,409 18,083 Class A-1 Units 25,000 authorized, 5,133 issued at December 31, 2000....................................... 4,117 -- Class B Units, 2,000 authorized, no Units issued at December 31, 2000 and 1999.............................. -- -- Other comprehensive loss................................. (1,077) (1,496) Accumulated deficit...................................... (4,553) (6,256) -------- -------- 5,896 10,331 -------- -------- $242,497 $251,213 ======== ========
See accompanying notes to consolidated financial statements. 22 25 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 ------------- ------------- ------------- (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................................... $ 318,817 $ 314,142 $ 292,145 Cost of sales............................................... 239,090 227,889 215,441 --------- --------- --------- Gross profit.............................................. 79,727 86,253 76,704 Selling, administrative and product development expenses...................................... 45,527 50,258 50,839 Amortization of intangible assets........................... 3,297 3,245 3,551 Impairment charge........................................... -- -- 7,863 --------- --------- --------- Operating income.......................................... 30,903 32,750 14,451 --------- --------- --------- Other (income) expense Interest expense.......................................... 17,950 17,453 18,633 Foreign currency (gain) loss.............................. 5,386 7,912 (4,995) Other expense............................................. 52 1,990 -- --------- --------- --------- Income before income taxes.................................. 7,515 5,395 813 Provision (benefit) for income taxes........................ (278) 417 903 --------- --------- --------- Net income (loss)........................................... $ 7,793 $ 4,978 $ (90) ========= ========= =========
See accompanying notes to consolidated financial statements. 23 26 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (DOLLAR AMOUNTS IN THOUSANDS) CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net income (loss)....................................... $ 7,793 $ 4,978 $ (90) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization......................... 14,304 14,065 15,093 Deferred taxes........................................ (908) (2,433) (688) Impairment and restructuring charge................... -- -- 9,505 Foreign currency (gain) loss.......................... 5,159 6,297 (4,948) Loss (gain) on disposal of assets..................... 37 (13) 191 Changes in assets and liabilities net of acquisitions: Accounts receivable................................ 3,425 (8,188) 5,873 Inventories........................................ (4,055) 1,815 (1,457) Other current assets............................... (1,546) (677) 1,513 Other noncurrent assets............................ (346) (56) (1,934) Accounts payable................................... (199) 4,527 (3,032) Accrued liabilities................................ (763) 3,441 1,133 Other noncurrent liabilities....................... (1,485) 1,258 720 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... 21,416 25,014 21,879 ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES Acquisition of machinery and equipment.................. (10,445) (11,775) (9,998) Amount due from sellers of Valley Industries, Inc................................................... -- -- 1,150 Acquisition of subsidiaries, net of cash acquired.............................................. (2,804) -- (22,770) ---------- ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES.................................... (13,249) (11,775) (31,618) ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES Increase (decrease) in revolving loan................... 11,343 -- (4,505) Repayment of debt....................................... (13,878) (9,270) (3,682) Issuance of membership units............................ -- 50 29 Collections of membership notes receivable.............. 65 29 -- Repurchase of membership units.......................... (6,422) (4,274) (14) Distributions to members................................ (6,090) (4,720) (195) ---------- ---------- ---------- NET CASH USED FOR FINANCING ACTIVITIES..................................... (14,982) (18,185) (8,367) ---------- ---------- ---------- Effect of exchange rate changes......................... 1,412 2,424 1,998 Net increase (decrease) in cash......................... (5,403) (2,522) (16,108) Cash at beginning of period............................. 8,718 11,240 27,348 ---------- ---------- ---------- Cash at end of period................................... $ 3,315 $ 8,718 $ 11,240 ========== ========== ========== Cash paid for interest.................................. $ 17,032 $ 16,809 $ 17,559 ========== ========== ========== Cash paid for income taxes.............................. $ 1,763 $ 3,131 $ 934 ========== ========== ==========
See accompanying notes to consolidated financial statements. 24 27 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DOLLAR AMOUNTS IN THOUSANDS)
OTHER RETAINED TOTAL MEMBERS' COMPREHENSIVE EARNINGS MEMBERS' CAPITAL INCOME (LOSS) (DEFICIT) EQUITY --------- --------- --------- -------- Balance at December 31, 1997................. $ 23,163 $ (490) $ (6,229) $ 16,444 Issuance of additional units................. 150 -- -- 150 Notes receivable for unit purchase........... (121) -- -- (121) Repurchase of membership units............... (14) -- -- (14) Accretion of membership warrants............. (902) -- -- (902) Distributions to members..................... -- -- (195) (195) Comprehensive loss: Currency translation adjustment............ -- (125) -- -- Net loss for 1998.......................... -- -- (90) -- Total comprehensive loss................. -- -- -- (215) --------- --------- --------- -------- Balance at December 31, 1998................. 22,276 (615) (6,514) 15,147 Issuance of additional units................. 970 -- -- 970 Notes receivable for unit purchase........... 380 -- -- 380 Repurchase of membership units............... (5,142) -- -- (5,142) Accretion of membership warrants............. (401) -- -- (401) Distributions to members..................... -- -- (4,720) (4,720) Comprehensive income: Currency translation adjustment............ -- (881) -- -- Net income for 1999........................ -- -- 4,978 -- Total comprehensive income............... -- -- -- 4,097 --------- --------- --------- -------- Balance at December 31, 1999................. 18,083 (1,496) (6,256) 10,331 Notes receivable for unit purchase........... 65 -- -- 65 Repurchase of membership units............... (6,422) -- -- (6,422) Accretion of membership warrants............. (200) -- -- (200) Distributions to members..................... -- -- (6,090) (6,090) Comprehensive income: Currency translation adjustment............ -- 419 -- -- Net income for 2000........................ -- -- 7,793 -- Total comprehensive income............... -- -- -- 8,212 --------- --------- --------- -------- Balance at December 31, 2000................. $ 11,526 $ (1,077) $ (4,553) $ 5,896 ========= ========= ========= ========
See accompanying notes to consolidated financial statements. 25 28 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITIES Advanced Accessory Systems, LLC (the "Company") is engaged in the design, manufacture and supply of towing and rack systems and accessories for the automotive original equipment manufacturer ("OEM") market and the automotive aftermarket. The Company's business commenced on September 28, 1995, with the acquisition of certain of the net assets of MascoTech Accessories (the "Predecessor"), a division of MascoTech, Inc., through the Company's majority-owned subsidiary, SportRack, LLC. As described in Note 2, in October 1996 the Company acquired Brink B.V., in July and August of 1997 acquired the sportrack division of Bell Sports Corporation, Nomadic Sports, Inc. and certain net assets of Valley Industries, Inc., in January and February 1998 acquired the net assets of the towbar segment of Ellebi S.p.A. and the net assets of Transfo-Rakzs, Inc. and in February and September 2000 acquired the net assets of Titan Industries, Inc. and the Wiswall Hill Corporation. PRINCIPLES OF CONSOLIDATION The Company includes the accounts of the following: SportRack, LLC ..................................................... 100% owned by Advanced Accessory Systems, LLC SportRack Automotive, GmbH and its consolidated subsidiaries ................................... A German corporation, 100% owned by SportRack, LLC SportRack International, Inc and its consolidated subsidiary ......................................... A Canadian corporation, 100% owned by SportRack, LLC AAS Holdings, Inc. ................................................. 100% owned by Advanced Accessory Systems, LLC Brink International B.V and its consolidated subsidiaries ...................................... A Dutch corporation, 100% owned by AAS Holdings, Inc. Valley Industries, LLC ............................................. 99% owned by Advanced Accessory Systems, LLC and 1% owned by SportRack, LLC ValTek, LLC ........................................................ 99% owned by Advanced Accessory Systems, LLC and 1% owned by SportRack, LLC AAS Capital Corporation ............................................ 100% owned by Advanced Accessory Systems, LLC
All intercompany transactions have been eliminated in consolidation. REVENUE RECOGNITION Revenue and related cost of goods sold are recognized upon shipment of the product to the customer. Sales allowances, discounts, rebates and other adjustments are recorded or accrued in the period of the sale. During 2000, the Company adopted the provisions of the EITF 00-10, "Accounting for Shipping and Handling Revenues and Costs", which requires that all amounts billed to customers related to shipping and handling costs be classified as revenue. In prior years, these costs and the reimbursement of these costs were netted in our financial statements. Accordingly, amounts billed to customers are now included in net sales and the related costs are included in cost of sales for all years presented. There was no impact on net income. SIGNIFICANT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal period. Actual results could differ from those estimates. During the year ended December 31, 2000 management decreased an estimated liability related to a contingent obligation to one of its customers. The reduction resulted in a benefit to the Company of approximately $1,900 which was included in selling, administrative and product development expenses. 26 29 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) FINANCIAL INSTRUMENTS Financial instruments at December 31, 2000 and 1999, including cash, accounts receivable and accounts payable, are recorded at cost, which approximates fair value due to the short-term maturities of these assets and liabilities. The carrying value of the obligations under the bank agreements are considered to approximate fair value as the agreements provide for interest rate revisions based on changes in prevailing market rates or were entered into at rates that approximate market rates at December 31, 2000 and 1999. The fair value of the Notes (as defined below) as of December 31, 2000 and 1999 was approximately $85,000 and $112,500, respectively, based upon quoted prices in the market in which the Notes are traded. The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the London Interbank Offered Rate (LIBOR). The Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions. CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly-liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. CURRENCY TRANSLATION The functional currency for the Company's foreign subsidiaries is the applicable local currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance sheet date; translation adjustments are reported as a separate component of members' equity. Revenues, expenses and cash flows for foreign subsidiaries are translated at average exchange rates during the period; foreign currency transaction gains and losses are included in current earnings. The accompanying consolidated statement of operations for the years ended December 31, 2000, 1999 and 1998 includes net currency gains (losses) of $(5,386), $(7,912) and $4,995, respectively, relating primarily to debt denominated in U.S. Dollars at Brink International B.V., whose functional currency was the Dutch Guilder through December 31, 1998 and the European Euro during 1999 and 2000. At December 31, 2000, U.S. Dollar denominated debt recorded at Brink includes intercompany debt and substantially all outstanding loans under the Company's Second Amended and Restated Credit Agreement. INVENTORIES Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out (FIFO) method. Inventories are periodically reviewed and reserves established for excess and obsolete items. TOOLING The Company incurs costs to related to new tooling used in the manufacture of products sold to OEMs. Tooling costs that are reimbursed by customers as the tooling is completed are included in other current assets. All other customer owned tooling costs, which totaled $2,205 and $1,829 at December 31, 2000 and 1999, respectively, are included in other noncurrent assets and amortized over the expected product life, generally three to six years. Company owned tooling is included in property and equipment and depreciated over its expected useful life, generally three to five years. Management periodically evaluates the recoverability of tooling costs, based on estimated future cash flows, and makes provisions for tooling costs that will not be recovered, if any, when such amounts are known. 27 30 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is stated at acquisition cost, which reflects the fair market value of assets acquired at the acquisition date for all subsidiaries. Property and equipment purchased other than through the acquisitions described in Note 2 is stated at cost. Expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation expense, which was $10,346, $10,418 and $10,857 for the years ended December 31, 2000, 1999 and 1998, respectively, is computed using the straight-line method over the following estimated useful lives:
YEARS ----- Buildings and improvements............................................................ 5-50 Machinery, equipment and tooling...................................................... 2-10 Furniture and fixtures................................................................ 5-7
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill of $77,391 and $80,674 (net of accumulated amortization of $14,032 and $11,194) at December 31, 2000 and 1999, respectively, represents the costs in excess of net assets acquired and is amortized using the straight line method over periods of up to 30 years. Debt issuance costs of $4,602 and $5,280, net of accumulated amortization at December 31, 2000 and 1999, respectively, are amortized over the terms of the loan agreements, which are six to ten years. Debt issuance cost amortization of $625, $589 and $587 for 2000, 1999 and 1998, respectively, has been included in interest expense. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS The Company evaluates the potential impairment of goodwill on an ongoing basis and reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the impairment of long-lived assets by comparing the undiscounted future net cash flows to be generated by the assets to their carrying value. Impairment losses are then measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. In 1998, as described in Note 3, the Company determined that certain intangible assets of its subsidiary, SportRack International, Inc. had been impaired. INCOME TAXES The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Distributions are made to the members in amounts sufficient to meet the tax liability on the Company's domestic taxable income accruing to the individual members. Distributions to members of $6,090, $4,720 and $195 were made during 2000, 1999 and 1998, respectively. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. Income tax provisions for these entities are based on the U.S. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are provided for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such entities' assets and liabilities. Deferred tax assets are reduced by a valuation allowance for tax benefits that are not expected to be realized. The Company does not provide for U.S. income taxes or foreign withholding taxes on the undistributed earnings of foreign subsidiaries because of management's intent to permanently reinvest in such operations. The Company and certain subsidiaries are subject to taxes, including Michigan Single Business Tax and Canadian capital tax, which are based primarily on factors other than income. As such, these amounts are included in selling, administrative and product development expenses in the accompanying consolidated statements of operations. Deferred taxes related to Michigan Single Business Tax are provided on the temporary differences resulting from capital acquisitions and depreciation. 28 31 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) RESEARCH, DEVELOPMENT AND ENGINEERING Research, development and engineering costs are expensed as incurred and aggregated approximately $9,779, $10,302 and $9,611 for the years ended December 31, 2000, 1999 and 1998, respectively. NEW ACCOUNTING PRONOUNCEMENT During the first quarter of 2001, the Company has adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments and Hedging Activities". This pronouncement is not expected the have a significant impact on the Company's results of operations or financial position. 2. ACQUISITIONS Acquisitions of the Company from inception through December 31, 2000 are as follows:
PURCHASE GOODWILL ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES ----------------------------------------- ------------------ -------- --------- ----------- -------------- MascoTech Accessories.................... September 28, 1995 $46,050 $32,781 United States Rack systems Brink B.V................................ October 30, 1996 54,339 27,730 Europe Towing systems Sportrack division of Bell Sports........ July 2, 1997 13,505 1,198 Canada Rack systems Nomadic Sports, Inc...................... July 24, 1997 849 433 Canada Rack systems Valley Industries, Inc................... August 5, 1997 56,478 32,891 United States Towing systems Towbar segment of Ellebi S.p.A........... January 2, 1998 21,938 5,645 Italy Towing systems Tranfo-Rakzs, Inc........................ February 7, 1998 1,040 902 Canada Rack systems Titan Industries, Inc.................... February 22, 2000 1,525 1,237 United States Towing systems Wiswall Hill Corporation................. September 5, 2000 1,200 -- United States Rack systems
The above acquisitions have each been accounted for in accordance with the purchase method of accounting. Accordingly, the respective purchase price of each acquisition has been allocated to assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The excess of the aggregate purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. The operating results of these entities have been included in the Company's consolidated financial statements since the date of each acquisition. Each acquisition represented the purchase of the net assets of the respective company with the exceptions of Brink B.V. and Nomadic Sports, Inc. which were purchases of the outstanding shares. Each company was purchased for cash except for Brink B.V. which was purchased for $54,339 in cash and a 12,500 Junior Subordinated Note denominated in Dutch Guilders ($7,340), to Brink Holdings, B.V. Pro forma results have not been presented as they are substantially the same as the Company's actual results. 3. IMPAIRMENT AND RESTRUCTURING CHARGES In July 1997, the Company acquired the net assets of the sportrack division of Bell Sports Corporation ("Bell") for approximately $13,500 and recorded goodwill of approximately $1,200, representing the excess of the purchase price over the then estimated fair value of net assets acquired. In June 1998 information became available which indicated that certain assets acquired from Bell (accounts receivable, inventory, and tooling) had a fair value less than originally recorded. The SportRack International purchase was renegotiated and a $2,000 reimbursement was received from Bell. Accounts receivable, inventory and tooling were reduced by $6,500 and additional goodwill of $4,500, net of the $2,000 reimbursement from Bell, was recorded. 29 32 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. IMPAIRMENT AND RESTRUCTURING CHARGE -- (CONTINUED) During the second half of 1998, management further reassessed the operations of SportRack International, and as a result took actions to restructure the operations and rationalize the product offerings, customer and supplier base, distribution channels and warehousing, and terminated 14 employees, including certain members of SportRack International's senior management. Concurrent with the reassessment of SportRack International's operations, management reviewed the revised carrying value of goodwill and other intangible assets, determined that future cash flows would not be sufficient to recover recorded amounts, and recorded an impairment charge of $7,863. The SportRack International impairment and restructuring charges are comprised of the following: Impairment of: Goodwill..................................... $ 6,116 Other intangible assets...................... 1,747 $ 7,863 -------- Restructuring charges for: Product rationalization...................... 1,068 Other costs.................................. 832 1,900 -------- -------- $ 9,763 ========
The restructuring charge related to inventory has been included in cost of sales and other costs have been included in selling, administrative and product development expenses in the accompanying 1998 consolidated statement of operations. All restructuring costs have been incurred as of December 31, 1998, including cash expenditures during 1998 of $258. Sales for SportRack International during the year ended December 31, 1998 were approximately $4,000 and total assets as of December 31, 1998 were approximately $7,100 after the impairment charge. 4. LONG-TERM DEBT Long-term debt is comprised of the following:
OUTSTANDING AT INTEREST RATE AT DECEMBER 31, DECEMBER 31, ------------------------ 2000 2000 1999 ---------- ---------- ---------- Senior Subordinated Notes, less discount of $367 and $403 respectively........................................... 9.75% $ 124,633 $ 124,597 Second Amended and Restated Credit Agreement (U.S. Credit Facility) Term note A......................................... 8.89% 5,326 9,082 Term note B......................................... 9.39% 12,370 13,494 Revolving line of credit note....................... 8.85% 11,343 -- Acquisition revolving note.......................... 8.88% 14,438 21,000 First Amended and Restated Credit Agreement (Canadian Credit Facility) Canadian term note.................................. 8.25% 7,525 10,325 Canadian revolving line of credit note.............. -- -- -- --------- --------- 175,635 178,498 Less -- current portion.................................. 11,811 12,449 --------- --------- $ 163,824 $ 166,049 ========= =========
30 33 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 4. LONG-TERM DEBT -- (CONTINUED) SENIOR SUBORDINATED NOTES Borrowings under the Company's Series B Senior Subordinated Notes (the "Notes"), due October 1, 2007, are unsecured and are subordinated in right of payment to all existing and future senior indebtedness of the Company, including the loans under the U.S. and Canadian Credit Agreements described below. The Company, at its option, may redeem the Notes, in whole or in part, together with accrued and unpaid interest subsequent to October 1, 2002 at certain redemption prices as set forth by the indenture under which the Notes have been issued. Upon the occurrence of a change of control of the Company, as defined by the indenture, the Company is required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount of the Notes. The indenture places certain limits on the Company, the most restrictive of which include, the incurrence of additional indebtedness by the Company, the payment of dividends on, and redemption of capital of the Company, the redemption of certain subordinated obligations, investments, sales of assets and stock of certain subsidiaries, transactions with affiliates, consolidations, mergers and transfers of all or substantially all of the Company's assets. Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year. SECOND AMENDED AND RESTATED CREDIT AGREEMENT The Company's Second Amended and Restated Credit Agreement ("U.S. Credit Facility"), which is administered by Bank One (formerly First Chicago NBD Bank) and The Chase Manhattan Bank ("Chase"), is secured by substantially all the assets of the Company and places certain restrictions on the Company related to indebtedness, sales of assets, investments, capital expenditures, dividend payments, management fees, and members' equity transactions. In addition, the agreement subjects the Company to certain restrictive covenants, including the attainment of designated operating ratios and minimum net worth levels. The Company, at its election, may make prepayments of the term notes under the credit agreement on a pro-rata basis. Additionally, mandatory prepayments of the term notes are required in the event of sales of assets meeting certain criteria, as set forth by the agreement, or based upon periodic calculations of excess cash flows, as defined by the agreement. The U.S. Credit Facility provides for two term notes (Term note A and Term note B), a revolving line of credit note and an acquisition note. Loans under each of the term notes and the revolving note can be converted, at the election of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans. Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in one, two or three months on Eurocurrency Loans, as determined by the length of the Eurocurrency Loan, as selected by the Company. Interest is charged at an adjustable rate plus the applicable margin. The applicable margin is based upon the Company's Senior Debt Ratio, as defined by the Credit Agreement. Eurocurrency Loans under each of the term notes can be made in U.S. dollars or certain other currencies, at the option of the Company. The U.S. Credit Facility also provides for a Letter of Credit Facility. At December 31, 2000 the company had an irrevocable letter of credit outstanding in the amount of $6,350, see Note 12. At December 31, 1999, no letters of credit were outstanding. Term note A On October 30, 1996, the Company borrowed $65,000 under Term note A. On October 1, 1997, the Company made a mandatory prepayment totaling $43,475 in connection with the issuance of the Notes. Mandatory prepayments of $518 and $1,597 were made in June 2000 and June 1999, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. The applicable margin for Term note A ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. Repayments under the note are required in the following installments:
QUARTERLY --------- March 31, 2001 through June 30, 2002................................................. $ 883 Final installment on September 30, 2002.............................................. 28
31 34 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 4. LONG-TERM DEBT -- (CONTINUED) Term note B On August 5, 1997, the Company borrowed $55,000 under Term note B. On October 1, 1997 the Company made a mandatory prepayment totaling $39,044 in connection with the issuance of the Notes. Mandatory prepayments of $833 and $1,806 were made in June 2000 and June 1999, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. The applicable margin for Term note B ranges from 1.75% to 3.0% for Base Rate Loans and from 2.75% to 4.0% for Eurocurrency Loans. Repayments under Term note B are required in the following installments: March 31, 2001 through September 30, 2003 (quarterly)................................ $ 73 December 31, 2003.................................................................... 2,914 March 30, 2004 and June 30, 2004..................................................... 3,764 October 30, 2004..................................................................... 1,125
Revolving line of credit note The Company has the ability to borrow up to $25,000 under the revolving line of credit which expires on October 30, 2003. Available borrowings, however, are limited to a defined borrowing base amount equal to 85% eligible domestic accounts receivable and 80% of certain eligible foreign accounts receivable. The base borrowing amount is increased by the lesser of the sum of 50% of domestic eligible inventory and 40% to 50% of certain eligible foreign inventory or $10,000. Available borrowings are reduced by amounts outstanding under the Canadian revolving line of credit note described below and outstanding letters of credit. The applicable margin for the revolving line of credit ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. A commitment fee of 0.5% to 0.625% is charged on the unused balance based on the Company's Senior Leverage Ratio, as defined. At December 31, 2000, $7,307 was available under the facility. Acquisition note On December 31, 1997, the Company borrowed $21,000 under its acquisition note. The proceeds were used to acquire the net assets of Ellebi on January 2, 1998, as discussed in Note 2. The applicable margin for the acquisition note ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. Repayments under the acquisition note are due in equal quarterly installments of $1,313 through September 30, 2003. FIRST AMENDED AND RESTATED CREDIT AGREEMENT The Company's First Amended and Restated Credit Agreement ("Canadian Credit Facility"), which is administered by Bank One and The Chase Manhattan Bank of Canada ("Chase Canada"), is secured by substantially all of the assets of the Company's Canadian subsidiaries and is guaranteed by the Company. The Canadian Credit Facility provides for a C$20,000 term note and a C$4,000 revolving note, (U.S. $13,332 and U.S. $2,666) at December 31, 2000, respectively. Loans under each of the notes can be converted at the election of the Company, in whole or in part, into Floating Rate advances, U.S. Base Rate advances or LIBOR advances. Floating rate advances are denominated in Canadian dollars and bear interest at a variable rate based on the bank's prime lending rate plus a variable margin. U.S. Base Rate advances are denominated in U.S. dollars and bear interest at the bank's prime lending rate plus a variable margin. LIBOR advances are denominated in U.S. dollars and bear interest at LIBOR plus a variable margin. The variable margin is based upon the Company's Senior Debt Ratio, as defined by the Canadian Credit Facility and ranges from 0.5% to 1.75% for U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR advances. 32 35 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 4. LONG-TERM DEBT -- (CONTINUED) Canadian term note Repayments under the Canadian term note are required in the following installments:
QUARTERLY --------- March 31, 2001 through June 30, 2003................................................... $ 684 Final installment on October 30, 2003.................................................. 684
Canadian revolving line of credit note A commitment fee of 0.5% is charged on the unused balance of the Canadian revolving line of credit note. SENIOR SUBORDINATED LOANS On October 30, 1996, the Company borrowed $20,000 under its Senior Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with J.P. Morgan Partners (23A SBIC), LLC, an affiliate of J.P. Morgan Partners, LLC, and International Mezzanine. The Senior Subordinated Loans were repaid in full on October 1, 1997 with the proceeds of the Notes discussed above. In connection with the issuance of the Senior Subordinated Loans, the Company issued warrants to purchase 1,002 membership units. The warrants have an exercise price of one cent per warrant, are exercisable immediately, and expire October 30, 2004. As provided in the Warrant Agreement, the warrant holder can put the warrants and membership units acquired through the exercise of the warrants back to the Company after October 30, 2001 or upon occurrence of a Triggering Event, as defined, but prior to the earlier of October 30, 2004 or the consummation of a Qualified Public Offering for an amount equal to Fair Market Value, as defined. Additionally, as provided in the Warrant Agreement, the Company may call the warrants and membership units acquired through the exercise of the warrants at any time after the sixth anniversary of the Closing Date, but prior to the earlier of October 30, 2004 or a Qualified Public Offering for an amount equal to Fair Market Value, as defined. At the date of issuance, the proceeds from the Senior Subordinated Loans were allocated between the Senior Subordinated Loans and the warrants based upon their estimated relative fair market value. The warrants are being accreted to their estimated redemption value through periodic charges against Members' Equity through the earlier of October 30, 2001 or the time redemption first becomes available. Thereafter the warrants will be recorded at the then estimated redemption value. The aforementioned warrants have been presented as mandatorily redeemable warrants in the accompanying balance sheets. SCHEDULED MATURITIES The aggregate scheduled annual principal payments due in each of the years ending December 31, is as follows: 2001...................................................................................... $ 11,811 2002...................................................................................... 10,073 2003...................................................................................... 20,463 2004...................................................................................... 8,655 2005...................................................................................... -- thereafter................................................................................ 125,000 --------- 176,002 Less -- discount.......................................................................... (367) --------- $ 175,635 =========
33 36 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 5. MEMBERS' EQUITY Holders of Class A Units are eligible to vote in elections of Managers of the Company and other matters as set fourth in the Company's Operating Agreement and By-Laws and are convertible to Class A-1 Units by holders that are regulated financial institutions. Class A-1 Units are non-voting but are otherwise entitled to the identical rights as holders of Class A Units and are convertible to Class A units provided such conversion is not in violation of certain governmental regulations of the unit holder. Holders of Class B Units are entitled to such rights as designated by the Board of Managers upon the original issuance of any Class B Units provided however that those rights shall not be senior to the rights of the holders of Class A units as to allocations of net profits and as to distributions without the consent of a majority in interest of Class A Members. There were no Class B Units issued as of December 31, 2000 or 1999. Effective January 1, 2000, the Company issued 3,655 of its Class A-1 Units in exchange for an equal amount of Class A Units. Effective November 11, 2000 the Company issued 1,478 of its Class A-1 Units in exchange for an equal amount of Class A Units. 6. INCOME TAXES The Company's C corporation subsidiaries and taxable foreign subsidiaries account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Company and certain domestic subsidiaries are limited liability corporations; as such, the Company's earnings are included in the taxable income of the Company's members. Income (loss) before minority interest and income taxes were attributable to the following sources:
YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ---------- United States.............................................. $10,491 $10,925 $10,002 Foreign.................................................... (2,976) (5,530) (9,189) ------- ------- ------- $ 7,515 $ 5,395 $ 813 ======= ======= =======
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ---------- CURRENTLY PAYABLE United States............................................ $ -- $ 14 $ -- Foreign.................................................. 630 2,836 1,591 ------- ------- ------- 630 2,850 1,591 ------- ------- ------- DEFERRED United States............................................ -- -- -- Foreign.................................................. (908) (2,433) (688) ------- ------- ------- (908) (2,433) (688) ------- ------- ------- $ (278) $ 417 $ 903 ======= ======= =======
The effective tax rates differ from the U.S. federal income tax rate as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ---------- Income tax provision (benefit) at U.S. statutory rate (35%)...... $ 2,630 $ 1,887 $ 286 U.S. income taxes attributable to members........................ (3,674) (3,823) (3,502) Change in valuation allowance.................................... (86) 854 4,225 Nondeductible foreign goodwill................................... 224 369 270 Foreign rate differences and other, net.......................... 628 1,130 (376) ------- ------- ------- $ (278) $ 417 $ 903 ======= ======= =======
34 37 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 6. INCOME TAXES -- (CONTINUED) Deferred tax assets and liabilities, related primarily to the Company's foreign subsidiaries, comprise the following:
DECEMBER 31, -------------------- 2000 1999 ------- ------- DEFERRED TAX ASSETS Net operating loss carryforwards of foreign subsidiaries..................... $ 6,660 $ 7,259 Fixed assets................................................................. 2,738 2,918 Goodwill..................................................................... 480 573 Inventory.................................................................... 83 133 Other........................................................................ 1,561 1,642 ------- ------- 11,522 12,525 ------- ------- DEFERRED TAX LIABILITIES Fixed assets................................................................. (2,492) (3,938) Inventory.................................................................... (862) (889) Employee benefits............................................................ -- (177) Other........................................................................ (429) (309) ------- ------- (3,783) (5,313) Valuation allowance.......................................................... (4,945) (5,258) ------- ------- Net deferred tax asset (liability)........................................... $ 2,794 $ 1,954 ======= =======
The net operating loss carryforwards of the Company's European subsidiaries approximate $7,257 at December 31, 2000 and have no expiration date. The net operating loss carryforwards of the Company's Canadian subsidiaries approximate $10,765 at December 31, 2000 and expire primarily in 2005 through 2009. As of December 31, 2000 and 1999, respectively, the Company recorded a valuation allowance of $4,945 and $5,258 based upon management's current assessment of the likelihood of realizing the Canadian subsidiaries' deferred tax assets. Management believes that it is more likely than not that the related deferred tax assets recorded for its other subsidiaries will be realized and no valuation allowance has been provided against such amounts as of December 31, 2000. If certain substantial changes in the Company's ownership should occur, there could be an annual limit on the amount of certain carryforwards which can be utilized. 7. RELATED PARTY TRANSACTIONS AND ALLOCATIONS A portion of the Company's U.S. Credit Facility, Canadian Credit Facility and Senior Subordinated Loans, as described in Note 4, is with Chase, Chase Canada and J.P. Morgan Partners (23ASBIC), LLC, respectively, which are each affiliates of a member of the Company. Charges to operations related to consulting services provided to the Company by certain members of the Company aggregated approximately $406, $400 and $386 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain employees and consultants of the Company hold Class A Units of the Company. During the year ended December 31, 1999, the Company acquired the equity instruments owned by its former president for $4,250. 8. OPTION PLAN The Company adopted the disclosure requirements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The Company, however, has elected to continue to measure compensation cost using the intrinsic value method, in accordance with APB Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees". The Company has issued options to purchase Class A Units which are outstanding under the Company's 1995 Option Plan ("the Plan"). As of December 31, 2000 and 1999, the Company was authorized under the Plan to issue options to purchase up to 4,200 Class A Units to officers, directors and employees of the Company and its subsidiaries. At December 31, 2000, there were 179 options that remained available for grant under the Plan. 35 38 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. OPTION PLAN -- (CONTINUED) Information concerning options to purchase Class A Units is as follows:
2000 1999 1998 ----------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE UNITS PRICE UNITS PRICE UNITS PRICE -------- -------- --------- -------- --------- -------- Outstanding at January 1............... 2,405 $ 1,499 3,971 $ 1,343 3,903 $ 1,415 Options granted........................ -- -- 50 $ 4,000 280 $ 3,135 Options exercised...................... -- -- 696 $ 1,251 -- -- Options cancelled...................... 47 $ 5,610 920 $ 1,150 212 $ 5,035 ----- ------- ------- Outstanding at December 31............. 2,358 $ 1,417 2,405 $ 1,499 3,971 $ 1,343 ===== ======= ======= Exercisable at December 31............. 1,581 $ 1,515 1,282 $ 1,532 1,665 $ 1,398 ===== ======= =======
All options granted have terms of 15 years and vest as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE UNITS PRICE VESTING PERIOD --------- --------- --------------------------------------------------------------------------------------- 129 $ 3,029 Options vest immediately. 1,379 $ 1,469 Options vest over periods, generally up to ten years, as determined by the Option Committee. Vesting may be accelerated based on the results of a Liquidity Event, as defined in the Plan, or based upon the achievement of certain operating results of the Company or its subsidiaries. 275 $ 1,000 Options vest based on the results of a Liquidity Event, as defined in the Plan. 575 $ 1,130 Options vest based upon achievement of certain operating results of the Company.
The Company has elected to continue applying the provisions of APB 25 and accordingly, recognized compensation cost of $450, $400 and $558 for the years ended December 31, 2000, 1999 and 1998, respectively. If compensation cost and the fair value of options granted had been determined based upon the fair value method in accordance with SFAS 123, the pro forma net income (loss) of the Company would have been $8,047, $5,258 and ($290) the years ended December 31, 2000, 1999 and 1998, respectively. The weighted average fair value of options granted per unit was $2,300 and $2,400 for the years ended December 31, 1999 and 1998, respectively. Options granted in 1999 and 1998 had exercise prices below market value at the date of grant. The fair value of options granted and related pro forma compensation cost were estimated using the Black-Scholes option-pricing model with an expected volatility of zero and the following assumptions:
1999 1998 ---- ---- Dividend yield............................ 0.0% 0.0% Risk-free rate of return.................. 6.0% 5.5% Expected option term (in years)........... 8 8
36 39 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. OPTION PLANS -- (CONTINUED) The following table summarizes the status of the Company's options outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING ----------------------- WEIGHTED AVERAGE REMAINING EXERCISE CONTRACTUAL OPTIONS PRICES UNITS LIFE EXERCISABLE --------- --------- ------------- ------------ $ 1,000 2,025 10 1,309 $ 3,029 129 12 129 $ 3,485 65 12 39 $ 4,000 50 13 15 $ 5,610 89 12 89
9. PENSION PLANS The Company has a defined benefit pension plan covering substantially all of SportRack, LLC's domestic employees covered under a collective bargaining agreement. An employee's monthly pension benefit is determined by multiplying a defined dollar amount by the years of credited service earned. Plan assets are comprised principally of marketable equity securities and short-term investments. The Company's funding policy is to contribute annually the amounts necessary to comply with ERISA funding requirements. The following table sets forth the change in the plan's benefit obligations and plan assets, and the funded status of the plan as of and for the years ended December 31, 2000 and 1999:
DECEMBER 31, ---------------------- 2000 1999 --------- -------- Change in benefit obligation: Benefit obligation at beginning of year........................ $ 2,491 $ 2,301 Benefits earned during the year................................ 124 110 Interest on projected benefit obligation....................... 182 151 Increase as a result in plan amendment......................... -- 363 Actuarial loss (gain).......................................... (7) (362) Benefits paid.................................................. (87) (72) ------ ------ Benefit obligation at end of year.............................. 2,703 2,491 ------ ------ Change in plan assets: Market value of assets at beginning of year.................... 2,190 1,831 Actual return on plan assets................................... 84 147 Employer contributions......................................... 238 284 Benefits paid.................................................. (87) (72) ------ ------ Market value of assets at end of year.......................... 2,425 2,190 ------ ------ Funded status..................................................... (278) (301) Unrecognized prior service cost................................... 345 371 Unrecognized net (gain) loss...................................... (160) (284) ------ ------ Accrued pension cost.............................................. $ (93) $ (214) ====== ======
YEAR ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 --------- --------- ---------- Components of net periodic benefit cost: Service cost.................................................. $ 124 $ 110 $ 99 Interest cost................................................. 182 151 140 Expected return on plan assets................................ (205) (175) (147) Recognized net actuarial gain................................. (10) -- -- Amortization of prior service cost............................ 27 1 1 ------- ------- ------- Net periodic Benefit cost........................................ $ 118 $ 87 $ 93 ======= ======= =======
37 40 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 9. PENSION PLANS -- (CONTINUED) The weighted average discount rate used in determining the actuarial present value of the accumulated benefit obligation was 7.50%, 7.75%, and 6.75% at December 31, 2000, 1999 and 1998, respectively. The expected long-term rate of return on plan assets was 9.00% at December 31, 2000, 1999 and 1998. The Company has various defined contribution retirement plans for its domestic and certain foreign subsidiaries, including 401(k) plans, whereby participants can contribute a portion of their salary up to certain maximums established by the related plan documents. The Company makes matching contributions, which are based upon the amounts contributed by employees. The Company's matching contributions charged to operations aggregated $369, $334 and $306 in 2000, 1999 and 1998, respectively. Substantially all of the employees of Brink International B.V. are covered by a union-sponsored, collectively-bargained, multi-employer defined benefit plan. Pension expense was $1,270, $1,271 and $1,302 for the years ended December 31, 2000, 1999 and 1998, respectively. 10. OPERATING LEASES The Company leases certain equipment under leases expiring on various dates through 2004. Future minimum annual lease payments required under leases that have a noncancellable lease term in excess of one year at December 31, 2000 are as follows: 2001.................................................................................... $ 3,542 2002.................................................................................... 2,870 2003.................................................................................... 1,942 2004.................................................................................... 1,431 2005.................................................................................... 762 ------- $10,547 =======
Rental expense charged to operations was approximately $4,066, $4,169 and $3,947 for the years ended December 31, 2000, 1999 and 1998, respectively. 11. ACCOUNT BALANCES Account balances included in the consolidated balance sheets are comprised of the following:
DECEMBER 31, ----------------------- 2000 1999 --------- -------- INVENTORIES Raw materials.............................................................. $17,746 $13,068 Work-in-process............................................................ 7,910 9,871 Finished goods............................................................. 18,978 18,715 Reserves................................................................... (2,540) (3,217) ------- ------- $42,094 $38,437 ======= ======= PROPERTY AND EQUIPMENT Land, buildings and improvements........................................... $23,751 $23,694 Furniture, fixtures and computer hardware.................................. 11,346 9,891 Machinery, equipment and tooling........................................... 54,219 47,565 Construction-in-progress................................................... 1,579 2,820 ------- ------- 90,895 83,970 Less -- accumulated depreciation........................................... (32,663) (24,654) ------- ------- $58,232 $59,316 ======= ======= ACCRUED LIABILITIES Compensation and benefits.................................................. $12,400 $12,350 Interest................................................................... 3,148 3,367 Other...................................................................... 9,854 9,050 ------- ------- $25,402 $24,767 ======= =======
38 41 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 12. COMMITMENTS AND CONTINGENCIES In February 1996, the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreements with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999 a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the Company and awarded the individuals approximately $3,800 plus interest and reasonable attorney fees. The Company plans to file an appeal once the court enters a judgment, which is expected during the second quarter of 2001. During 2000, the Company increased its estimated accrual for this matter by $450 representing accrued interest for the year which charge is included in interest expense. During 1999, the Company increased its estimated accrual for this matter by $2,000 which charge is included in other expense. At December 31, 2000 the Company had an outstanding irrevocable letter of credit totaling $6,350 benefiting the individuals. No amounts have been paid as of December 31, 1999. During the second quarter of 2000 one of the Company's significant OEM customers recalled approximately 380,000 trucks to replace or reinforce their trailer hitches, which were supplied by the Company. The recall affects 1998-2000 model year vehicles built between January 1998 and September 1999. The Company worked with the customer to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact will be to the Company, if any, as a result of the recall. In addition to the above, the Company is party to various claims, lawsuits and administrative proceedings related to matters arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company. 13. SEGMENT INFORMATION The Company operates in one reportable segment, providing towing and rack systems and related accessories to the automotive OEM and aftermarket. All sales are to unaffiliated customers. Revenues by geographic area, accumulated by the geographic area where the revenue originated, revenues by product line and long-lived assets, which include net property and equipment and net goodwill and debt issuance costs, by geographic area are as follows:
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ------------ REVENUES United States.................................................... $ 222,159 $ 211,167 $ 192,306 The Netherlands.................................................. 32,344 35,647 35,543 Italy............................................................ 15,725 19,211 19,900 Other foreign.................................................... 48,589 48,117 44,396 --------- --------- --------- $ 318,817 $ 314,142 $ 292,145 ========= ========= =========
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ------------ REVENUES Towing systems.................................................. $ 186,753 $ 187,276 $ 175,236 Rack systems.................................................... 132,064 126,866 116,909 --------- --------- --------- $ 318,817 $ 314,142 $ 292,145 ========= ========= =========
DECEMBER 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ------------ LONG-LIVED ASSETS United States........................................................ $34,830 $ 32,013 $ 28,416 The Netherlands...................................................... 11,494 13,080 16,258 Italy................................................................ 3,044 4,619 6,435 Other foreign........................................................ 8,864 9,604 10,186 ------- -------- -------- $58,232 $ 59,316 $ 61,295 ======= ======== ========
39 42 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. SEGMENT INFORMATION -- (CONTINUED) The Company has two significant customers in the automotive OEM industry. Sales to these customers represented 32% and 11% of total Company sales for the year ended December 31, 2000, 36% and 12% for the year ended December 31, 1999, and 32% and 11% for the year ended December 31, 1998. Accounts receivable from these customers represented 30% and 11% of the Company's trade accounts receivable at December 31, 2000, and 35% and 5% at December 31, 1999, respectively. Although the Company is directly affected by the economic well being of the industries and customers referred to above, management does not believe significant credit risk exists at December 31, 2000. Consistent with industry practice, the Company does not require collateral to reduce such credit risk. 14. CONDENSED CONSOLIDATING INFORMATION The Notes have been issued by the Company and its wholly-owned subsidiary, AAS Capital Corporation and are guaranteed on a full and unconditional and joint and several basis, by all of the Company's wholly-owned domestic subsidiaries. The following condensed consolidating financial information for 2000, 1999 and 1998 presents the financial position, results of operations and cash flows of (i) the Company as parent, as if it accounted for its subsidiaries on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and include Brink International B.V., SportRack International, Inc., and SportRack Automotive, GmbH. The operating results of the guarantor and non-guarantor subsidiaries include management fees of $1,410 and $330, respectively, for the year ended December 31, 2000, $1,410 and $320, respectively, for the year ended December 31, 1999 and $1,198 and $318 for the year ended December 31, 1998, in addition to having been charged interest on their intercompany balances. Since its formation in September 1997, AAS Capital Corporation has had no operations and has no assets or liabilities at December 31, 2000. 40 43 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ ASSETS Current assets Cash .................................. $ 1,153 $ 246 $ 1,916 $ -- $ 3,315 Accounts receivable ................... -- 28,309 14,633 -- 42,942 Inventories ........................... -- 19,148 22,946 -- 42,094 Deferred income taxes and other current assets ....................... 7 5,180 3,462 -- 8,649 --------- --------- --------- --------- --------- Total current assets ............. 1,160 52,883 42,957 -- 97,000 --------- --------- --------- --------- --------- Property and equipment, net ............. -- 34,830 23,402 -- 58,232 Goodwill, net ........................... 1,025 56,144 20,222 -- 77,391 Other intangible assets, net ............ 3,968 234 828 -- 5,030 Deferred income taxes and other noncurrent assets ..................... 93 2,385 2,366 -- 4,844 Investment in subsidiaries .............. 57,615 9,955 -- (67,570) -- Intercompany notes receivable ........... 91,695 -- -- (91,695) -- --------- --------- --------- --------- --------- Total assets ..................... $ 155,556 $ 156,431 $ 89,775 $(159,265) $ 242,497 ========= ========= ========= ========= ========= LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt .. $ -- $ -- $ 11,811 $ -- $ 11,811 Accounts payable ...................... -- 16,689 8,307 -- 24,996 Accrued liabilities and deferred income taxes ........................ 6,799 8,027 10,576 -- 25,402 --------- --------- --------- --------- --------- Total current liabilities ........ 6,799 24,716 30,694 -- 62,209 --------- --------- --------- --------- --------- Deferred income taxes and other noncurrent liabilities ................ 2,003 343 3,212 -- 5,558 Long-term debt, less current maturities . 135,976 -- 27,848 -- 163,824 Intercompany debt ....................... -- 46,064 45,631 (91,695) -- Mandatorily redeemable warrants ......... 5,010 -- -- -- 5,010 Members' equity ......................... 5,768 85,308 (17,610) (67,570) 5,896 --------- --------- --------- --------- --------- Total liabilities and members' equity ......................... $ 155,556 $ 156,431 $ 89,775 $(159,265) $ 242,497 ========= ========= ========= ========= =========
41 44 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ ASSETS Current assets Cash .................................. $ -- $ 5,469 $ 3,249 $ -- $ 8,718 Accounts receivable ................... -- 32,087 14,831 -- 46,918 Inventories ........................... -- 16,361 22,076 -- 38,437 Deferred income taxes and other current assets ....................... 13 3,724 2,946 -- 6,683 --------- --------- --------- --------- --------- Total current assets ............. 13 57,641 43,102 -- 100,756 --------- --------- --------- --------- --------- Property and equipment, net ............. -- 32,014 27,302 -- 59,316 Goodwill, net ........................... 1,065 57,100 22,509 -- 80,674 Other intangible assets, net ............ 4,423 390 916 -- 5,729 Deferred income taxes and other noncurrent assets ..................... 93 1,988 2,657 -- 4,738 Investment in subsidiaries .............. 43,065 9,955 -- (53,020) -- Intercompany notes receivable ........... 99,537 -- -- (99,537) -- --------- --------- --------- --------- --------- Total assets ..................... $ 148,196 $ 159,088 $ 96,486 $(152,557) $ 251,213 ========= ========= ========= ========= ========= LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt .. $ -- $ -- $ 12,449 $ -- $ 12,449 Accounts payable ...................... -- 18,090 8,625 -- 26,715 Accrued liabilities and deferred income taxes ........................ 5,524 9,231 10,012 -- 24,767 --------- --------- --------- --------- --------- Total current liabilities ........ 5,524 27,321 31,086 -- 63,931 --------- --------- --------- --------- --------- Deferred income taxes and other noncurrent liabilities ................ 1,553 608 3,931 -- 6,092 Long-term debt, less current maturities . 124,597 -- 41,452 -- 166,049 Intercompany debt ....................... -- 64,189 35,348 (99,537) -- Mandatorily redeemable warrants ......... 4,810 -- -- -- 4,810 Members' equity ......................... 11,712 66,970 (15,331) (53,020) 10,331 --------- --------- --------- --------- --------- Total liabilities and members' equity ......................... $ 148,196 $ 159,088 $ 96,486 $(152,557) $ 251,213 ========= ========= ========= ========= =========
42 45 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net sales................................ $ -- $ 222,159 $ 96,658 $ -- $ 318,817 Cost of sales............................ -- 173,230 65,860 -- 239,090 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 48,929 30,798 -- 79,727 Selling, administrative and product development expenses................... 1,780 23,450 20,297 -- 45,527 Amortization of intangible assets........ 40 2,347 910 -- 3,297 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,820) 23,132 9,591 -- 30,903 Interest expense......................... 6,027 4,433 7,490 -- 17,950 Equity in net income (loss) of subsidiaries........................... 15,640 -- -- (15,640) -- Foreign currency gain (loss)............. -- -- (5,386) -- (5,386) Other income (expense)................... -- (361) 309 -- (52) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 7,793 18,338 (2,976) (15,640) 7,515 Benefit for income taxes................. -- -- 278 -- 278 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 7,793 $ 18,338 $ (2,698) $ (15,640) $ 7,793 ========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net sales................................ $ -- $ 211,265 $ 102,877 $ -- $ 314,142 Cost of sales............................ -- 158,691 69,198 -- 227,889 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 52,574 33,679 -- 86,253 Selling, administrative and product development expenses................... 1,624 25,141 23,493 -- 50,258 Amortization of intangible assets........ 40 2,326 879 -- 3,245 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,664) 25,107 9,307 -- 32,750 Interest expense......................... 4,933 5,559 6,961 -- 17,453 Equity in net income (loss) of subsidiaries........................... 13,575 -- -- (13,575) -- Foreign currency gain (loss)............. -- -- (7,912) -- (7,912) Other income (expense)................... (2,000) 10 -- -- (1,990) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 4,978 19,558 (5,566) (13,575) 5,395 Provision for income taxes............... -- 14 403 -- 417 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 4,978 $ 19,544 $ (5,969) $ (13,575) $ 4,978 ========== ========== =========== ========== ==========
43 46 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net sales................................ $ -- $ 192,306 $ 99,839 $ -- $ 292,145 Cost of sales............................ -- 144,162 71,279 -- 215,441 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 48,144 28,560 -- 76,704 Selling, administrative and product development expenses................... 1,560 23,631 25,648 -- 50,839 Amortization of intangible assets........ 40 2,314 1,197 -- 3,551 Impairment charge -- -- 7,863 -- 7,863 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,600) 22,199 (6,148) -- 14,451 Interest expense......................... 3,700 6,888 8,045 -- 18,633 Equity in net income (loss) of subsidiaries........................... 5,210 -- -- (5,210) -- Foreign currency gain.................... -- -- 4,995 -- 4,995 ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ (90) 15,311 (9,198) (5,210) 813 Provision for income taxes............... -- -- 903 -- 903 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ (90) $ 15,311 $ (10,101) $ (5,210) $ (90) ========== ========== =========== ========== ==========
44 47 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities.................................. $ (5,585) $ 22,146 $ 4,855 $ -- $ 21,416 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment................................. -- (7,699) (2,746) (10,445) Acquisition of subsidiaries, net of cash acquired.................................. -- (1,545) (1,259) -- (2,804) ---------- --------- ---------- ---------- --------- Net cash used for investing activities.... -- (9,244) (4,005) -- (13,249) ---------- ---------- ---------- ---------- --------- Cash flows provided by (used for) financing activities: Change in intercompany debt................. 7,842 (18,125) 10,283 -- -- Net increase in revolving loan.............. 11,343 -- -- -- 11,343 Repayment of debt........................... -- -- (13,878) -- (13,878) Repurchase of membership units.............. (6,422) -- -- -- (6,422) Collection on members notes receivable...... 65 -- -- -- 65 Distributions to members.................... (6,090) -- (6,090) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities.................... 6,738 (18,125) (3,595) -- (14,982) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes............... -- -- 1,412 -- 1,412 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash............... 1,153 (5,223) (1,333) -- (5,403) Cash at beginning of period................... -- 5,469 3,249 -- 8,718 ---------- --------- ---------- ---------- ---------- Cash at end of period......................... $ 1,153 $ 246 $ 1,916 $ -- $ 3,315 ========== ========= ========== ========== ==========
45 48 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities................................... $ (5,953) $ 26,715 $ 4,252 $ -- $ 25,014 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment.................................. -- (8,000) (3,775) -- (11,775) ---------- --------- ---------- ---------- --------- Net cash used for investing activities..... -- (8,000) (3,775) -- (11,775) ---------- ---------- ---------- ---------- --------- Cash flows provided by (used for) financing activities: Change in intercompany debt.................. 10,148 (14,162) 4,014 -- -- Repayment of debt............................ -- -- (9,270) -- (9,270) Issuance of membership units................. 50 -- -- -- 50 Repurchase of membership units............... (4,274) -- -- -- (4,274) Collection on members notes receivable....... 29 -- -- -- 29 Distributions from subsidiaries.............. 4,720 -- -- (4,720) -- Distributions to members..................... (4,720) (4,720) -- 4,720 (4,720) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities..................... 5,953 (18,882) (5,256) -- (18,185) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes................ -- -- 2,424 -- 2,424 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash................ -- (167) (2,355) -- (2,522) Cash at beginning of period.................... -- 5,636 5,604 -- 11,240 ---------- --------- ---------- ---------- ---------- Cash at end of period.......................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718 ========== ========= ========== ========== ==========
46 49 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities.................................. $ (4,216) $ 18,479 $ 7,616 $ -- $ 21,879 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment................................. -- (4,358) (5,640) -- (9,998) Amount due from sellors of Valley Industries, Inc........................... -- 1,150 -- -- 1,150 Acquisition of subsidiaries, net of cash acquired.................................. -- -- (22,770) -- (22,770) ---------- --------- ---------- ---------- ---------- Net cash used for investing activities.... -- (3,208) (28,410) -- (31,618) ---------- ---------- ---------- ---------- ---------- Cash flows provided by (used for) financing activities: Change in intercompany debt................. 6,101 (11,657) 5,556 -- -- Net reduction in revolving loan............. (1,900) -- (2,605) -- (4,505) Repayment of debt........................... -- -- (3,682) -- (3,682) Issuance of membership units................ 29 -- -- -- 29 Repurchase of membership units.............. (14) -- -- -- (14) Distributions from subsidiaries............. 195 -- -- (195) -- Distributions to members.................... (195) (195) -- 195 (195) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities.................... 4,216 (11,852) (731) -- (8,367) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes............... -- -- 1,998 -- 1,998 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash............... -- 3,419 (19,527) -- (16,108) Cash at beginning of period................... -- 2,217 25,131 -- 27,348 ---------- --------- ---------- ---------- ---------- Cash at end of period......................... $ -- $ 5,636 $ 5,604 $ -- $ 11,240 ========== ========= ========== ========== ==========
47 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of each of the individuals that currently serve as a member (each, a "Board Member") of the Company's board of managers (the "Board of Managers"), executive officers and other significant employees of the Company.
NAME AGE POSITION --------------------------- ----- ------------------------------------------------------------ F. Alan Smith.............. 69 Chairman of the Board of Managers of the Company Terence C. Seikel.......... 44 President and Chief Executive Officer of the Company; Board Member Richard E. Borghi.......... 54 President and Chief Operating Officer of SportRack; Board Member Gerrit de Graaf............ 37 General Manager and Chief Executive Officer of Brink; Board Member Bryan A. Fletcher.......... 41 President and Chief Operating Officer of Valley Aftermarket Barry G. Steele............ 30 Corporate Controller of the Company J. Wim Rengelink........... 46 Finance Director of Brink Donald J. Hofmann, Jr...... 43 Board Member, Vice President and Secretary of the Company Barry Banducci............. 65 Board Member Gerard J. Brink............ 57 Board Member
F. Alan Smith has served in the automotive industry for 39 years and has been Chairman of the Board of Managers of the Company since its formation in September 1995. He served in various assignments at General Motors from 1956 to 1992, including President of GM Canada from 1978 to 1980. He was a member of the Board of Directors of General Motors from 1981 to 1992 and Chief Financial Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The Minnesota Mining and Manufacturing Corporation ("3M"), TransPro, Inc. ("TransPro"). Terence C. Seikel has served in the automotive industry for 17 years and has been President and Chief Executive Officer of the Company since April 15, 1999. From 1996 until April 15, 1999, Mr. Seikel served as Vice President of Finance and Administration and Chief Financial Officer of the Company and SportRack. From 1985 to 1996, Mr. Seikel was employed by Larizza Industries, a publicly held supplier of interior trim to the automotive industry, in various capacities including Chief Financial Officer. Richard E. Borghi has served in the automotive industry for 33 years and has been President and Chief Operating Officer of SportRack since April 15, 1999. From 1995 until April 15, 1999, Mr. Borghi, served as Executive Vice President of Operations and Chief Operating Officer of SportRack. From 1988 to 1995, Mr. Borghi held various senior management positions with MascoTech, and was the Executive Vice President of Operations of the MascoTech Division at the time of its acquisition by the Company. Gerrit de Graaf has been General Manager and Chief Executive Officer of Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips Medical Systems as a consultant and most recently as Philips' Marketing Manager in the United States. Bryan A. Fletcher has served in the automotive industry for 12 years and has been President and Chief Operating Officer of Valley Aftermarket since July 2000. From 1991 until July 2000 Mr. Fletcher served as Vice President of Aftermarket Operations of Valley. Barry G. Steele has been Corporate Controller of the Company since June 1999. From 1997 until June 1999, Mr. Steele served as Manager of Financial Reporting of the Company. From 1993 to 1997, Mr. Steele was employed by Price Waterhouse LLP. J. Wim Rengelink has served in the automotive industry for 14 years and has been Finance Director of Brink since 1995. From 1988 to 1995 he worked in Brink's internal audit department. 48 51 Donald J. Hofmann, Jr. has been a Board Member, Vice President and Secretary of the Company since October 1995. Mr. Hofmann has been a partner of J.P. Morgan Partners, LLC, or its predecessor Chase Capital Partners a global general partnership with over $20.0 billion under management since 1992. J.P. Morgan Partners provides equity and mezzanine debt financing for management buyouts and recapitalizations, growth equity and venture capital. Mr. Hofmann is also an executive officer of the managing member of J.P. Morgan Partners (23A SBIC), LLC, a member of the Company, which is advised by J.P. Morgan Partners, LLC. Mr. Hofmann is also a director of BPC Holding Corporation, Barry Plastics Corporation, Pliant Corporation and United Auto Group, Inc. Barry Banducci has been a Board Member of the Company since October 1995. Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior thereto, Mr. Banducci served in various capacities at Equion Corporation, a supplier of automotive components, from 1983 to 1995, including President, Chief Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro. Gerard J. Brink has been a Board Member of the Company since October 1996. Mr. Brink was General Manager of Brink from 1965 to 1996. BOARD MEMBER COMPENSATION The Board Members do not currently receive compensation for their service on the Board of Managers or any committee thereof but are reimbursed for their out-of-pocket expenses. In addition, Messrs. Smith and Banducci have consulting agreements with the Company. See "Executive Compensation - Consulting Agreements." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Managers has an Audit Committee consisting of Messrs. Banducci and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith. The Audit Committee reviews the scope and results of audits and internal accounting controls and all other tasks performed by the independent public accountants of the Company. The Compensation Committee determines compensation for executive officers of the Company and administers the Company's 1995 Option Plan. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for 1998 through 2000 for the chief executive officer of the Company and the four next most highly compensated executive officers of the Company. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------------------------- ---------------- OTHER ANNUAL SECURITIES ALL OTHER FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($) - ------------------------------------ -------- ------------- ------------- ----------------- ----------------- ----------- F. Alan Smith ......................... 2000 228,000 114,000 -- -- -- Chairman of the Company 1999 228,000 114,000 -- -- -- 1998 217,000 105,000 -- 32 -- Terence C. Seikel ..................... 2000 265,000 175,000 -- -- -- President and Chief Executive Officer 1999 245,000 175,000 -- -- -- of the Company and SportRack 1998 215,000 95,000 -- 65 -- Roger T. Morgan ....................... 2000 179,892 -- -- -- -- Former President and Chief Executive 1999 263,000 100,000 -- -- -- Officer of Valley 1998 250,000 87,500 -- -- -- Richard E. Borghi ..................... 2000 279,798 125,000 -- -- -- President and Chief Operating Officer 1999 261,897 125,000 -- -- -- of SportRack 1998 219,965 115,000 -- 32 -- Gerrit de Graaf ....................... 2000 154,000 65,000 -- -- -- General Manager and Chief Executive 1999 164,830 68,660 -- -- -- Officer of Brink 1998 154,425 45,414 -- 39 -- Bryan Fletcher ........................ 2000 132,664 40,500 -- -- -- President and Chief Operating 1999 133,170 64,050 -- -- -- Officer of Valley Aftermarket 1998 115,015 41,000 -- -- --
- ------------------ 49 52 OPTION GRANTS IN 2000 During 2000, there were no options granted to the named executive officers. The following table sets forth information regarding outstanding membership unit options issued to the chief executive officer of the Company and the four next most highly compensated executive officers.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT YEAR END(#) AT YEAR END($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE -------------------- -------------------- --------------- ------------------------- -------------------- F. Alan Smith....... -- -- 332/150 1,660,000/ 750,000 Terence C. Seikel... -- -- 465/200 2,325,000/ 1,000,0000 Roger T. Morgan..... -- -- --/ 89 --/ -- Richard E. Borghi... -- -- 432/200 2,160,000/ 1,000,000 Gerrit de Graaf..... -- -- 24/15 120,000/ 75,000 Bryan Fletcher...... -- -- 10/35 50,000/ 175,000
- ------------------- EMPLOYMENT AGREEMENTS Each of Terence C. Seikel, Richard E. Borghi, Gerrit de Graaf and Bryan Fletcher have each entered into an employment agreement (collectively, the "Employment Agreements") with the Company. Mr. Seikel's Employment Agreement provides for an annual base salary of $250,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 50-70% of his base salary. Mr. Borghi's Employment Agreement provides for an annual base salary of $250,000, subject to increases at the sole discretion of the Board of Managers, a bonus in the range of 30-50% of his base salary, and a one time bonus of $100,000 on the earlier of (i) September 30, 2002, (ii) his termination date, and (iii) a sale of the Company. Mr. de Graaf's Employment Agreement provides for an annual base salary of NLG 170,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 30% to 50% of his base salary. Mr. Fletcher's Employment Agreement provides for an annual base salary of $150,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 30% to 50% of his base salary. The Employment Agreements also provide for twelve months of severance pay to the executive officer in the event such officer is terminated without cause (as defined in the Employment Agreement). The Employment Agreements for Messrs Seikel, Borghi and Fletcher provided for an increase in the severance pay period to 18 months upon a change in control of the Company, as defined in the Employment Agreement. The Employment Agreements expire December 31, 2003 for Messrs Seikel, Borghi and Fletcher and automatically extend for successive two-year terms unless terminated by the Company upon 30 days notice prior to the expiration of the current term. The Employment Agreement for Mr. de Graaf may be terminated by either party upon three month's prior written notice. Each Employment Agreement prohibits the executive officer from disclosing non-public information about the Company. The Employment Agreements also require the executive officers to assign to the Company any designs, inventions and other related items and intellectual property rights developed or acquired by the executive officer during the term of his employment. In addition, for a period of five years after termination of employment (two years if the termination is without cause) each executive officer has agreed, in his respective Employment Agreement, not to (i) engage in any Competitive Business (as defined in the Employment Agreements), (ii) interfere with or disrupt any relationship between the Company and its customers, suppliers and employees and (iii) induce any employee of the Company to terminate his or her employment with the Company or engage in any Competitive Business. CONSULTING AGREEMENTS F. Alan Smith and Barry Banducci, both members of the Board of Managers, have each entered into consulting agreements (the "Consulting Agreements") with the Company dated as of September 28, 1995. Mr. Smith's Consulting Agreement provides for an annual consulting fee of $150,000 subject to increases at the sole discretion of the Board of Managers, and a performance based bonus in the range of 30-50% of the annual consulting fee. Mr. Banducci's Consulting Agreement provides for an annual consulting fee of $50,000. The initial term of the Consulting Agreements expired on March 28, 1997. The Consulting Agreements automatically extend for successive six-month periods unless terminated by the Company upon 30 days notice prior to the expiration of the then current term. The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing non-public information about the Company. 50 53 MEMBERS' AGREEMENT Pursuant to the Third Amended and Restated Members' Agreement dated as of September 30, 1999 (the "Members' Agreement") among the Company and certain holders of outstanding units (the "Units") of the Company, such holders of the Units shall vote all Units held by them for election of a majority of the Board of Managers consisting of Terence C. Seikel and Richard E. Borghi (so long as each is employed by the Company), and F. Alan Smith, Barry Banducci, Gerard J. Brink and Roger T. Morgan (so long as each is a holder of a certain number of Units) (the "Enumerated Managers"). J.P. Morgan Partners (23A SBIC), LLC, an affiliate of JPMP, has the ability to appoint up to 5 additional members of the Board of Managers. Pursuant to the voting provision of the Members' Agreement, J.P. Morgan Partners (23A SBIC), LLC has the right, under certain circumstances, including breach by the Company of certain covenants, to replace the Enumerated Managers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 19, 2001, the outstanding membership interests of the Company consisted of 14,369 Units. The following table sets forth certain information regarding the beneficial ownership of the Units by (i) each person known by the Company to own more than 5% of the Units, (ii) each named director, (iii) each named executive officer and (iv) all of the Company's directors and executive officers treated as a group. To the knowledge of the Company, each of such holders of Units has sole voting and investment power as to the Units owned unless otherwise noted.
PERCENTAGE NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2) ------------------------------------------- --------------- -------------- J.P. Morgan Partners (23A SBIC), LLC (3)... 10,251 68.94% 1221 Avenue of the Americas New York, New York 10020 Celerity Partners.......................... 1,500 10.44 C/o Mark Benham 300 Sand Hill Road Building 4, Suite 230 Menlo Park, California 94025 F. Alan Smith(4)........................... 632 4.30 Terence C. Seikel(5)....................... 665 4.48 Richard E. Borghi(6)....................... 632 4.27 Gerrit de Graaf(7)......................... 50 0.35 Bryan Fletcher(8).......................... 35 0.24 Barry Banducci(9).......................... 500 3.42 59 Old Quarry Road Guilford, Connecticut 06437 Gerard J. Brink............................ 410 2.85 Lijsterbeslaan 10 B-2950 Kapellen Belgium Donald J. Hoffman (10)..................... 10,251 68.94 All directors and executive officers as a group (nine persons)...................... 2,924 18.41
- ---------------- (1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC, 12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313. (2) Beneficial ownership is determined in accordance with the rules of the Commission and includes voting and investment power with respect to the Units. Units subject to options or warrants currently exercisable or exercisable within 60 days of March 17, 2000 are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person. (3) CB Capital Investors, L.P. is an affiliate of CCP. Includes 501 Units subject to warrants exercisable within 60 days. (4) Includes 332 Units subject to options exercisable within 60 days. 300 Units are owned by the F. Alan Smith Family Limited Partnership. (5) Includes 465 Units subject to options exercisable within 60 days. (6) Includes 432 Units subject to options exercisable within 60 days. (7) Includes 24 Units subject to options exercisable within 60 days. (8) Includes 10 Units subject to options exercisable within 60 days. (9) Includes 250 Units subject to options exercisable within 60 days. All Units are owned by the Banducci Family, LLC. (10) Such person may be deemed the beneficial owner of the Units held by J.P. Morgan Partners (23A SBIC), LLC due to his status as an executive officer of J.P. Morgan Partners (23A SBIC Manager), Inc. the managing member of J.P. Morgan Partners (23A SBIC), LLC. 51 54 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Chase Securities Inc. ("CSI"), Chase, Chase Canada and JPMP are affiliates of J.P. Morgan Partners (23A SBIC), LLC, which owns approximately 49.98% of the Company's issued and outstanding voting securities on a fully diluted basis. CSI acted as an Initial Purchaser in connection with the Offering, for which it received customary fees. Chase is agent bank and a lender to the Company under the Amended and Restated Credit Agreement and has received customary fees and reimbursement of expenses in such capacities. Chase Canada is agent bank and a lender to the Company under the Canadian Credit Agreement and has received customary fees and reimbursement of expenses in such capacities. Chase received its proportionate share, $6.0 million, of the repayment by the Company of $90.0 million under the Amended and Restated Credit Agreement from the proceeds of the Offering. J.P. Morgan Partners (23A SIBC), LLC an affiliate of JPMP and CSI held a portion of the Senior Subordinated Debt and received its proportionate share, $10.7 million, including prepayment penalties of $700,000, of the repayment by the Company of such debt from the proceeds of the Offering. As a result of the Offering, such affiliate was relieved of its obligation to provide up to an additional $20.0 million of senior subordinated debt financing. In addition, an affiliate of CSI and JPMP purchased a portion of the Notes in connection with the Offering. Donald J. Hofmann, Jr., a partner of JPMP, is a member of the Board of Managers of the Company. In addition, CSI, Chase and their affiliates participate on a regular basis in various investment banking and commercial banking transactions for the Company and its affiliates. On January 1, 2000, the Company issued 3,655 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC, in exchange for 3,655 Class A Units. On November 11, 2000 the Company issued 1,478 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC, in exchange for 1,478 Class A Units. The Company is a party to the Consulting Agreements with F. Alan Smith, the Chairman of the Company, and Barry Banducci, a Board Member of the Company. See "Executive Compensation -- Consulting Agreements." In connection with the acquisition of the MascoTech Division by the Company, the Company loaned Mr. Borghi $100,000 to enable him to make his initial equity investments in the Company. The loan bears interest at 6.2% and matures in September 2002. 52 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements: A list of the Consolidated Financial Statements, related notes and Reports of Independent Accountants is set forth in Item 8 of this report on Form 10-K. 2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore have been omitted. 3. Index to Exhibits: EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Formation of AAS. Incorporated by reference to Exhibit 3.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 3.2 Third Amended and Restated Operating Agreement of AAS. Incorporated by reference to Exhibit 3.2 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.3 Amended Bylaws of AAS. Incorporated by reference to Exhibit 3.3 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.4 Third Amended and Restated Members' Agreement Dated as of September 30, 1999 among Advanced Accessory Systems, LLC, and the Members that are parties hereto. Incorporated by reference to Exhibit 3.4 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.6 Unit Redemption Agreement dated as of October 26, 2000 between MascoTech, Inc. and Advanced Accessory Systems, LLC. 4.1 Indenture dated as of October 1, 1997 for the Notes (including the form of New Note attached as Exhibit B thereto) among the Issuers, the Guarantors named therein and First Union National Bank, as Trustee. Incorporated by reference to Exhibit 4.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.1 Asset Purchase Agreement among MascoTech Automotive Systems Group, Inc., MascoTech Accessories, Inc. and Advanced Accessory Systems, LLC dated as of September 28, 1995. Incorporated by reference to Exhibit 10.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.2 Agreement for the Sale and Purchase of Shares in Brink BV dated October 30, 1996 among AAS Holdings, Inc., AAS Holdings, LLC, Brink Holding BV and Brink BV. Incorporated by reference to Exhibit 10.2 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.3 Asset Purchase Agreement among Bell Sports Corp., Bell Sports Canada, Inc. and Advanced Accessory Systems Canada Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated as of July 2, 1997. Incorporated by reference to Exhibit 10.3 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.4 Stock Purchase Agreement dated July 24, 1997 among Robert Boulard and Alan Hamer and Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc. Incorporated by reference to Exhibit 10.4 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.5 Asset Purchase Agreement among Valley Industries, LLC, Valley Industries, Inc., certain affiliates of Valley Industries, Inc., Robert L. Fisher and Roger T. Morgan dated as of August 5, 1997. Incorporated by reference to Exhibit 10.5 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.6 Preliminary Agreement for the Transfer of a Business dated December 16, 1997 between Ellebi S.p.A. and Brink Italia S.r.1. and Brink International B.V. Incorporated by reference to Exhibit 10.6 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.7 Second Amended and Restated Credit Facility among AAS, SportRack, LLC, Brink International BV, Brink BV and Valley Industries, LLC, as Borrowers, NBD Bank as Administrative Agent and Documentation and Collateral Agent and The Chase Manhattan Bank as Co-Administrative Agent and Syndication Agent dated August 5, 1997. Incorporated by reference to Exhibit 10.7 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 53 56 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7(a) Amendment No 1. Dated as of September 5, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997 and Security Agreements Dated as of October 5, 1996. Incorporated by reference to Exhibit 10.7(a) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(b) Amendment No.2 Dated as of September 24, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(b) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(c) Amendment No. 3 Dated as of December 29, 1997 to Second Amended and Restated Credit Agreement dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(c) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(d) Amendment No. 4 Dated as of December 31, 1997 to Second Amended and restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(d) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(e) Amendment No. 5 and Waiver Dated as of December 31, 1998 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(e) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(f) Amendment No. 6 Dated as of August 10, 1999 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.7(g) Amendment No. 7 Dated as of September 30, 2000 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (g) to AAS' Quarterly Report on Form 10-Q (File No. 333-49011) for the nine months ended September 30, 2000. 10.8 First Amended and Restated Credit Agreement among SportRack International, Inc. and First Chicago NBD Bank, Canada, The Chase Manhattan Bank of Canada and The Bank of Nova Scotia dated as of March 19, 1998. Incorporated by reference to Exhibit 10.8 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.9 Amended and Restated Employment Agreement between AAS and Richard Borghi dated September 30, 1999. Incorporated by reference to Exhibit 10.9 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 10.9(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between SportRack, LLC and Richard Borghi. 10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 1995. Incorporated by reference to Exhibit 10.11 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 1995. Incorporated by reference to Exhibit 10.12 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13 Amended and Restated Employment Agreement between AAS and Terence C. Seikel dated September 30, 1999. Incorporated by reference to Exhibit 10.13 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between Advanced Accessory Systems, LLC and Terence C. Seikel. 10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf dated November 1, 1996. Incorporated by reference to Exhibit 10.15 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.17 Lease dated as of January 24, 1997 between Valley Industries Realty, L.P. and Valley Industries, Inc. Incorporated by reference to Exhibit 10.17 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18 Addendum to Sublease dated as of July 2, 1997 between Bell Sports Canada, Inc. and SportRack International, Inc. (formerly known as Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc.). Incorporated by reference to Exhibit 10.18 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18(a) Sublease Amending Agreement made as of the 1st day of January, 2000, between Bell Sports Canada Inc. and SportRack Accessories Inc. (previously known as SportRack International). Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG Produkter AB. Incorporated by reference to Exhibit 10.19 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.20 Lease Agreement for commercial use between Ellebi S.p.A. and Brink Italia S.r.l. Incorporated by reference to Exhibit 10.20 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.21 Registration Rights Agreement dated September 25, 1997 by and among Advanced Accessory Systems, LLC, AAS Capital Corporation, the Guarantors named therein and Chase Securities, Inc. and First Chicago Capital Markets, Inc. Incorporated by reference to Exhibit 10.21 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.22 Amended and Restated Employment Agreement dated as of March 14, 2001 between Valley Industries, LLC, and Bryan Fletcher. 54 57 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.23 Multi-Tenant Industrial Triple Net Lease effective January 1, 2001 between Santa Fe Bayfront Venture, a California general partnership and Valley Industries, LLC a Delaware limited liability company. 12.1 Statement Re: Computation of ratios 21.1 Subsidiaries of the Registrant Incorporated by reference to Exhibit 21.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 24.1 Power of Attorney (b) Reports of form 8-K: None -------------------- 55 58 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. Advanced Accessory Systems, LLC By: /s/ TERENCE C. SEIKEL -------------------------------------------- Terence C. Seikel President, Chief Executive Officer (Principal Executive Officer and Authorized Signatory) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the 22nd day of March, 2001, by the following persons on behalf of the registrant and in the capacities as indicated.
Signature Title --------- ----- /s/ TERENCE C. SEIKEL ----------------------------------------- President, Chief Executive Officer and Terence C. Seikel Manager (Principal Executive and Financial Officer) /s/ BARRY G. STEELE ----------------------------------------- Corporate Controller (Principal Barry G. Steele Accounting Officer) * ----------------------------------------- Chairman of the Board of Managers F. Alan Smith * ----------------------------------------- Manager Barry Banducci * ----------------------------------------- Manager Gerard Jacobus Brink * ----------------------------------------- Manager Donald J. Hofmann * ----------------------------------------- Manager Richard Borghi * ----------------------------------------- Manager Bryan Fletcher * ----------------------------------------- Manager Gerrit de Graaf *By: /s/ TERENCE C. SEIKEL ----------------------------------------- Terence C. Seikel, Attorney-in-Fact
56 59 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Other than this annual report filed on Form 10-K, none. 57 60 ADVANCED ACCESSORY SYSTEMS, LLC- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998, (DOLLAR AMOUNTS IN THOUSANDS)
ADDITIONS ------------------------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING OF COSTS AND TO OTHER AT END OF YEAR EXPENSES ACCOUNTS (1) WRITE-OFFS YEAR ------------ ---------- ------------ ---------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS ------------------------------- For the year ended December 31, 2000........................................ $ 4,997 $ (1,887) $ (41) $ 929 $ 2,140 1999........................................ 2,766 2,670 (67) 372 4,997 1998........................................ 1,699 2,413 523 1,869 2,766 ALLOWANCE FOR INVENTORY AND LOWER OF COST OR MARKET RESERVE ------------------------------- For the year ended December 31, 2000........................................ $ 3,217 $ 1,021 $ 173 $ 1,871 $ 2,540 1999........................................ 3,917 573 (136) 1,137 3,217 1998........................................ 2,590 4,735 15 3,423 3,917 ALLOWANCE FOR REIMBURSABLE TOOLING ---------------------------------- For the year ended December 31, 2000........................................ $ 541 $ 260 $ -- $ 393 $ 414 1999........................................ 324 230 -- 13 541 1998........................................ 890 294 -- 860 324 ALLOWANCE DEFERRED TAX ASSETS ----------------------------- 2000........................................ $ 5,258 $ (86) $ (227) $ -- $ 4,945 1999........................................ 4,225 854 179 -- 5,258 1998........................................ -- 4,225 -- -- 4,225
- --------------- (1) Charges to other accounts include amounts related to acquired companies and the effects of changing foreign currency exchange rates for the Company's foreign subsidiaries. 58 61 Exhibit Index EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Formation of AAS. Incorporated by reference to Exhibit 3.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 3.2 Third Amended and Restated Operating Agreement of AAS. Incorporated by reference to Exhibit 3.2 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.3 Amended Bylaws of AAS. Incorporated by reference to Exhibit 3.3 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.4 Third Amended and Restated Members' Agreement Dated as of September 30, 1999 among Advanced Accessory Systems, LLC, and the Members that are parties hereto. Incorporated by reference to Exhibit 3.4 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.6 Unit Redemption Agreement dated as of October 26, 2000 between MascoTech, Inc. and Advanced Accessory Systems, LLC. 4.1 Indenture dated as of October 1, 1997 for the Notes (including the form of New Note attached as Exhibit B thereto) among the Issuers, the Guarantors named therein and First Union National Bank, as Trustee. Incorporated by reference to Exhibit 4.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.1 Asset Purchase Agreement among MascoTech Automotive Systems Group, Inc., MascoTech Accessories, Inc. and Advanced Accessory Systems, LLC dated as of September 28, 1995. Incorporated by reference to Exhibit 10.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.2 Agreement for the Sale and Purchase of Shares in Brink BV dated October 30, 1996 among AAS Holdings, Inc., AAS Holdings, LLC, Brink Holding BV and Brink BV. Incorporated by reference to Exhibit 10.2 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.3 Asset Purchase Agreement among Bell Sports Corp., Bell Sports Canada, Inc. and Advanced Accessory Systems Canada Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated as of July 2, 1997. Incorporated by reference to Exhibit 10.3 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.4 Stock Purchase Agreement dated July 24, 1997 among Robert Boulard and Alan Hamer and Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc. Incorporated by reference to Exhibit 10.4 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.5 Asset Purchase Agreement among Valley Industries, LLC, Valley Industries, Inc., certain affiliates of Valley Industries, Inc., Robert L. Fisher and Roger T. Morgan dated as of August 5, 1997. Incorporated by reference to Exhibit 10.5 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.6 Preliminary Agreement for the Transfer of a Business dated December 16, 1997 between Ellebi S.p.A. and Brink Italia S.r.1. and Brink International B.V. Incorporated by reference to Exhibit 10.6 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.7 Second Amended and Restated Credit Facility among AAS, SportRack, LLC, Brink International BV, Brink BV and Valley Industries, LLC, as Borrowers, NBD Bank as Administrative Agent and Documentation and Collateral Agent and The Chase Manhattan Bank as Co-Administrative Agent and Syndication Agent dated August 5, 1997. Incorporated by reference to Exhibit 10.7 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 62 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7(a) Amendment No 1. Dated as of September 5, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997 and Security Agreements Dated as of October 5, 1996. Incorporated by reference to Exhibit 10.7(a) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(b) Amendment No.2 Dated as of September 24, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(b) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(c) Amendment No. 3 Dated as of December 29, 1997 to Second Amended and Restated Credit Agreement dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(c) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(d) Amendment No. 4 Dated as of December 31, 1997 to Second Amended and restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(d) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(e) Amendment No. 5 and Waiver Dated as of December 31, 1998 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(e) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(f) Amendment No. 6 Dated as of August 10, 1999 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.7(g) Amendment No. 7 Dated as of September 30, 2000 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (g) to AAS' Quarterly Report on Form 10-Q (File No. 333-49011) for the nine months ended September 30, 2000. 10.8 First Amended and Restated Credit Agreement among SportRack International, Inc. and First Chicago NBD Bank, Canada, The Chase Manhattan Bank of Canada and The Bank of Nova Scotia dated as of March 19, 1998. Incorporated by reference to Exhibit 10.8 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.9 Amended and Restated Employment Agreement between AAS and Richard Borghi dated September 30, 1999. Incorporated by reference to Exhibit 10.9 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 10.9(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between SportRack, LLC and Richard Borghi. 10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 1995. Incorporated by reference to Exhibit 10.11 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 1995. Incorporated by reference to Exhibit 10.12 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13 Amended and Restated Employment Agreement between AAS and Terence C. Seikel dated September 30, 1999. Incorporated by reference to Exhibit 10.13 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between Advanced Accessory Systems, LLC and Terence C. Seikel. 10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf dated November 1, 1996. Incorporated by reference to Exhibit 10.15 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.17 Lease dated as of January 24, 1997 between Valley Industries Realty, L.P. and Valley Industries, Inc. Incorporated by reference to Exhibit 10.17 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18 Addendum to Sublease dated as of July 2, 1997 between Bell Sports Canada, Inc. and SportRack International, Inc. (formerly known as Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc.). Incorporated by reference to Exhibit 10.18 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18(a) Sublease Amending Agreement made as of the 1st day of January, 2000, between Bell Sports Canada Inc. and SportRack Accessories Inc. (previously known as SportRack International). Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG Produkter AB. Incorporated by reference to Exhibit 10.19 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.20 Lease Agreement for commercial use between Ellebi S.p.A. and Brink Italia S.r.l. Incorporated by reference to Exhibit 10.20 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.21 Registration Rights Agreement dated September 25, 1997 by and among Advanced Accessory Systems, LLC, AAS Capital Corporation, the Guarantors named therein and Chase Securities, Inc. and First Chicago Capital Markets, Inc. Incorporated by reference to Exhibit 10.21 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.22 Amended and Restated Employment Agreement dated as of March 14, 2001 between Valley Industries, LLC, and Bryan Fletcher. 63 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.23 Multi-Tenant Industrial Triple Net Lease effective January 1, 2001 between Santa Fe Bayfront Venture, a California general partnership and Valley Industries, LLC a Delaware limited liability company. 12.1 Statement Re: Computation of ratios 21.1 Subsidiaries of the Registrant Incorporated by reference to Exhibit 21.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 24.1 Power of Attorney EX-3.6 2 k61038ex3-6.txt UNIT REDEMPTION AGREEMENT DATED AS OF 10/26/00 1 EXHIBIT 3.6 UNIT REDEMPTION AGREEMENT dated as of October 26, 2000 (the "Agreement"), between MASCOTECH, INC. (the "Seller"), and ADVANCED ACCESSORY SYSTEMS, LLC (F/K/A AAS HOLDINGS, LLC) (the "Purchaser" or the "Company"). WHEREAS, the Seller currently owns 1,500 membership units (the "Units") of the Company; WHEREAS, the Seller desires to withdraw as a Member of the Company and redeem all of the Units upon the terms and conditions set forth in this Agreement; WHEREAS, the Company is willing to permit the withdrawal of the Seller as a Member of the Company and to redeem its Units using $6,421,500.00 of the Company's distributable cash upon the terms and conditions set forth herein; WHEREAS, capitalized terms used but not defined herein shall have the meaning ascribed to them in the Third Amended and Restated Operating Agreement dated as of September 30, 1999 among the Company and its Members (the "Operating Agreement"). NOW, THEREFORE, in consideration of the mutual benefits to be derived from, and the representations, warranties and promises contained in, this Agreement, the parties hereto hereby agree as follows: Section 1. Redemption of Units. (a) Subject to the terms and conditions set forth herein, the Purchaser shall redeem the Units from the Seller for an aggregate consideration of $6,421,500.00 in cash (the "Purchase Price"), or $4,281.00 per Unit. At the Closing (i) the Seller shall deliver one or more certificates representing the Units duly indorsed by the Seller, free and clear of all Encumbrances (as defined below) and (ii) the Purchaser shall deliver the Purchase Price to the Seller in cash by wire transfer to an account previously designated by the Seller. As used herein, the term "Encumbrances" means any and all of the following: security interests, liens, pledges, claims, charges, escrows, encumbrances, options, rights of first refusal, mortgages, indentures, security agreements or other agreements, arrangements, contracts, commitments, understandings or obligations, whether written or oral and whether or not relating in any way to credit or the borrowing of money. (b) The Purchase Price being paid for the Units represents a negotiated price therefor, and the Seller hereby acknowledges that such amount does not necessarily reflect its current capital account balance or the full amount to which it may be entitled pursuant Section 8 of the Operating Agreement upon a liquidation of the Company or otherwise. The Seller further acknowledges that it is aware that the Company has retained First Union Securities, Inc. and Chase Securities, Inc. to assist and advise the Company with a potential Sale of the Company (as defined in the Operating Agreement), and that if a Sale of the Company were to occur, the value of the Units in such transaction may exceed the Purchase Price. The Seller hereby irrevocably and unconditionally waives any right it may have, now or at any time hereafter, to receive from 2 the Company or any other Member of the Company any consideration with respect to the Units in excess of the Purchase Price. Section 2. Closing. (a) The closing of the redemption of the Units (the "Closing") shall take place at the offices of O'Sullivan, Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York, 10112 upon the date that all of the conditions precedent hereunder have been satisfied or waived. Section 3. Representations and Warranties of the Seller. The Seller hereby represents and warrants to the Company that: (a) Except as set forth on Schedule 3 hereto, the Seller is the lawful owner, of record and beneficially, of the Units, with good and marketable title to the Units, free and clear of any Encumbrances, and with all other incidents of record and beneficial ownership pertaining thereto. Except as set forth on Schedule 3 hereto, the Seller has the absolute right and power to transfer the Units, together with all rights and benefits incident to the ownership thereof, to the Purchaser. Except as set forth on Schedule 3 hereto, there are no outstanding options, warrants or rights to purchase or acquire any of the Units, and there are no agreements or understandings between the Seller and any other individual, corporation, partnership or other entity (a "Person") with respect to the ownership or voting of any of the Units, a sale or transfer thereof, or any other matters relating to the Units. The Seller acquired the Units in one or more transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and in compliance with all applicable state securities laws. (b) Except as set forth on Schedule 3 hereto, the Seller has the full and absolute power and authority to execute and deliver this Agreement and any and all instruments necessary or appropriate in order to fully effectuate the terms and conditions of this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, but not limited, the sale of the Units under this Agreement. Except as set forth on Schedule 3 hereto, this Agreement has been duly authorized by all necessary action on the part of the Seller and has been duly executed and delivered by the Seller and constitutes the valid and legally binding obligation of the Seller, enforceable against the Seller in accordance with its terms and conditions, except as enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other Laws (as defined below) affecting creditors' rights generally or by general principles of equity. Except as set forth on Schedule 3 hereto, the execution, delivery and performance by the Seller of this Agreement, the consummation by the Seller of the transactions contemplated hereby, including, but not limited to, the sale of the Units under this Agreement, and the compliance by the Seller with all of the provisions hereof shall not (i) conflict with or result in a default or give rise to any right of termination, cancellation or acceleration (whether upon the giving of notice or the lapse of time or both) under any of the terms, conditions or provisions of any note, bond, lease, mortgage, indenture, license, agreement or other instrument or obligation to which the Seller is a party or by which the Seller or any of its properties or assets (including the Units) is or may be bound or affected, or (ii) violate any law, statute, rule, regulation, order, unit, judgment, injunction or decree (collectively, "Laws") applicable to the Seller or any of its properties or assets (including the Units). Except as set forth 2 3 on Schedule 3 hereto, no consent or approval by, or any notification of or filing with, any Person (governmental or private) is required in connection with the execution, delivery and performance by the Seller of this Agreement or the consummation by the Seller of the transactions contemplated hereby, including, but not limited to, the sale of the Units under this Agreement. (c) The Seller has not employed any broker or finder, or incurred any actual or potential liability or obligation, whether direct or indirect, for any brokerage fees, commissions or finders' fees, in connection with the transactions contemplated by this Agreement. Section 4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Seller that: (a) The Purchaser has full and absolute power and authority to execute and deliver this Agreement and any and all instruments necessary or appropriate in order to effectuate fully the terms and conditions of this Agreement and all related transactions and to perform its obligations under this Agreement. This Agreement has been duly authorized by all necessary action on the part of the Purchaser and has been duly executed and delivered by the Purchaser and constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms and conditions, except as enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors' rights generally or by general principles of equity. (b) Except a set forth on Schedule 4(b) hereto, neither the execution, delivery and performance by the Purchaser of this Agreement nor the consummation by the Purchaser of the transactions contemplated hereby, nor compliance by the Purchaser with any of the provisions hereof, shall (i) conflict with or result in a default or give rise to any right of termination, cancellation or acceleration (whether upon the giving of notice or the lapse of time or both) under any of the terms, conditions or provisions of any note, bond, lease mortgage, indenture, agreement or other instrument or obligation to which the Purchaser is a party, or by which the Purchaser or any of its properties or assets may be bound or affected, or (ii) violate any Law applicable to the Purchaser or any of its properties or assets. Except a set forth on Schedule 4(b) hereto, no consent or approval by, notice to, or registration with, any Person is required on the part of the Purchaser in connection with the execution, delivery and performance of this Agreement or the consummation by the Purchaser of the transactions contemplated hereby. Section 5. General Mutual Releases. (a) The Seller, in consideration of the premises contained herein, its sale of the Units, and for other good and valuable consideration, the receipt and sufficiency of which is hereby expressly acknowledged, does hereby release forever and discharge the Company (including any of its members, officers, managers, employees, successors and assigns and each of its subsidiaries, and their respective, shareholders, members, officers, managers, employees, successors and assigns) of and from any and all claims, demands, causes of action, damages or liabilities of any kind or nature whatsoever that the Seller (including any of its directors, shareholders, officers, managers, employees, successors and assigns and each of its subsidiaries, and their respective directors, shareholders, officers, managers, employees, successors and 3 4 assigns) may have solely in its capacity as a Member, which relate to or arise out of any dealings, relationships or transactions by and between it and the Company (including any of its members, officers, managers, employees, successors and assigns and each of its subsidiaries, and their respective shareholders, members, officers, managers, employees, successors and assigns), in law or equity which against the Company (including any of its members, officers, managers, employees, successors and assigns, and each of its subsidiaries, and their respective shareholders, members, officers, managers, employees, successors and assigns), it ever had, now has or which it hereafter can, shall or may have, whether or not now known, from the beginning of the world to the day of this Agreement, but excluding any claim that may arise out of or in connection with the Purchaser's representations, warranties, covenants and other agreements contained in this Agreement. (b) The Purchaser, in consideration of the premises contained herein, its purchase of the Units, and for other good and valuable consideration, the receipt and sufficiency of which is hereby expressly acknowledged, does hereby release forever and discharge the Seller (including any of its directors, shareholders, officers, managers, employees, successors and assigns and each of its subsidiaries, and their respective directors, shareholders, officers, managers, employees, successors and assigns) solely in its capacity as a Member, of and from any and all claims, demands, causes of action, damages or liabilities of any kind or nature whatsoever which relate to or arise out of any dealings, relationships or transactions by and between it and the Seller (including any of its directors, shareholders, officers, managers, employees, successors and assigns and each of its subsidiaries, and their respective directors, shareholders, officers, managers, employees, successors and assigns), in law or equity which against the Seller (including any of its directors, shareholders, officers, managers, employees, successors and assigns, and each of its subsidiaries, and their respective directors, shareholders, officers, managers, employees, successors and assigns), it ever had, now has or which it hereafter can, shall or may have, whether or not now known, from the beginning of the world to the day of this Agreement, but excluding any claim that may arise out of or in connection with the Seller's representations, warranties, covenants and other agreements contained in this Agreement. Section 6. Closing Conditions of the Purchaser and the Seller. The obligations of the Purchaser to purchase the Units on the one hand, and the Seller to sell the Units on the other hand, are subject to the satisfaction of the following conditions precedent: (a) The Company shall have obtained the consent of a Majority in Interest of its Managing Members, pursuant to Section 11 of the Operating Agreement, to the transactions contemplated herein. (b) The Company shall have obtained the consent of a Majority in Interest of its Managing Members, pursuant to Section 12 of the Operating Agreement, to the withdrawal of the Seller as a Member. (c) The Company shall have obtained the consent of its lenders pursuant to Section 6.3(f) of the Second Amended and Restated Credit Facility dated as of August 5, 1997 (the "Credit Facility"), as amended, to the transactions contemplated herein. 4 5 (d) The Board of Managers shall have determined that, as required pursuant to Section 6.3(h) of the Credit Facility, that the Purchase Price and the other terms of the redemption are on terms no less favorable to the Company than those that might be obtained in a comparable transaction with an unaffiliated third party. (e) The Seller shall have obtained all the consents listed on Schedule 6(e) to effect the transactions contemplated herein (and provided the Company with sufficient evidence thereof). (f) The Seller shall have obtained the consent of Citicorp Venture Capital, Ltd. (together with any of its affiliates, "Citicorp") pursuant to the Stock Purchase Agreement between Citicorp and the Seller dated as of August 1, 2000 (the "Stock Purchase Agreement") (and provided the Company with sufficient evidence thereof). (g) The Seller shall obtained the consent of Citicorp pursuant to the Letter Agreement dated as of August 28, 2000 between Citicorp and the Seller (the "Letter Agreement") (and provided the Company with sufficient evidence thereof). (h) In the event that the Company has not satisfied the conditions precedent set forth in subsections (a) through (d) of this Section 6 on or before November 20, 2000, the Seller shall have the right to terminate the transactions contemplated herein on five (5) days written notice to the Purchaser. (i) In the event that the Seller has not satisfied the conditions precedent set forth in subsections (e) and (f) of this Section 6 on or before November 20, 2000, the Purchaser shall have the right to terminate the transactions contemplated herein on five (5) days written notice to the Seller. Each of the Purchaser and the Seller hereby agree to use their best commercially reasonable efforts to ensure that the conditions precedent for which either such entity is responsible hereunder are satisfied. Section 7. Survival of Representations and Warranties and Agreements. All representations and warranties and agreements contained herein shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. Section 8. Indemnification. Each party hereto (the "Indemnifying Party") shall indemnify, defend and hold the other party hereto harmless against all liability, loss or damage (including, but not limited to, all reasonable costs and expenses related thereto or incurred in enforcing its rights hereunder), (i) arising from the untruth, inaccuracy or breach of any of the representations, warranties, covenants or agreements of such Indemnifying Party contained in this Agreement, or any facts or circumstances constituting any such untruth, inaccuracy or breach, or (ii) with respect to any liability for any brokers' or finders' fees or compensation owing or alleged to be owing in 5 6 connection with the transactions contemplated hereby due to the engagement of a broker, finder or other Person by, or any other act of, such Indemnifying Party. Section 9. Withdrawal of Seller as a Member. Pursuant to Section 15 of the Amended and Restated Members' Agreement by and among the Company, the Seller and the other parties thereto dated as of September 30, 1999 (the "Members' Agreement"), effective upon the consummation of the transactions contemplated herein, the Seller shall no longer be a Member of the Company. Section 10. Confidentiality. From and after the date hereof, the Seller agrees that it shall make no written or other public disclosures regarding this transaction or regarding the parties hereto to any individual or organization without the prior written consent of the Company, which consent shall not be unreasonably withheld; provided, however, that if public disclosure regarding this transaction or regarding the parties hereto is required under the Securities Act, the Seller shall use all commercially reasonable efforts to obtain confidential treatment regarding any information contained herein that is commercial or financial in nature (including the aggregate and per Unit Purchase Price). The Seller agrees that all information received from the Company while it was a Member will be held in confidence indefinitely and returned to the Company or destroyed (with sufficient evidence thereof provided to the Company) promptly upon the Company's request. This Agreement will be supplied to any person other than the agents, employees or representatives of the parties hereto only if such person agrees in writing to be bound by the terms hereof. Section 11. Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. Section 12. Benefits of Agreement. Except as provided for herein, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, legal representatives and heirs. 6 7 Section 13. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via telecopier, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via telecopier, five days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. If to the Seller, to: MascoTech, Inc. 21001 Van Born Road Taylor, MI 48180 Telephone: (313) 274-7405 Telecopy: (313) 792-6940 Attention: Vice President, General Counsel If to the Purchaser, to: Advanced Accessory Systems, LLC 12900 Hall Road Suite 200 Sterling Heights, MI 48313 Telephone: (810) 997-6843 Telecopy: (810) 997-6839 Attention: Terence C. Seikel with a copy to: O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, NY 10112 Telephone: (212) 408-2400 Telecopy: (212) 408-2420 Attention: Ilan S. Nissan, Esq. Section 14. Modification. This Agreement shall not be altered or otherwise amended except pursuant to an instrument in writing signed by each party hereto, except that either party hereto may waive any obligation owed to it by the other party under this Agreement. No waiver by any party hereto of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach 7 8 of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. Section 15. Section Headings. The section headings contained herein are inserted for convenience only and shall not affect the construction of this Agreement. Section 16. Entire Agreement. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties made in connection herewith. Section 17. Severability. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Section 18. Counterparts. This Agreement may be executed in separate original of facsimile counterparts, each of which shall be deemed to be an original instrument, but together shall constitute but one agreement. * * * 8 9 IN WITNESS WHEREOF, the parties have caused this Unit Redemption Agreement to be executed and delivered as of the date first written above. ADVANCED ACCESSORY SYSTEMS, LLC By: /s/ Terence C. Seikel ------------------------------------- Name: Title: MASCOTECH, INC. By: /s/ David B. Liner ------------------------------------- Name: Title: 10 Schedule 3 1. Section 7.02 of the Stock Purchase Agreement requires the consent of Citicorp. 2. Section 6.01 of the Recapitalization Agreement between Riverside Company LLC ("Riverside") and the Seller dated as of August 1, 2000 (the "Recapitalization Agreement") requires the consent of Riverside. 3. Citicorp consent pursuant to the Letter Agreement. 4. Sections 11 and 12 of the Operating Agreement require the consent of a Majority in Interest of the Managing Members. 5. Section 5 of the Members' Agreement requires the consent of CB Capital. 11 Schedule 4(b) Consents: 1. Sections 11 and 12 of the Operating Agreement require the consent of a Majority in Interest of the Managing Members. 2. Section 6.3(f) of the Credit Facility requires the consent of a majority of the Company's lenders. The Company anticipates entering into an amendment to the Credit Facility prior to consummating the transactions set forth herein. 3. Section 6.3(h) of the Credit Facility requires the Consent of the Board of Managers that the transaction is at arm's length. 12 Schedule 6(e) Consents: 1. Section 7.02 of the Stock Purchase Agreement requires the consent of Citicorp. 2. Section 6.01 of the Recapitalization Agreement between Riverside Company LLC ("Riverside") and the Seller dated as of August 1, 2000 (the "Recapitalization Agreement") requires the consent of Riverside. 3. Section 5 of the Members' Agreement requires the consent of CB Capital. EX-10.9(A) 3 k61038ex10-9a.txt AMENDMENT #1 TO AMENDED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.9 (a) AMENDMENT NO. 1 TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Amendment No. 1") dated August 1, 2000 between SPORTRACK, LLC, a Delaware limited liability company (the "Company") and RICHARD E. BORGHI (the "Executive"). RECITALS: WHEREAS, the Executive and the Company are party to an amended and restated employment agreement (the "Employment Agreement") dated as of September 30, 1999. WHEREAS, each of the Executive and the Company desire to amend the Employment Agreement as set forth herein in order to modify the provisions relating to termination of the Executive. NOW, THEREFORE, for good an valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Definitions. Unless otherwise defined herein, all capitalized terms used in this Amendment No. 1 shall have the meaning ascribed to them in the Employment Agreement. 2. Amendment to Section 8. The last sentence of Section 8 is hereby amended to add the following immediately after "(e) resignation": "(other than a Resignation for Good Reason under the circumstances specified in the final sentence of Section 10(b)." 3. Amendment to Section 10(b). Section 10(b) is hereby amended by deleting it and replacing it with the following: "(b) Upon the termination of the Executive's employment hereunder due to a Termination Without Cause, neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company under this Agreement except the right to receive (i) the amounts set forth in Section 10(a), (ii) the prorated portion of any bonus earned by the Executive in such year under any Company incentive compensation plan in which the Executive participates, (iii) the Base Salary through the date which is twelve (12) months from the Termination Date, payable in such installments over the applicable period as the base salary is generally paid to the Executive, and (iv) the costs to the Executive under COBRA to receive insurance coverage from the Company during the period commencing on the Termination Date through the date which is the earlier to occur of (1) the date which is 12 months from the Termination Date and (2) the day prior to the date on which the Executive shall be included in any insurance program provided by any other employer. In the event that a Termination Without Cause or a Resignation for Good Reason shall occur within six (6) months after the effective date of a Change of Control, the Executive shall be entitled solely to the same benefits set forth in this Section 10(b) except that all references to 12 months shall be deemed to be references to 18 2 months. The Executive shall have no duty to mitigate the Company's obligations under this Section 10(b). (c) As used herein, "Resignation for Good Reason" means a resignation by the Executive due to: (i) a 15% or larger reduction in the Base Salary, bonus opportunity and benefits (excluding profit sharing) in the aggregate; (ii) assignment to the Executive of any duties inconsistent in any material respect with his position, status, offices, titles and reporting relationships, authority, duties or responsibilities, or any other action by the Executive's employer (including any successor to the Company) that results in a significant diminution in his position, status, titles, reporting relationships, authority, duties or responsibility; or (iii) the Executive's employer's (including any successor to the Company) requiring him (without his consent) to relocate to a job location outside the Southeast Michigan area, in each case, within six (6) months after the effective date of a Change in Control. As used herein, "Change in Control" means any of: (i) a sale by the Company of all or substantially all of its assets; (ii) a sale or other transfer (whether directly, by merger, or otherwise) of more than 50% of the Company's outstanding membership units to one or more Third Parties in a single transaction or a series of related transactions; (iii) a sale by the Parent of all or substantially all of its assets; (iv) a sale or other transfer (whether directly, by merger, or otherwise) of more than 50% of the Parent's outstanding membership units to one or more Third Parties in a single transaction or a series of related transactions; or (v) the Board's determination, by a majority vote, that a Change in Control has occurred or is about to occur. As used herein, "Parent" means Advanced Accessory Systems, LLC, a Delaware limited liability company. As used herein, "Third Party" means any person or entity that is not directly or indirectly a Member of the Parent as of August 1, 2000." 4. Effective Date. In accordance with the Section 21 of the Employment Agreement, this Amendment No. 1 will become effective upon its execution by the Executive and the Company. 5. No Other Amendments. Except as expressly provided in this Amendment No. 1, the Employment Agreement remains in full force and effect in accordance with its terms. 6. Governing Law. This Amendment No. 1 shall be construed in accordance with and governed by the internal laws of the State of Michigan applicable to agreements made and to be performed entirely within such State without regard to conflicts of laws principles thereof. 7. Counterparts. This Amendment No. 1 may be executed in any number of original or facsimile counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. [Remainder of page intentionally left blank.] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Employment Agreement on the date first above written. SPORTRACK, LLC By: /s/ TERENCE SEIKEL -------------------------------------- Name: Terence Seikel Title: President and Chief Executive Officer /s/ RICHARD BORGHI ----------------------------------------- RICHARD E. BORGHI EX-10.13(A) 4 k61038ex10-13a.txt AMENDMENT #1 TO AMENDED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.13 (A) AMENDMENT NO. 1 TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Amendment No. 1") dated August 1, 2000 between ADVANCED ACCESSORY SYSTEMS, LLC, a Delaware limited liability company (the "Company") and TERENCE C. SEIKEL (the "Executive"). RECITALS: WHEREAS, the Executive and the Company are party to an amended and restated employment agreement (the "Employment Agreement") dated as of September 30, 1999. WHEREAS, each of the Executive and the Company desire to amend the Employment Agreement as set forth herein in order to modify the provisions relating to termination of the Executive. NOW, THEREFORE, for good an valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Definitions. Unless otherwise defined herein, all capitalized terms used in this Amendment No. 1 shall have the meaning ascribed to them in the Employment Agreement. 2. Amendment to Section 8. The last sentence of Section 8 is hereby amended to add the following immediately after "(e) resignation": "(other than a Resignation for Good Reason under the circumstances specified in the final sentence of Section 10(b)." 3. Amendment to Section 10(b). Section 10(b) is hereby amended by deleting it and replacing it with the following: "(b) Upon the termination of the Executive's employment hereunder due to a Termination Without Cause, neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company under this Agreement except the right to receive (i) the amounts set forth in Section 10(a), (ii) the prorated portion of any bonus earned by the Executive in such year under any Company incentive compensation plan in which the Executive participates, (iii) the Base Salary through the date which is twelve (12) months from the Termination Date, payable in such installments over the applicable period as the base salary is generally paid to the Executive, and (iv) the costs to the Executive under COBRA to receive insurance coverage from the Company during the period commencing on the Termination Date through the date which is the earlier to occur of (1) the date which is 12 months from the Termination Date and (2) the day prior to the date on which the Executive shall be included in any insurance program provided by any other employer. In the event that a Termination Without Cause or a Resignation for Good Reason shall occur within six (6) months after the effective date of a Change of Control, the Executive shall be entitled solely to the same benefits set forth in this Section 10(b) except that all references to 12 months shall be deemed to be references to 18 2 months. The Executive shall have no duty to mitigate the Company's obligations under this Section 10(b). (c) As used herein, "Resignation for Good Reason" means a resignation by the Executive due to: (i) a 15% or larger reduction in the Base Salary, bonus opportunity and benefits (excluding profit sharing) in the aggregate; (ii) assignment to the Executive of any duties inconsistent in any material respect with his position, status, offices, titles and reporting relationships, authority, duties or responsibilities, or any other action by the Executive's employer (including any successor to the Company) that results in a significant diminution in his position, status, titles, reporting relationships, authority, duties or responsibility; or (iii) the Executive's employer's (including any successor to the Company) requiring him (without his consent) to relocate to a job location outside the Southeast Michigan area, in each case, within six (6) months after the effective date of a Change in Control. As used herein, "Change in Control" means any of: (i) a sale by the Company of all or substantially all of its assets; (ii) a sale or other transfer (whether directly, by merger, or otherwise) of more than 50% of the Company's outstanding membership units to one or more Third Parties in a single transaction or a series of related transactions; or (iii) the Board's determination, by a majority vote, that a Change in Control has occurred or is about to occur. As used herein, "Third Party" means any person or entity that is not directly or indirectly a Member of the Company as of August 1, 2000." 4. Effective Date. In accordance with the Section 21 of the Employment Agreement, this Amendment No. 1 will become effective upon its execution by the Executive and the Company. 5. No Other Amendments. Except as expressly provided in this Amendment No. 1, the Employment Agreement remains in full force and effect in accordance with its terms. 6. Governing Law. This Amendment No. 1 shall be construed in accordance with and governed by the internal laws of the State of Michigan applicable to agreements made and to be performed entirely within such State without regard to conflicts of laws principles thereof. 7. Counterparts. This Amendment No. 1 may be executed in any number of original or facsimile counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. [Remainder of page intentionally left blank.] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Employment Agreement on the date first above written. ADVANCED ACCESSORY SYSTEMS, LLC By: /s/ F. ALAN SMITH -------------------------------------- Name: Title: /s/ TERENCE C. SEIKEL -------------------------------------- TERENCE C. SEIKEL EX-10.22 5 k61038ex10-22.txt AMENDED AGREEMENT DATED 3/14/01 1 EXHIBIT 10.22 AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of March 14, 2001, between VALLEY INDUSTRIES, LLC, a Delaware limited liability company (the "Company"), and BRYAN FLETCHER (the "Executive"). The Company desires to enter into this Agreement in order to assure itself of the service of the Executive and the Executive desires to accept employment with the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties agree as follows: SECTION 1. EMPLOYMENT. The Company hereby employs the Executive, and the Executive hereby accepts employment by the Company, upon the terms and conditions hereinafter set forth. SECTION 2. TERM. The employment of the Executive hereunder shall be for a period deemed to have commenced on July 1, 2000 (the "Commencement Date") and ending on December 31, 2003 (the "Initial Term") or such earlier date upon which the employment of the Executive shall terminate in accordance with the provisions hereof. Unless terminated earlier in accordance with the provisions hereof, at the end of the Initial Term and at the end of each term thereafter, the employment of the Executive hereunder shall automatically renew for successive two year periods unless the Company shall give the Executive written notice of its desire not to renew the term or the Initial Term no later than 30 days prior to the termination of the then current term. The period commencing on the Commencement Date and ending on the date of termination of the Executive's employment hereunder shall be called the "Term of Employment" and the date on which the Executive's employment hereunder shall terminate shall be called the "Termination Date." SECTION 3. DUTIES. During the Term of Employment, the Executive shall be employed as the President, Aftermarket Operations of the Company and shall perform such duties as are consistent therewith as the respective Boards of Directors of the Company and AAS Holdings, LLC, a Delaware limited liability company ("Holdings") (each, a "Board" and together, the "Boards") or their respective designees shall designate. The Executive shall use his best efforts to perform well and faithfully the foregoing duties and responsibilities. SECTION 4. TIME TO BE DEVOTED TO EMPLOYMENT. During the Term of Employment, the Executive shall devote all of his business time, attention and energies to the business of the Company and its subsidiaries (except for vacations to which he is entitled pursuant to Section 6(b)) and periods of illness or incapacity). During the Term of Employment, the Executive shall not engage in any business activity which, in the reasonable judgment of either of the Boards, conflicts with the duties of the Executive hereunder, whether or not such activity is pursued for gain, profit or other pecuniary advantage. 2 SECTION 5. COMPENSATION. (a) The Company (or at the Company's option, any subsidiary or affiliate thereof) shall pay to the Executive an annual base salary (the "Base Salary") during the Term of Employment of not less than $150,000, payable in such installments (but not less often than monthly) as is generally the policy of the Company with respect to its executive officers, which Base Salary shall be subject to such increases as the Company's Board, in its sole discretion, may from time to time determine. The Executive's performance shall be reviewed at least annually by the Boards. (b) During the Term of Employment, the Executive shall be eligible to participate in a bonus plan in the range which will provide the Executive with an annual cash bonus of 30%-50% of the Base Salary, subject to the achievement by the Company of performance goals established by Holdings' Board in its sole discretion. SECTION 6. BUSINESS EXPENSES; BENEFITS. (a) The Company (or, at the Company's option, any subsidiary or affiliate thereof) shall reimburse the Executive, in accordance with the practice from time to time for executive officers of the Company, for all reasonable and necessary expenses and other disbursements incurred by the Executive for or on behalf of the Company in the performance of the Executive's duties hereunder. The Executive shall provide such appropriate documentation of expenses and disbursements as may from time to time be required by the Company. (b) During the Term of Employment, the Executive shall be entitled to four weeks vacation per year. (c) During the Term of Employment, the Company shall continue to provide the Executive with the group health, life and disability insurance benefits, and retirement plan benefits that were provided by the Company to the Executive prior to the Closing. SECTION 7. INVOLUNTARY TERMINATION. (a) If the Executive is incapacitated or disabled (such condition being hereinafter referred to as a "Disability") in a manner that would qualify the Executive for benefits under the disability policy of the Company (the "Disability Policy"), the Term of Employment and the employment of the Executive under this Agreement shall cease (such termination, as well as a termination under Section 7(b), being hereinafter referred to as an "Involuntary Termination") and the Executive shall be entitled to receive the benefits payable under the Disability Policy. (b) If the Executive dies during the Term of Employment, the Term of Employment and the Executive's employment hereunder shall cease as of the date of the Executive's death. (c) During the Term of Employment, the Company shall reimburse the Executive for his reasonable automobile expenses up to six hundred dollars ($600) per month (which amount shall be paid in addition to the Base Salary). 3 SECTION 8. TERMINATION FOR CAUSE. The Company may terminate the Term of Employment and the employment of the Executive hereunder at any time for Cause (as hereinafter defined) (such termination being referred to herein as a "Termination For Cause") by giving the Executive written notice of such termination, effective immediately upon the giving of such notice to the Executive. As used in this Agreement, "Cause" means the Executive's (a) commission of an act (i) constituting a felony or (ii) involving fraud, theft or dishonesty which is not a felony and which materially adversely affects the Company or could reasonably be expected to materially adversely affect the Company, (b) repeated failure to be reasonably available to perform his duties, which, if curable, shall not have been cured within 10 business days of written notice thereof from the Company, (c) repeated failure to follow the lawful directions of the Boards, which, if curable, shall not have been cured within 10 business days of written notice thereof from the Company, (d) material breach of any agreement with the Company (including any noncompete provisions of this or any agreement between the Executive and the Company) which, if curable, shall not have been cured within 10 business days of written notice thereof from the Company, or (e) resignation (other than a Resignation for Good Reason under the circumstances specified in the final sentence of Section 10(b)). SECTION 9. TERMINATION WITHOUT CAUSE. The Company may terminate the Term of Employment and the employment of the Executive hereunder without Cause (such termination being hereinafter referred to as a "Termination Without Cause") by giving the Executive written notice of such termination, which notice shall be effective on the date specified therein but not earlier than the date on which such notice is given. SECTION 10. EFFECT OF TERMINATION. (a) Upon the termination of the Term of Employment and the Executive's employment hereunder due to an Involuntary Termination or Termination for Cause, neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company under this Agreement, except to receive (i) the unpaid portion, if any, of the Base Salary provided for in Section 5(a), computed on a pro rata basis to the Termination Date (based on the actual number of days elapsed over the actual number of days of the year in which such termination occurs), (ii) any unpaid accrued benefits of the Executive, and (iii) reimbursement for any expenses for which the Executive shall not have been reimbursed as provided in Section 6(a). (b) Upon the termination of the Executive's employment hereunder due to a Termination Without Cause, neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company under this Agreement except the right to receive (i) the amounts set forth in Section 10(a), (ii) the prorated portion of any bonus earned by the Executive in such year under any Company incentive compensation plan in which the Executive participates, (iii) the Base Salary through the date which is twelve (12) months from the Termination Date, payable in such installments over the applicable period as the base salary is generally paid to the Executive, and (iv) the costs to the Executive under COBRA to receive insurance coverage from the Company during the period commencing on the Termination Date through the date which is the earlier to occur of (1) the date which is 12 months from the Termination Date and (2) the day prior to the date on which the Executive shall be included in any insurance program provided by any other employer. In the event that a Termination Without 4 Cause or a Resignation for Good Reason shall occur within six (6) months after the effective date of a Change of Control, the Executive shall be entitled solely to the same benefits set forth in this Section 10(b) except that all references to 12 months shall be deemed to be references to 18 months. The Executive shall have no duty to mitigate the Company's obligations under this Section 10(b). (c) As used herein, "Resignation for Good Reason" means a resignation by the Executive within nine (9) months of a Change in Control due to: (i) any reduction in the Base Salary or bonus opportunity or any failure of the Company or its successor to continue to offer at least substantially the same level of benefits to which the Executive was entitled (excluding profit sharing through equity participation or otherwise); (ii) assignment to the Executive of any duties inconsistent in any material respect with his position, status, offices, titles and reporting relationships, authority, duties or responsibilities, or any other action by the Executive's employer (including any successor to the Company) that results in a significant diminution in his position, status, titles, reporting relationships, authority, duties or responsibility; or (iii) the Executive's employer's requiring him (without his consent) to relocate to a primary job location more than 50 miles from his primary job location, in each case, as was the case immediately prior to the effective date of a Change in Control. As used herein, "Change in Control" means any of: (i) a sale by the Company of all or substantially all of the assets of its after-market division headquartered in Lodi, California; (ii) a sale or other transfer (whether directly, by merger, or otherwise) of more than 50% of the Company's outstanding membership units to one or more Third Parties in a single transaction or a series of related transactions; (iii) a sale by the Parent of all or substantially all of its assets; (iv) a sale or other transfer (whether directly, by merger, or otherwise) of more than 50% of the Parent's outstanding membership units to one or more Third Parties in a single transaction or a series of related transactions; or (v) the Board's determination, by a majority vote, that a Change in Control has occurred or is about to occur. As used herein, "Parent" means Advanced Accessory Systems, LLC, a Delaware limited liability company. As used herein, "Third Party" means any person or entity that is not directly or indirectly a Member of the Parent as of August 1, 2000. SECTION 11. INSURANCE. The Company may, for its own benefit, in its sole discretion, maintain "key-man" life and disability insurance policies covering the Executive. The Executive will cooperate with the Company and provide such information or other assistance as the Company may reasonably request in connection with the Company's obtaining and maintaining such policies. SECTION 12. DISCLOSURE OF INFORMATION. The Executive shall not, at any time during the Term of Employment or thereafter, disclose to any person, firm, corporation or other business entity, except as required by law, any non-public information (including, without limitation, non-public information obtained prior to the date hereof) concerning the business, clients or affairs of the Company or any subsidiary or affiliate thereof for any reason or purpose whatsoever, nor shall the Executive make use of any of such non-public information for his own purpose or for the benefit of any person, firm, corporation or other business entity except the Company or any subsidiary or affiliate thereof. Upon the termination of the Term of Employment, the executive shall return to the Company all property of the Company or any subsidiary or affiliate thereof then in the possession of the Executive and all books, records, 5 computer tapes or discs and all other material containing non-public information concerning the business, clients or affairs of the Company or any subsidiary or affiliate thereof. SECTION 13. RIGHT TO INVENTIONS. The Executive shall promptly disclose, grant and assign to the Company for its sole use and benefit any and all marks, designs, logos, inventions, improvements, technical information and suggestions relating in any way to the business conducted by the Company, which he may develop or which may be acquired by the Executive during the Term of Employment (whether or not during usual working hours), together with all trademarks, patent applications, letters patent, copyrights and reissues thereof that may at any time be granted for or upon any such mark, design, logo, invention, improvement or technical information. In connection therewith: (i) the Executive shall without charge, but at the expense of the Company, promptly at all times hereafter execute and deliver such applications, assignments, descriptions and other instruments as may be necessary or proper in the opinion of the Company to vest title to any such marks, designs, logos, inventions, improvements, technical information, trademarks, patent applications, patents, copyrights or reissues thereof in the Company and to enable it to obtain and maintain the entire right and title thereto throughout the world; (ii) the Executive shall render to the Company at its expense (including a reasonable payment for the time involved in case he is not then in its employ based on his last per diem earnings) all such assistance as it may require in the prosecution of applications for said trademarks, patents, copyrights or reissues thereof, in the prosecution or defense of interferences which may be declared involving any said trademarks, applications, patents or copyrights and in any litigation in which the Company may be involved relating to any such trademarks, patents, inventions, improvements or technical information; and (iii) for the avoidance of doubt, the foregoing provisions shall be deemed to include an assignment of future copyright in accordance with Section 37 of the Copyright Act of 1986 and any amendment or re-enactment thereof. SECTION 14. RESTRICTIVE COVENANT. (a) The Company is in the business of designing, manufacturing and selling towing products (the "Business"). The Executive acknowledges and recognizes that the Business has been conducted, and substantial sales of its products have been made, throughout the United States, and the Executive further acknowledges and recognizes the highly competitive nature of the industry in which the Business is involved. Accordingly, in consideration of the premises contained herein, the consideration to be received hereunder and in consideration of and as an inducement to the Company to consummate the transactions contemplated by the Purchase Agreement, the Executive shall not during the Non-Competition Period (as defined below) (i) directly or indirectly engage, whether or not such engagement shall be as a partner, stockholder, affiliate or other participant, in any Competitive Business (as defined below), or represent in any way any Competitive Business, whether or not such engagement or representation shall be for profit, (ii) interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, 6 between the Company and any other person or entity, including, without limitation, any customer, supplier or employee of the Company, (iii) induce any employee of the Company or the Business to terminate his employment with the Company or the Business or to engage in any Competitive Business in any manner described in the foregoing clause (i) (as well as an officer or director of any Competitive Business), or (iv) affirmatively assist or induce any other person or entity to engage in any Competitive Business in any manner described in the foregoing clause (i) (as well as an officer or director of any Competitive Business). Anything contained in this Section 14 to the contrary notwithstanding, an investment by the Executive in any entity in which the Executive and his affiliates exercise no operational or strategic control and which constitutes less than 2% of the capital of such entity shall not constitute a breach of this Section 14. (b) As used herein, "Non-Competition Period" shall mean the period commencing on the date hereof and terminating on the fifth anniversary of the Termination Date; provided, however, that if the Term of Employment shall have been terminated pursuant to Section 9, then "Non-Competition Period" shall mean the period commencing on the date hereof and terminating on the later of (i) the second anniversary of the Termination Date and (ii) the end of the period following the Termination Date which is equal to the period of the Term of Employment (assuming that the Term of Employment shall not exceed five years for purposes of this clause (ii)); and "Competitive Business" shall mean any business in any State of the United States or anywhere outside the United States engaged in designing, engineering, manufacturing, selling or distributing (x) systems or components thereof (such as trailer hitches, trailer balls and ball mounts) intended to facilitate towing. (c) The Executive understands that the foregoing restrictions may limit his ability to earn a livelihood in a business similar to the business of the Company or any subsidiary or affiliate thereof, but he nevertheless believes that he has received and will receive sufficient consideration and other benefits as an employee of the Company and as otherwise provided hereunder and pursuant to other agreements between the Company and the Executive to justify clearly such restrictions which, in any event (given his education, skills and ability), the Executive does not believe would prevent him from earning a living. SECTION 15. ENFORCEMENT; SEVERABILITY; ETC. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. SECTION 16. REMEDIES. The Executive acknowledges and understands that the provisions of this Agreement are of a special and unique nature, the loss of which cannot be adequately compensated for in damages by an action at law, and that the breach or threatened breach of the provisions of this Agreement would cause the Company irreparable harm. In the event of a breach or threatened breach by the Executive of the provisions of this Agreement, the Company shall be entitled to an injunction restraining him from such breach. Nothing contained 7 in this Agreement shall be construed as prohibiting the Company from or limiting the Company in pursuing any other remedies available for any breach or threatened breach of this Agreement. SECTION 17. NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows: if to the Company, to: Valley Industries, LLC c/o Advanced Accessory Systems, LLC 12900 Hall Road Suite 200 Sterling Heights, Michigan 48313 Attention: Chief Executive Officer Telecopier: (810) 997-6839; with copies to: O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Ilan S. Nissan, Esq. Telecopier: (212) 408-2443; if to the Executive, to: Bryan Fletcher 832 Westwood Drive Lodi, California, 95242 or to such other address as the party to whom notice is to be given may have furnished to the other party or parties in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of nationally-recognized overnight courier, on the next business day after the date when sent, (c) in the case of telecopy transmission, when received, and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted. SECTION 18. BINDING AGREEMENT; BENEFIT. Subject to Section 23, the provisions of this Agreement will be binding upon, and will inure to the benefit of, the respective heirs, legal representatives, successors and assigns of the parties. 8 SECTION 19. GOVERNING LAW. This Agreement will be governed by, and construed and enforced in accordance with, the laws of the State of New York (without giving effect to principles of conflicts of laws). SECTION 20. WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other breach. SECTION 21. ENTIRE AGREEMENT; AMENDMENTS. This Agreement amends and restates the Employment Agreement dated as of August 5, 1997, between the Company and the Executive, as amended by Amendment No. 1 dated as of August 1, 2000. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings between the parties with respect thereto. This Agreement may be amended only by an agreement in writing signed by the parties. SECTION 22. HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 23. ASSIGNMENT. This Agreement is personal in its nature and the parties shall not, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that the Company may assign this Agreement to any of its subsidiaries and affiliates. SECTION 24. COUNTERPARTS. This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. SECTION 25. GENDER. Any reference to the masculine gender shall be deemed to include the feminine and neuter genders unless the context otherwise requires. 9 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amended and Restated Employment Agreement as of the date first written above. VALLEY INDUSTRIES, LLC By: /s/ TERENCE C. SEIKEL ------------------------------------ Name: Title: /s/ BRYAN FLETCHER ------------------------------------ BRYAN FLETCHER EX-10.23 6 k61038ex10-23.txt LEASE EFFECTIVE 1/1/01 1 EXHIBIT 10.23 MULTI-TENANT INDUSTRIAL TRIPLE NET LEASE Effective Date: January __, 2001 (the date set forth below Landlord's signature) BASIC LEASE INFORMATION Landlord: SANTA FE BAYFRONT VENTURE, a California general partnership Landlord's Address For 165 South Union Blvd., Suite 852 Notice: Lakewood, Colorado 80278 Attn: Asset Management Telephone: (303) 980-5700 Fax: (3033) 980-349 With a Copy To: 201 Mission Street San Francisco, California 94105 Attn: Asset Management & Office of General Counsel Telephone: (415) 974-4500 Fax: (415) 974-4687 Landlord's Address File #1918 For Payment of Rent: P.O. Box 61000 San Francisco, California 94161-1918 Tenant: VALLEY INDUSTRIES, LLC, a Delaware limited liability company Tenant's Address 1313 South Stockton Street For Notice: Lodi, California 95240 Attn: Thomas McMillan Telephone: (209) 368-8881 ext. 229 Fax: __________________________ Project: Southpark Business Center Building: An office/warehouse building located on the Land and containing approximately 300,271 rentable square feet. Premises: Approximately 70,644 rentable square feet as shown in Exhibit A. --------- Premises Address: 2200 Southwest Boulevard Street: Grove City, Ohio 43123 City and State: Term: February 1, 2001 to January 31, 2006 Early Possession Period: From the Possession Date (as defined in Section 2.2 below) to the Commencement Date.
(i) 2 Commencement Date: February 1, 2001 Monthly Base Rent Months Monthly Base Rent: ------ --------- Possession Date $15,600.55* (based upon $2.65 per rentable to January 31, 2002 square foot per year) February 1, 2002 $15,894.90 (based upon $2.70 per rentable to January 31, 2003 square foot per year) February 1, 2003 $16,189.25 (based upon $2.75 per rentable to January 31, 2004 square foot per year) February 1, 2004 $16,483.60 (based upon $2.80 per rentable to January 31, 2005 square foot per year) February 1, 2005 $16,777.95 (based upon $2.85 per rentable to January 31, 2006 square foot per year) *Base Rent shall be abated pursuant to Section 20 of the Addendum to Lease. Tenant's Share: 23.5267% Security Deposit: $15,600.55 Broker: Landlord's Broker: NAI Welsh Tenant's Broker: NAI Welsh Lease Year: Shall refer to each twelve month period during the Term commencing on the Commencement Date. Permitted Uses [TENANT TO PROVIDE] ----------------------------------- and no other uses shall be permitted without the prior written consent of Landlord in its sole and absolute discretion. Guarantor(s): Advance Accessories System, LLC, a Delaware limited liability company
ADDENDUM EXHIBITS A Premises B Work Letter C Commencement Date Memorandum D Insurance Certificate E Prohibited Uses (ii) 3 F Rules and Regulations G Requirements for Improvements or Alterations by Tenant H Estoppel Certificate The Basic Lease Information set forth above and the Addendum and Exhibits attached hereto are incorporated into and made a part of the following Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the provisions of the Lease, the latter shall control. LANDLORD (______) AND TENANT (______) AGREE. initial initial (iii) 4 TABLE OF CONTENTS
Page ---- 1. PREMISES...............................................................................................1 1.1 Premises......................................................................................1 1.2 Common Area...................................................................................1 1.3 Reserved Rights...............................................................................1 2. TERM...................................................................................................1 2.1 Commencement Date.............................................................................1 2.2 Possession....................................................................................1 3. RENT...................................................................................................2 3.1 Rent..........................................................................................2 3.2 Late Charge and Interest......................................................................2 3.3 Security Deposit..............................................................................2 4. UTILITIES..............................................................................................2 5. TAXES..................................................................................................3 5.1 Real Property Taxes...........................................................................3 5.2 Definition of Real Property Taxes.............................................................3 5.3 Personal Property Taxes.......................................................................3 6. OPERATING EXPENSES.....................................................................................3 6.1 Operating Expenses............................................................................3 6.2 Definition of Operating Expenses..............................................................3 7. ESTIMATED EXPENSES.....................................................................................4 7.1 Payment.......................................................................................4 7.2 Adjustment....................................................................................4 8. INSURANCE..............................................................................................4 8.1 Landlord......................................................................................4 8.2 Tenant........................................................................................5 8.3 General.......................................................................................5 8.4 Indemnity.....................................................................................6 8.5 Exemption of Landlord from Liability..........................................................6 9. REPAIRS AND MAINTENANCE................................................................................7 9.1 Tenant........................................................................................7 9.2 Landlord......................................................................................7 10. ALTERATIONS............................................................................................7 10.1 Trade Fixtures; Alterations...................................................................7 10.2 Damage; Removal...............................................................................8 10.3 Liens.........................................................................................8 10.4 Standard of Work..............................................................................8 11. USE....................................................................................................8 12. ENVIRONMENTAL MATTERS..................................................................................9 12.1 Hazardous Materials...........................................................................9 12.2 Indemnification...............................................................................9
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Page ---- 13. DAMAGE AND DESTRUCTION................................................................................10 13.1 Casualty.....................................................................................10 13.2 Tenant's Fault...............................................................................11 13.3 Uninsured Casualty...........................................................................11 13.4 Waiver.......................................................................................11 14. EMINENT DOMAIN........................................................................................11 14.1 Total Condemnation...........................................................................11 14.2 Partial Condemnation.........................................................................11 14.3 Award........................................................................................12 14.4 Temporary Condemnation.......................................................................12 15. DEFAULT...............................................................................................12 15.1 Events of Defaults...........................................................................12 15.2 Remedies.....................................................................................13 15.3 Cumulative...................................................................................13 16. ASSIGNMENT AND SUBLETTING.............................................................................14 17. ESTOPPEL, ATTORNMENT AND SUBORDINATION................................................................14 17.1 Estoppel.....................................................................................14 17.2 Subordination................................................................................15 17.3 Attornment...................................................................................15 18. RELOCATION............................................................................................15 19. MISCELLANEOUS.........................................................................................15 19.1 General......................................................................................15 19.2 Signs........................................................................................16 19.3 Waiver.......................................................................................16 19.4 Financial Statements.........................................................................16 19.5 Limitation of Liability......................................................................17 19.6 Notices......................................................................................17 19.7 Brokerage Commission.........................................................................17 19.8 Authorization................................................................................17 19.9 Holding Over; Surrender......................................................................17 19.10 Joint and Several............................................................................18 19.11 Covenants and Conditions.....................................................................18 19.12 Auctions.....................................................................................18 19.13 Consents.....................................................................................18 19.14 Force Majeure................................................................................18 19.15 Mortgagee Protection.........................................................................18 19.16 Guarantors...................................................................................18 19.17 Addenda......................................................................................19
(ii) 6 1. PREMISES 1.1 Premises. Landlord hereby leases to Tenant the Premises as shown on Exhibit A attached hereto, but excluding the Common Area (defined below) and any other portion of the Project. Tenant has determined that the Premises are acceptable for Tenant's use and Tenant acknowledges that, except as set forth in the Work Letter, if any, neither Landlord nor any broker or agent has made any representations or warranties in connection with the physical condition of the Premises or their fitness for Tenant's use upon which Tenant has relied directly or indirectly for any purpose. By taking possession of the Premises, Tenant accepts the Premises "AS-IS" and waives all claims of defect in the Premises, except as set forth in the Work Letter. 1.2 Common Area. Tenant may, subject to rules made by Landlord, use the following areas ("Common Area") in common with Landlord and other tenants of the Project: refuse facilities, landscaped areas, driveways necessary for access to the Premises, parking spaces and other common facilities designated by Landlord from time to time for the common use of all tenants of the Project. 1.3 Reserved Rights. Landlord reserves the right to enter the Premises for any reason upon reasonable notice to Tenant (or without notice in case of an emergency) and/or to undertake the following all without abatement of rent or liability to Tenant: inspect the Premises and/or the performance by Tenant of the terms and conditions hereof; make such alterations, repairs, improvements or additions to the Premises as required or permitted hereunder; change boundary lines of the Common Areas; install, use, maintain, repair, alter, relocate or replace any pipes, ducts, conduits, wires, equipment and other facilities (including, without limitation, cabling and conduit for telecommunications facilities of any kind) in the Common Area or the Building; install, maintain and operate conduit cabling within the utility and/or conduit ducts and risers within the Building, as well as grant lease, license or use rights to third parties, to utilize the foregoing easements or licenses on the Project; grant easements on the Project, dedicate for public use portions thereof and record covenants, conditions and restrictions ("CC&Rs") affecting the Project and/or amendments to existing CC&Rs which do not unreasonably interfere with Tenant's use of the Premises or impose additional material monetary obligations on Tenant; change the name of the Project; affix reasonable signs and displays; and, during the last nine (9) months of the Term, place signs for the rental of, and show the Premises to prospective tenants. 2. TERM 2.1 Commencement Date. The Term of the Lease shall commence on the Commencement Date (as described in the Basic Lease Information), and the Lease shall continue in full force and effect for the period of time specified as the Term or until this Lease is terminated as otherwise provided herein. Landlord shall arrange for the construction of certain Tenant Improvements (as defined in the Work Letter) in accordance with and subject to the terms of the Work Letter. Tenant acknowledges and agrees that the Tenant Improvements shall be constructed after the Commencement Date but such construction shall have no effect on the occurrence of the Possession Date or the Commencement Date or the Term of this Lease. Tenant shall, upon demand after delivery of the Premises to Tenant, execute and deliver to Landlord a Commencement Date Memorandum in the form attached hereto as Exhibit C acknowledging (i) the Commencement Date, (ii) the Free Rent Period (as defined in Section 20 of the Addendum to Lease), and (iii) after completion of the Tenant Improvements, Tenant's acceptance of the Premises. 2.2 Possession. Tenant shall be entitled to possession of the Premises as of the Effective Date of this Lease (the "Possession Date"). Tenant's possession of the Premises during the period of time from the Possession Date to the Commencement Date (such period of time hereinafter being referred to as the "Early Possession Period") shall be subject to all the provisions of this Lease and shall not advance the Commencement Date or the expiration date of the Term of this Lease. Rent shall be paid for such period at the rate stated in the Basic Lease Information, provided that Tenant shall be entitled to the abatement of Base Rent during the Free Rent Period as more particularly described in Section 20 of the Addendum to Lease. Tenant's failure to take possession of the Premises on the Possession Date or the Commencement Date (as designated in the Basic Lease Information) shall have no effect on the Free Rent Period or the occurrence of the Commencement Date nor shall it extend the Term of this Lease. 7 3. RENT 3.1 Rent. Tenant shall pay to Landlord, at Landlord's Address for Payment of Rent designated in the Basic Lease Information, or at such other address as Landlord may from time to time designate in writing to Tenant for the payment of Rent, the Base Rent, without notice, demand, offset or deduction, in advance, on the first day of each calendar month. Landlord shall have no obligation to notify Tenant of any increase in Rent and Tenant's obligation to pay all Rent (and any increases) when due shall not be modified or altered by such lack of notice from Landlord. It is intended that this Lease be a "triple net lease," and that the Rent to be paid hereunder by Tenant will be received by Landlord without any deduction or offset whatsoever by Tenant, foreseeable or unforeseeable. Except as expressly provided to the contrary in this Lease, Landlord shall not be required to make any expenditure, incur any obligation, or incur any liability of any kind whatsoever in connection with this Lease or the ownership, construction, maintenance, operation or repair of the Premises or the Project. Upon the execution of this Lease, Tenant shall pay to Landlord the first month's Base Rent. If the Term commences (or ends) on a date other than the first (or last) day of a month, Base Rent shall be prorated on the basis of a thirty (30) day month. All sums other than Base Rent which Tenant is obligated to pay under this Lease shall be deemed to be additional rent due hereunder ("Additional Rent"), whether or not such sums are designated Additional Rent and, together with the Base Rent, shall be due and payable to Landlord commencing on the Possession Date. The term "Rent" means the Base Rent and all Additional Rent payable hereunder. 3.2 Late Charge and Interest. The late payment of any Rent will cause Landlord to incur additional costs, including administration and collection costs and processing and accounting expenses and increased debt service ("Delinquency Costs"). If Landlord has not received any installment of Rent within five (5) days after such amount is due, Tenant shall pay a late charge of ten percent (10%) of the delinquent amount, which is agreed to represent a reasonable estimate of the Delinquency Costs incurred by Landlord. In addition, all such delinquent amounts shall bear interest from the date such amount was due until paid in full at a rate per annum ("Applicable Interest Rate") equal to the lesser of (a) the maximum interest rate permitted by law or (b) five percent (5%) above the rate publicly announced by Bank of America, N.A. (or if Bank of America, N.A. ceases to exist, the largest bank then headquartered in the State of California) ("Bank") as its "Reference Rate". If the use of the announced Reference Rate is discontinued by the Bank, then the term Reference Rate shall mean the announced rate charged by the Bank which is, from time to time, substituted for the Reference Rate. Landlord and Tenant recognize that the damage which Landlord shall suffer as a result of Tenant's failure to pay such amounts is difficult to ascertain and said late charge and interest are the best estimate of the damage which Landlord shall suffer in the event of late payment. If a late charge becomes payable for any three (3) installments of Rent within any twelve (12) month period, then the Rent shall automatically become due and payable quarterly in advance. 3.3 Security Deposit. Upon the execution of this Lease, Tenant shall pay to Landlord the Security Deposit. The Security Deposit shall secure the full and faithful performance of each provision of this Lease to be performed by Tenant. Landlord shall not be required to pay interest on the Security Deposit or to keep the Security Deposit separate from Landlord's own funds. If Tenant fails to perform fully and timely all or any of Tenant's covenants and obligations hereunder, Landlord may, but without obligation, apply all or any portion of the Security Deposit toward fulfillment of Tenant's unperformed covenants and/or obligations. If Landlord does so apply any portion of the Security Deposit, Tenant shall immediately pay Landlord sufficient cash to restore the Security Deposit to the amount of the then current Base Rent per month. Upon any increase in Base Rent, Landlord may require the Security Deposit to be increased by the amount of the increase in Base Rent per month. After Tenant vacates the Premises, upon the expiration or sooner termination of this Lease, if Tenant is not then in default, Landlord shall return to Tenant any unapplied balance of the Security Deposit. Should the Permitted Use be amended (in Landlord's sole and absolute discretion) to accommodate a change in the business of Tenant or to accommodate a subtenant or assignee approved by Landlord, Landlord shall have the right to increase the Security Deposit to the extent necessary, in Landlord's reasonable judgment, to account for any increased risk to the Premises or increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Tenant occurs during this Lease and following such change the financial condition of Tenant is, in Landlord's reasonable judgment, reduced, Tenant shall deposit such additional monies with Landlord as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. 4. UTILITIES. Tenant shall pay all charges for heat, water, gas, electricity, telephone and any other utilities used on or provided to the Premises. Landlord shall not be liable to Tenant for interruption in or curtailment of any -2- 8 utility service, nor shall any such interruption or curtailment constitute constructive eviction or grounds for rental abatement. In the event the Premises is not separately metered, Tenant shall have the option, subject to Landlord's prior written consent and the terms of this Lease, to cause the Premises to be separately metered at Tenant's cost and expense. If Tenant does not elect to cause the Premises to be separately metered, Tenant shall pay a reasonable proration of utilities, as determined by Landlord. 5. TAXES 5.1 Real Property Taxes. Tenant shall pay to Landlord Tenant's Share of the Real Property Taxes for each full or partial calendar year during the Lease Term. 5.2 Definition of Real Property Taxes. "Real Property Taxes" shall be the sum of the following: all real property taxes, possessory-interest taxes, business or license taxes or fees, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit and traffic charges, housing fund assessments, open space charges, childcare fees, school, sewer and parking fees or any other assessments, levies, fees, exactions or charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen (including fees "in-lieu" of any such tax or assessment) which are assessed, levied, charged, conferred or imposed by any public authority upon the Project (or any real property comprising any portion thereof) or its operations, together with all taxes, assessments or other fees imposed by any public authority upon or measured by any Rent or other charges payable hereunder, including any gross receipts tax or excise tax levied by any governmental authority with respect to receipt of rental income, or upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof, or documentary transfer taxes upon this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises, together with any tax imposed in substitution, partially or totally, of any tax previously included within the aforesaid definition or any additional tax the nature of which was previously included within the aforesaid definition, together with any and all costs and expenses (including, without limitation, attorneys, administrative and expert witness fees and costs) of challenging any of the foregoing or seeking the reduction in or abatement, redemption or return of any of the foregoing, but only to the extent of any such reduction, abatement, redemption or return. All references to Real Property Taxes during a particular year shall be deemed to refer to taxes accrued during such year, including supplemental tax bills regardless of when they are actually assessed and without regard to when such taxes are payable. The obligation of Tenant to pay for supplemental taxes shall survive the expiration or early termination of this Lease. In no event shall Tenant or any Tenant Party (as defined in Section 12.1) be entitled to file any property tax assessment appeal. Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate or inheritance tax of Landlord, or any income, profits or revenue tax or charge upon the net income of Landlord. Real Property Taxes for partial years, if any, falling within the Term shall be prorated. Tenant's obligations for Real Property Taxes for the last full and/or partial year(s) of the Term shall survive the expiration or early termination of the Lease. 5.3 Personal Property Taxes. Prior to delinquency, Tenant shall pay all taxes and assessments levied upon trade fixtures, alterations, additions, improvements, inventories and other personal property located and/or installed on the Premises by Tenant; and Tenant shall provide Landlord copies of receipts for payment of all such taxes and assessments. To the extent any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced by Landlord. 6. OPERATING EXPENSES 6.1 Operating Expenses. Tenant shall pay to Landlord Tenant's Share of the Operating Expenses for each full or partial calendar year during the Lease Term. 6.2 Definition of Operating Expenses. "Operating Expenses" means the total costs and expenses incurred by Landlord in the ownership, operation, maintenance, repair and management of the Project, the Common Area and the Building, including, but not limited to, (a) repair, maintenance, utility costs and landscaping of the Common Area, including, but not limited to, any and all costs of maintenance, repair and replacement of all parking areas (including sweeping, striping and slurry coating), common driveways, outdoor lighting, walkways, landscaping, and other costs which are allocable to the Project or the real property of which the Premises are a part including any costs under the terms of any CC&Rs affecting the real property, (b) non-structural repairs to and -3- 9 maintenance of the roof (and roof membrane), skylights and exterior walls of the Premises (including painting); (c) insurance deductibles and the costs relating to the insurance maintained by Landlord with respect to the Project, including, without limitation, Landlord's cost of any self insurance deductible or retention; (d) maintenance contracts for, and the repair and replacement of, the heating, ventilation and air-conditioning (HVAC) systems and elevators, if any, and maintenance, repair, replacement, monitoring and operation of the fire/life safety system; (e) trash collection; (f) capital improvements made to or capital assets acquired for the Project after the Commencement Date that are intended to reduce Operating Expenses or are reasonably necessary for the health and safety of the occupants of the Project or are required under any governmental law or regulation, which capital costs, or an allocable portion thereof, shall be amortized over the period determined by Landlord, together with interest on the unamortized balance at the Applicable Interest Rate; and (g) any other costs incurred by Landlord related to the Project as a whole. Operating Expenses shall also include an administrative fee to Landlord for accounting and project management services relating to the Project in an amount equal to ten percent (10%) of the sum of Operating Expenses. Operating Expenses shall also include all costs and fees incurred by Landlord in connection with the management of this Lease and the Premises including the cost of those services which are customarily performed by a property management services company (in an amount equal to three percent 3% of Rent), whether performed internally or through an outside management company. Operating Expenses shall not include (i) replacement of or structural repairs to the roof or the exterior walls; (ii) repairs to the extent covered by insurance proceeds, or paid by Tenant or other third parties; (iii) alterations solely attributable to tenants of the Project other than Tenant; or (iv) marketing expenses. 7. ESTIMATED EXPENSES 7.1 Payment. "Estimated Expenses" for any particular year shall mean Landlord's estimate of Operating Expenses and Real Property Taxes for a calendar year. Tenant shall pay Tenant's Share of the Estimated Expenses with installments of Base Rent in monthly installments of one-twelfth (1/12th) thereof on the first day of each calendar month during such year. If at any time Landlord determines that Operating Expenses and Real Property Taxes are projected to vary from the then Estimated Expenses, Landlord may, by notice to Tenant, revise such Estimated Expenses, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such calendar year Tenant has paid to Landlord Tenant's Share of the revised Estimated Expenses for such year. 7.2 Adjustment. "Operating Expenses and Real Property Taxes Adjustment" (or "Adjustment") shall mean the difference between Tenant's Share of Estimated Expenses and Tenant's Share of Operating Expenses and Real Property Taxes for any calendar year. After the end of each calendar year, Landlord shall deliver to Tenant a statement of Tenant's Share of Operating Expenses and Real Property Taxes for such calendar year, accompanied by a computation of the Adjustment. If Tenant's payments are less than Tenant's Share, then Tenant shall pay the difference within twenty (20) days after receipt of such statement. Tenant's obligation to pay such amount shall survive the expiration or termination of this Lease. If Tenant's payments exceed Tenant's Share, then (provided that Tenant is not in default), Landlord shall credit such excess amount to future installments of Tenant's Share for the next calendar year. If Tenant is in default, Landlord may, but shall not be required to, credit such amount to Rent arrearages. Within 30 days after Tenant's receipt of Landlord's statement, Tenant, at Tenant's expense, may audit the tax and expense records for the Project, the Common Area and the Building upon reasonable prior notice to Landlord during normal business hours. If such audit is by a certified public accountant reasonably acceptable to Landlord then (i) if such audit discloses that Tenant has overpaid either Real Property Taxes or Operating Expenses, Landlord will reimburse Tenant for any such excess Operating Expenses or Real Property Taxes paid by Tenant, and (ii) if such audit discloses that such overpayment was more than five percent, Landlord will reimburse Tenant for the actual reasonable cost of the audit. If during any calendar year the Building is not at least 95% occupied, Operating Expenses for such year shall be calculated based on a 95% occupancy rate for the Building. 8. INSURANCE 8.1 Landlord. Landlord shall maintain insurance through individual or blanket policies insuring the Building against fire and extended coverage (including, if Landlord elects, "all risk" coverage, earthquake/volcanic action, flood and/or surface water insurance) for the full replacement cost of the Building, with deductibles and the form and endorsements of such coverage as selected by Landlord, together with rental abatement insurance against loss of Rent in an amount equal to the amount of Rent for a period of at least twelve (12) months commencing on -4- 10 the date of loss. Landlord may also carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Tenant shall pay to Landlord, as a portion of the Operating Expenses, the costs of the insurance coverages described herein, including, without limitation, Landlord's cost of any self-insurance deductible or retention. 8.2 Tenant. Tenant shall, at Tenant's expense, obtain and keep in force at all times the following insurance: 8.2.1 Commercial General Liability Insurance (Occurrence Form). A policy of commercial general liability insurance (occurrence form) having a combined single limit of not less than Two Million Dollars ($2,000,000) per occurrence and Two Million Dollars ($2,000,000) aggregate per location if Tenant has multiple locations, providing coverage for, among other things, blanket contractual liability, premises, products/completed operations with an "Additional Insured-Managers or Lessors of Premises Endorsement" and containing the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire, and personal and advertising injury coverage, with deletion of (a) the exclusion for operations within fifty (50) feet of a railroad track (railroad protective liability), if applicable, and (b) the exclusion for explosion, collapse or underground hazard, if applicable, and, if necessary, Tenant shall provide for restoration of the aggregate limit, and provided that the policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Tenant's indemnity obligations under this Lease; 8.2.2 Automobile Liability Insurance. Business automobile liability insurance having a combined single limit of not less than Two Million Dollars ($2,000,000) per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance, or use of any owned, hired or non-owned automobiles; 8.2.3 Workers' Compensation and Employer's Liability Insurance. Workers' compensation insurance having limits not less than those required by state statute and federal statute, if applicable, and covering all persons employed by Tenant in the conduct of its operations on the Premises (including the all states endorsement and, if applicable, the volunteers endorsement), together with employer's liability insurance coverage in the amount of at least One Million Dollars ($1,000,000); and 8.2.4 Property Insurance. "All risk" property insurance including boiler and machinery comprehensive form, if applicable, covering damage to or loss of any of Tenant's personal property, fixtures, equipment and alterations, including electronic data processing equipment (collectively "Tenant's Property") (and coverage for the full replacement cost thereof including business interruption of Tenant), together with, if the property of Tenant's invitees is to be kept in the Premises, warehouser's legal liability or bailee customers insurance for the full replacement cost of the property belonging to invitees and located in the Premises; and 8.2.5 Business Interruption. Loss of income and extra expense insurance in amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all peril commonly insured against by prudent lessees in the business of Tenant or attributable to prevention of access to the Premises as a result of such perils. 8.3 General 8.3.1 Insurance Companies. Insurance required to be maintained by Tenant shall be written by companies licensed to do business in the state in which the Premises are located and having a "General Policyholders Rating" of at least "A - VIII" (or such higher rating as may be required by a lender having a lien on the Premises) as set forth in the most current issue of "Best's Insurance Guide." 8.3.2 Certificates of Insurance. Tenant shall deliver to Landlord certificates of insurance for all insurance required to be maintained by Tenant in the form of Exhibit D, attached hereto (or in a form acceptable to Landlord in its sole discretion), no later than seven (7) days prior to the date of possession of the Premises. Tenant shall, at least ten (10) days prior to expiration of the policy, furnish Landlord with certificates of renewal or "binders" thereof. Each certificate shall expressly provide that such policies shall not be cancelable or otherwise subject to modification except after sixty (60) days prior written notice to the parties named as additional insureds in -5- 11 this Lease (except in the case of cancellation for nonpayment of premium in which case cancellation shall not take effect until at least ten (10) days' notice has been given to Landlord). If Tenant fails to maintain any insurance required in this Lease, Tenant shall be liable for all losses and costs suffered or incurred by Landlord (including litigation costs and attorneys' fees and expenses) resulting from said failure. 8.3.3 Additional Insureds. Landlord, Landlord's lender, if any, and any property management company of Landlord for the Premises shall be named as additional insureds on a form approved by Landlord under all of the policies required by Section 8.2.1. The policies required under Section 8.2.1 shall provide for severability of interest. 8.3.4 Primary Coverage. All insurance to be maintained by Tenant shall, except for workers' compensation and employer's liability insurance, be primary, without right of contribution from insurance of Landlord. Any umbrella liability policy or excess liability policy (which shall be in "following form") shall provide that if the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance. The limits of insurance maintained by Tenant shall not limit Tenant's liability under this Lease. 8.3.5 Waiver of Subrogation. Tenant waives any right to recover against Landlord for claims for damages to Tenant's Property whether or not covered by insurance. This provision is intended to waive fully, and for the benefit of Landlord, any rights and/or claims which might give rise to a right of subrogation in favor of any insurance carrier. The coverage obtained by Tenant pursuant to this Lease shall include, without limitation, a waiver of subrogation endorsement attached to the certificate of insurance. 8.3.6 Notification of Incidents. Tenant shall notify Landlord within twenty-four (24) hours after the occurrence of any accidents or incidents in the Premises, the Building, Common Areas or the Project which could give rise to a claim under any of the insurance policies required under this Section 8. 8.4 Indemnity. Tenant shall indemnify, protect, defend (by counsel acceptable to Landlord) and hold harmless Landlord and Landlord's affiliated entities, and each of their respective members, managers, partners, directors, officers, employees, shareholders, lenders, agents, contractors, successors and assigns from and against any and all claims, judgments, causes of action, damages, penalties, costs, liabilities, and expenses, including all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (i) any default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or (ii) Tenant's use of the Premises, the conduct of Tenant's business or any activity, work or things done, permitted or suffered by Tenant or any Tenant Party in or about the Premises, the Building, the Common Area or other portions of the Project, except for claims caused solely by Landlord's gross negligence or willful misconduct. The obligations of Tenant under this Section 8.4 shall survive the termination of this Lease with respect to any claims or liability arising prior to such termination. 8.5 Exemption of Landlord from Liability. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property including, but not limited to, Tenant's fixtures, equipment, furniture and alterations or illness or injury to persons in, upon or about the Premises, the Building, the Common Area or other portions of the Project arising from any cause, and Tenant hereby expressly releases Landlord and waives all claims in respect thereof against Landlord, except only such claims are caused solely by Landlord's gross negligence or willful misconduct. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the property of Tenant, or injury to or illness or death of Tenant or any Tenant Party or any other person in or about the Premises, the Building, the Common Area or the Project, whether such damage, illness or injury is caused by fire, steam, electricity, gas, water or rain, or from the breakage, leakage or other defects of sprinklers, wires, appliances, ventilation, plumbing, air conditioning or lighting fixtures, or from any other cause, and whether said damage, illness or injury results from conditions arising upon the Premises, upon other portions of the Building or from other sources or places, and regardless of whether the cause of such damage, illness or injury or the means of repairing the same is inaccessible to Tenant, except only damage, illness or injury caused solely by Landlord's gross negligence or willful misconduct. Landlord shall not be liable for any damages arising from any act or neglect of any contractor or other tenant, if any, of the Building or the Project or Landlord's failure to enforce the terms of any agreements with parties other than Tenant. -6- 12 9. REPAIRS AND MAINTENANCE 9.1 Tenant. Tenant, at Tenant's sole cost and expense, shall keep and maintain the Premises (interior and exterior, excluding roofing and painting), including, without limitation, loading docks, roll up doors and ramps, floors, subfloors and floor coverings, walls and wall coverings, doors, windows, glass, plate glass, locks, ceilings, skylights, lighting systems, interior plumbing, electrical and mechanical systems and wiring, appliances and devices using or containing refrigerants, fixtures and equipment in good repair and in a clean and safe condition, and repair and/or replace any and all of the foregoing in a clean and safe condition, in good order, condition and repair. Without limiting the foregoing, Tenant shall, at Tenant's sole expense, immediately replace all broken glass in the Premises with glass equal to or in excess of the specification and quality of the original glass; and repair any area damaged by Tenant, Tenant's agents, employees, invitees and visitors, including any damage caused by any roof penetration, whether or not such roof penetration was approved by Landlord. All repairs and replacements by Tenant shall be made and performed: (a) at Tenant's cost and expense and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord, (c) so that same shall be at least equal in quality, value and utility to the original work or installation, (d) in a manner and using equipment and materials that will not interfere with or impair the operations, use or occupation of the Building or any of the mechanical, electrical, plumbing or other systems in the Building or the Project, and (e) in accordance with the Rules and Regulations and all Applicable Laws (as defined in Section 11). In the event Tenant fails, in the reasonable judgment of Landlord, to maintain the Premises in accordance with the obligations under the Lease, which failure continues at the end of ten (10) days following Tenant's receipt of written notice from Landlord stating the nature of the failure, Landlord shall have the right to enter the Premises and perform such maintenance, repairs or refurbishing at Tenant's sole cost and expense (including a sum for overhead to Landlord equal to ten percent (10%) of the costs of maintenance, repairs or refurbishing). Tenant shall maintain written records of maintenance and repairs, as required by any Applicable Law, and shall use certified technicians to perform such maintenance and repairs, as so required. Tenant shall deliver full and complete copies of all service or maintenance contracts entered into by Tenant for the Premises to Landlord within one hundred twenty (120) days after the Commencement Date. 9.2 Landlord. Landlord shall, subject to the following limitations, repair damage to structural portions of the roof, foundation and load-bearing portions of walls (excluding wall coverings, painting, glass and doors) of the Building; provided, if such damage is caused by an act or omission of Tenant, or any Tenant Party, then such repairs shall be at Tenant's sole expense. Landlord shall not be required to make any repair resulting from (i) any alteration or modification to the Building or to mechanical equipment within the Building performed by, for or because of Tenant or to special equipment or systems installed by, for or because of Tenant, (ii) the installation, use or operation of Tenant's property, fixtures and equipment, (iii) the moving of Tenant's property in or out of the Building or in and about the Premises, (iv) Tenant's use or occupancy of the Premises in violation of Section 11 of this Lease or in the manner not contemplated by the parties at the time of the execution of this Lease, (v) the acts or omissions of Tenant or any Tenant Party, (vi) fire and other casualty, except as provided by Section 13 of this Lease or (vii) condemnation, except as provided in Section 14 of this Lease. Landlord shall have no obligation to make repairs under this Section 9.2 until a reasonable time after receipt of written notice from Tenant of the need for such repairs. There shall be no abatement of Rent during the performance of such work. Landlord shall not be liable to Tenant for injury or damage that may result from any defect in the construction or condition of the Premises, nor for any damage that may result from interruption of Tenant's use of the Premises during any repairs by Landlord. Tenant waives any right to repair the Premises, the Building and/or the Common Area at the expense of Landlord under any Applicable Laws. 10. ALTERATIONS 10.1 Trade Fixtures; Alterations. Tenant may install necessary trade fixtures, equipment and furniture in the Premises, provided that such items are installed and are removable without structural or material damage to the Premises, the Building, the Common Area or the Project. Tenant shall not construct, nor allow to be constructed, any alterations or physical additions in, about or to the Premises without obtaining the prior written consent of Landlord, which consent shall be conditioned upon Tenant's compliance with the provisions of Exhibit G and any other applicable requirements of Landlord regarding construction of improvements and alterations. Tenant shall submit plans and specifications to Landlord with Tenant's request for approval and shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such alterations and additions, including any costs or expenses which Landlord may incur in electing to have outside architects and -7- 13 engineers review said matters. If Landlord does not respond to a written request from Tenant within ten (10) business days, then Landlord shall be deemed to disapprove such request. In the event Tenant makes any alterations to the Premises that trigger or give rise to a requirement that the Building or the Premises come into compliance with any governmental laws, ordinances, statutes, orders and/or regulations (such as ADA requirements), Tenant shall be fully responsible for complying, at its sole cost and expense, with same. Tenant shall file a notice of completion after completion of such work and provide Landlord with a copy thereof. Tenant shall provide Landlord with a set of "as-built" drawings for any such work. 10.2 Damage; Removal. Tenant shall repair all damage to the Premises, the Building, the Common Area or the Project caused by the installation or removal of Tenant's fixtures, equipment, furniture or alterations. Upon the termination of this Lease, Tenant shall remove any or all trade fixtures, alterations, additions, improvements and partitions made or installed by Tenant and restore the Premises to its condition existing prior to the construction of any such items; provided, however, Landlord has the absolute right to require Tenant to have all or any portion of such items designated by Landlord to remain on the Premises, in which event they shall be and become the property of Landlord upon the termination of this Lease. All such removals and restoration shall be accomplished in a good and workmanlike manner and so as not to cause any damage to the Premises, the Building, the Common Area or the Project whatsoever. 10.3 Liens. Tenant shall promptly pay and discharge all claims for labor performed, supplies furnished and services rendered at the request of Tenant and shall keep the Premises free of all mechanics' and materialmen's liens in connection therewith. Tenant shall (i) provide at least ten (10) days prior written notice to Landlord before any labor is performed, supplies furnished or services rendered on or at the Premises and (ii) file a notice of commencement (the form of which must be pre-approved by Landlord) in accordance with Section 1311.04 of the Ohio Revised Code before any labor is performed, supplies furnished or services rendered on or at the Premises. If any lien is filed, Tenant shall cause such lien to be released and removed within ten (10) days after the date of filing, and if Tenant fails to do so, Landlord may take such action as may be necessary to remove such lien and Tenant shall pay Landlord such amounts expended by Landlord together with interest thereon at the Applicable Interest Rate from the date of expenditure. 10.4 Standard of Work. All work to be performed by or for Tenant pursuant hereto shall be performed diligently and in a first class, workmanlike manner, and in compliance with all Applicable Laws, and/or Tenant and Landlord's insurance carriers. Landlord shall have the right, but not the obligation, to inspect periodically the work on the Premises and Landlord may require changes in the method or quality of the work. 11. USE. The Premises shall be used only for the Permitted Uses set forth in the Basic Lease Information and for no other uses. Tenant's use of the Premises shall be in compliance with and subject to all applicable laws, statutes, codes, ordinances, orders, rules, regulations, conditions of approval and requirements of all federal, state, county, municipal and governmental authorities and all administrative or judicial orders or decrees and all permits, licenses, approvals and other entitlements issued by governmental entities, and rules of common law, relating to or affecting the Project, the Premises or the Building or the use or operation thereof, whether now existing or hereafter enacted, including, without limitation, the Americans with Disabilities Act of 1990, 42 USC 12111 et seq. (the "ADA") as the same may be amended from time to time, all Environmental Laws (as defined in Section 12.1), and any CC&Rs or any supplement thereto recorded in any official or public records with respect to the Project or any portion thereof ("Applicable Laws"). Tenant shall be responsible for obtaining any permit, business license, or other permits or licenses required by any governmental agency permitting Tenant's use or occupancy of the Premises. In no event shall the Premises be used for any of the Prohibited Uses set forth on Exhibit E attached hereto. Tenant shall comply with the rules and regulations attached hereto as Exhibit F, together with such additional rules and regulations as Landlord may from time to time prescribe. Tenant shall not commit waste, overload the floors or structure of the Building, subject the Premises, the Building, the Common Area or the Project to any use which would damage the same or increase the risk of loss or violate any insurance coverage, permit any unreasonable odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises, take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants, take any action which would abrogate any warranties, or use or allow the Premises to be used for any unlawful purpose. Tenant shall have the right in common with other tenants of Landlord to use the parking facilities of the Project. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of parking facilities. Landlord shall not be responsible for non-compliance by any other tenant or occupant of the Project with, or -8- 14 Landlord's failure to enforce, any of the rules or regulations or CC&Rs or any other terms or provisions of such tenant's or occupant's lease. Tenant shall promptly comply with the reasonable requirements of any board of fire insurance underwriters or other similar body now or hereafter constituted. Tenant shall not do any act which shall in any way encumber the title of Landlord in and to the Premises, the Building or the Project. 12. ENVIRONMENTAL MATTERS 12.1 Hazardous Materials. Tenant shall not cause nor permit, nor allow any of Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees or subtenants (individually, a "Tenant Party" and collectively, "Tenant's Parties") to cause or permit, any Hazardous Materials to be brought upon, stored, manufactured, generated, blended, handled, recycled, treated, disposed or used on, under or about the Premises, the Building, the Common Area or the Project, except for routine office and janitorial supplies in usual and customary quantities stored, used and disposed of in accordance with all applicable Environmental Laws. As used herein, "Hazardous Materials" means any chemical, substance, material, controlled substance, object, condition, waste, living organism or combination thereof, whether solid, semi-solid, liquid or gaseous, which is or may be hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytotoxicity, infectiousness or other harmful or potentially harmful properties or effects, including, without limitation, tobacco smoke, petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls (PCBs), refrigerants (including those substances defined in the Environmental Protection Agency's "Refrigerant Recycling Rule," as amended from time to time) and all of those chemicals, substances, materials, controlled substances, objects, conditions, wastes, living organisms or combinations thereof which are now or become in the future listed, defined or regulated in any manner by any Environmental Law based upon, directly or indirectly, such properties or effects. As used herein, "Environmental Laws" means any and all federal, state or local environmental, health and/or safety-related laws, regulations, standards, decisions of courts, ordinances, rules, codes, orders, decrees, directives, guidelines, permits or permit conditions, currently existing and as amended, enacted, issued or adopted in the future which are or become applicable to Tenant, the Premises, the Building, the Common Area or the Project. Tenant and Tenant's Parties shall comply with all Environmental Laws and promptly notify Landlord in writing of the violation of any Environmental Law or presence of any Hazardous Materials, other than office and janitorial supplies as permitted above, or the spill and/or release of any Hazardous Materials in, on, under or about the Premises or the improvements or the soil or groundwater thereunder. Landlord shall have the right to enter upon and inspect the Premises and to conduct tests, monitoring and investigations. If such tests indicate the presence of any environmental condition caused or exacerbated by Tenant or any Tenant Party or arising during Tenant's or any Tenant Party's occupancy, Tenant shall reimburse Landlord for the cost of conducting such tests. The phrase "environmental condition" shall mean any adverse condition relating to any Hazardous Materials or the environment, including surface water, groundwater, drinking water supply, land, surface or subsurface strata or the ambient air and includes air, land and water pollutants, noise, vibration, light and odors. In the event of any such environmental condition, Tenant shall promptly take any and all steps necessary to rectify the same to the satisfaction of the applicable agencies and Landlord, or shall, at Landlord's election, reimburse Landlord, upon demand, for the cost to Landlord of performing rectifying work. The reimbursement shall be paid to Landlord in advance of Landlord's performing such work, based upon Landlord's reasonable estimate of the cost thereof; and upon completion of such work by Landlord, Tenant shall pay to Landlord any shortfall promptly after receipt of Landlord's bills therefor or Landlord shall promptly refund to Tenant any excess deposit, as the case may be. 12.2 Indemnification. Tenant shall indemnify, protect, defend (by counsel acceptable to Landlord) and hold harmless Landlord and Landlord's affiliated entities, and each of their respective members, managers, partners, directors, officers, employees, shareholders, lenders, agents, contractors, successors and assigns (individually and collectively, "Indemnitees") from and against any and all claims, judgments, causes of action, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (a) Tenant and/or any Tenant Party's breach of this Section 12, or (b) the presence, spill or release of Hazardous Materials on, under or about the Premises or other property as a result (directly or indirectly) of Tenant's and/or any Tenant Party's activities, including, without limitation, those involving any Hazardous Materials, or failure to act with respect thereto, in connection with the Premises. This indemnity shall include, without limitation, the cost of any required or necessary repair, cleanup or detoxification, and the preparation and implementation of any closure, monitoring or other required plans, whether such action is required or necessary prior to or following the termination of this Lease. Neither the written consent by Landlord to the -9- 15 presence of Hazardous Materials on, under or about the Premises, nor the strict compliance by Tenant with all Environmental Laws, shall excuse Tenant from Tenant's obligation of indemnification pursuant hereto. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or termination of this Lease. 13. DAMAGE AND DESTRUCTION 13.1 Casualty. If the Premises or Building should be damaged or destroyed by fire or other casualty, Tenant shall give immediate written notice to Landlord. Within thirty (30) days after receipt from Tenant of such written notice, Landlord shall notify Tenant whether the necessary repairs can reasonably be made: (a) within ninety (90) days; (b) in more than ninety (90) days but in less than one hundred eighty (180) days; or (c) in more than one hundred eighty (180) days, in each case after the date of the issuance of permits for the necessary repair or reconstruction of the portion of the Building or Premises which was damaged or destroyed. 13.1.1 Less Than 90 Days. If the Premises or Building should be damaged only to such extent that rebuilding or repairs can reasonably be completed within ninety (90) days after the issuance of permits for the necessary repair or reconstruction of the portion of the Building or Premises which was damaged or destroyed, this Lease shall not terminate and, provided that insurance proceeds are available to fully repair the damage, Landlord shall repair the Premises, except that Landlord shall not be required to rebuild, repair or replace Tenant's Property which may have been placed in, on or about the Premises by or for the benefit of Tenant. If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately on the basis of the size of the area of the Premises that is damaged (i.e., the number of square feet of floor area of the Premises that is damaged compared to the total square footage of the floor area of the Premises) from the date Tenant vacates all or a portion of the Premises that was damaged only to the extent rental abatement insurance proceeds are received by Landlord and only during the period the Premises are unfit for occupancy. 13.1.2 Greater Than 90 Days. If the Premises or Building should be damaged only to such extent that rebuilding or repairs can reasonably be completed in more than ninety (90) days but in less than one hundred eighty (180) days after the issuance of permits for the necessary repair or reconstruction of the portion of the Building or Premises which was damaged or destroyed, then Landlord shall have the option of: (a) terminating the Lease effective upon the occurrence of such damage, in which event the Base Rent shall be abated from the date Tenant vacates the Premises; or (b) electing to repair the Premises, provided insurance proceeds are available to fully repair the damage (except that Landlord shall not be required to rebuild, repair or replace Tenant's Property which may have been placed in, on or about the Premises by or for the benefit of Tenant). If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately on the basis of the size of the area of the Premises that is damaged (i.e., the number of square feet of floor area of the Premises that is damaged compared to the total square footage of the floor area of the Premises) from the date Tenant vacates all or a portion of the Premises that was damaged only to the extent rental abatement insurance proceeds are received by Landlord and only during the period the Premises are unfit for occupancy. In the event that Landlord should fail to substantially complete such repairs within one hundred eighty (180) days after the issuance of permits for the necessary repair or reconstruction of the portion of the Building or Premises which was damaged or destroyed, (such period to be extended for delays caused by Tenant or because of any items of Force Majeure, as hereinafter defined) and Tenant has not re-occupied the Premises, Tenant shall have the right, as Tenant's exclusive remedy, within ten (10) days after the expiration of such one hundred eighty (180) day period, and provided that such repairs have not been substantially completed within such ten (10) day period, to terminate this Lease by delivering written notice to Landlord as Tenant's exclusive remedy, whereupon all rights hereunder shall cease and terminate thirty (30) days after Landlord's receipt of such notice. 13.1.3 Greater Than 180 Days. If the Premises or Building should be so damaged that rebuilding or repairs cannot be completed within one hundred eighty (180) days after the issuance of permits for the necessary repair or reconstruction of the portion of the Building or Premises which was damaged or destroyed, either Landlord or Tenant may terminate this Lease by giving written notice within ten (10) days after notice from Landlord specifying such time period of repair; and this Lease shall terminate and the Rent shall be abated from the date Tenant vacates the Premises. In the event that neither party elects to terminate this Lease, Landlord shall promptly commence and diligently prosecute to completion the repairs to the Building or Premises, provided insurance proceeds are available to repair the damage (except that Landlord shall not be required to rebuild, repair or -10- 16 replace Tenant's Property which may have been placed in, on or about the Premises by or for the benefit of Tenant). If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately on the basis of the size of the area of the Premises that is damaged (i.e., the number of square feet of floor area of the Premises that is damaged compared to the total square footage of the floor area of the Premises), from the date Tenant vacates all or a portion of the Premises that was damaged only to the extent rental abatement insurance proceeds are received by Landlord and only during the period that the Premises are unfit for occupancy. 13.1.4 Casualty During the Last Year of the Lease Term. Notwithstanding any other provisions hereof, if the Premises or the Building shall be damaged within the last year of the Lease Term, and if the cost to repair or reconstruct the portion of the Building or the Premises which was damaged or destroyed shall exceed $10,000, then, irrespective of the time necessary to complete such repair or reconstruction, Landlord shall have the right, in its sole discretion, to terminate the Lease effective upon the occurrence of such damage, in which event the Rent shall be abated from the date Tenant vacates the Premises. The foregoing right shall be in addition to any other right and option of Landlord under this Section 13. 13.2 Tenant's Fault. If the Premises or any portion of the Building is damaged resulting from the negligence or breach of this Lease by Tenant or any of Tenant's Parties, Rent shall not be reduced during the repair of such damage and Tenant shall be liable to Landlord for the cost of the repair caused thereby to the extent such cost is not covered by insurance proceeds received by Landlord. 13.3 Uninsured Casualty. Tenant shall be responsible for and shall pay to Landlord Tenant's Share of any deductible or retention amount payable under the property insurance for the Building. In the event that the Premises or any portion of the Building is damaged to the extent Tenant is unable to use the Premises and such damage is not covered by insurance proceeds received by Landlord or in the event that the holder of any indebtedness secured by the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right at Landlord's option either (i) to repair such damage as soon as reasonably possible at Landlord's expense, or (ii) to give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to terminate this Lease as of the date of the occurrence of such damage. In the event Landlord elects to terminate this Lease, Tenant shall have the right within ten (10) days after receipt of such notice to give written notice to Landlord of Tenant's commitment to pay the cost of repair of such damage, in which event this Lease shall continue in full force and effect, and Landlord shall make such repairs as soon as reasonably possible subject to the following conditions: Tenant shall deposit with Landlord Landlord's estimated cost of such repairs not later than ten (10) days prior to Landlord's commencement of the repair work. If the cost of such repairs exceeds the amount deposited, Tenant shall reimburse Landlord for such excess cost within fifteen (15) days after receipt of an invoice from Landlord. Any amount deposited by Tenant in excess of the cost of such repairs shall be refunded within thirty (30) days of Landlord's final payment to Landlord's contractor. If Tenant does not give such notice within the ten (10) day period, or fails to make such deposit as required, this Lease shall terminate automatically as of the date of the occurrence of the damage. 13.4 Waiver. With respect to any damage or destruction which Landlord is obligated to repair or may elect to repair, Tenant waives all rights to terminate this Lease pursuant to rights otherwise presently or hereafter accorded by law. 14. EMINENT DOMAIN 14.1 Total Condemnation. If all of the Premises is condemned by eminent domain, inversely condemned or sold under threat of condemnation for any public or quasi-public use or purpose ("Condemned"), this Lease shall terminate as of the earlier of the date the condemning authority takes title to or possession of the Premises, and Rent shall be adjusted to the date of termination. 14.2 Partial Condemnation. If any portion of the Premises or the Building is Condemned and such partial condemnation materially impairs Tenant's ability to use the Premises for Tenant's business as reasonably determined by Landlord, Landlord shall have the option of either (i) relocating Tenant to comparable space within the Project or (ii) terminating this Lease as of the earlier of the date title vests in the condemning authority or as of the date an order of immediate possession is issued and Rent shall be adjusted to the date of termination. If such -11- 17 partial condemnation does not materially impair Tenant's ability to use the Premises for the business of Tenant, Landlord shall promptly restore the Premises to the extent of any condemnation proceeds recovered by Landlord, excluding the portion thereof lost in such condemnation, and this Lease shall continue in full force and effect except that after the date of such title vesting or order of immediate possession Rent shall be adjusted as reasonably determined by Landlord. 14.3 Award. If the Premises are wholly or partially Condemned, Landlord shall be entitled to the entire award paid for such condemnation, and Tenant waives any claim to any part of the award from Landlord or the condemning authority; provided, however, Tenant shall have the right to recover from the condemning authority such compensation as may be separately awarded to Tenant in connection with costs in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment to a new location. No condemnation of any kind shall be construed to constitute an actual or constructive eviction of Tenant or a breach of any express or implied covenant of quiet enjoyment. 14.4 Temporary Condemnation. In the event of a temporary condemnation not extending beyond the Term, this Lease shall remain in effect, Tenant shall continue to pay Rent and Tenant shall receive any award made for such condemnation except damages to any of Landlord's property. If a temporary condemnation is for a period which extends beyond the Term, this Lease shall terminate as of the date of initial occupancy by the condemning authority and any such award shall be distributed in accordance with the preceding section. If a temporary condemnation remains in effect at the expiration or earlier termination of this Lease, Tenant shall pay Landlord the reasonable cost of performing any obligations required of Tenant with respect to the surrender of the Premises. 15. DEFAULT 15.1 Events of Defaults. The occurrence of any of the following events shall, at Landlord's option, constitute an "Event of Default": 15.1.1 Vacation or abandonment of the Premises for a period of thirty (30) consecutive days; 15.1.2 Failure to pay Rent on the date when due and the failure continuing for a period of five (5) days after such payment is due; 15.1.3 Failure to perform Tenant's covenants and obligations hereunder (except default in the payment of Rent) where such failure continues for a period of thirty (30) days after written notice from Landlord; provided, however, if the nature of the default is such that more than thirty (30) days are reasonably required for its cure, Tenant shall not be deemed to be in default if Tenant commences the cure within ten (10) days after written notice from Landlord and diligently and continuously prosecutes such cure to completion; 15.1.4 The making of a general assignment by Tenant for the benefit of creditors; the filing of a voluntary petition by Tenant or the filing of an involuntary petition by any of Tenant's creditors seeking the rehabilitation, liquidation or reorganization of Tenant under any law relating to bankruptcy, insolvency or other relief of debtors and, in the case of an involuntary action, the failure to remove or discharge the same within sixty (60) days of such filing; the appointment of a receiver or other custodian to take possession of substantially all of Tenant's assets or this leasehold; Tenant's insolvency or inability to pay Tenant's debts or failure generally to pay Tenant's debts when due; any court entering a decree or order directing the winding up or liquidation of Tenant or of substantially all of Tenant's assets; Tenant taking any action toward the dissolution or winding up of Tenant's affairs; the cessation or suspension of Tenant's use of the Premises; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets or this leasehold; 15.1.5 The making of any material misrepresentation or omission by Tenant or any successor in interest of Tenant in any materials delivered by or on behalf of Tenant to Landlord or Landlord's lender pursuant to this Lease; or 15.1.6 The occurrence of an Event of Default set forth in Section 15.1.4 or 15.1.5 with respect to any guarantor of this Lease, if applicable. -12- 18 15.2 Remedies 15.2.1 Termination. In the event of the occurrence of any Event of Default, Landlord shall have the right to give a written termination notice to Tenant and, on the date specified in such notice, this Lease shall terminate. 15.2.1.1 Repossession. Following termination, without prejudice to other remedies Landlord may have, Landlord may (i) peaceably re-enter the Premises upon voluntary surrender by Tenant or remove Tenant therefrom and any other persons occupying the Premises, using such legal proceedings as may be available; (ii) repossess the Premises or relet the Premises or any part thereof for such term (which may be for a term extending beyond the Term), at such rental and upon such other terms and conditions as Landlord in Landlord's sole discretion shall determine, with the right to make reasonable alterations and repairs to the Premises; and (iii) remove all personal property therefrom. 15.2.1.2 Unpaid Rent. Landlord shall have all the rights and remedies of a landlord provided by Applicable Law, including the right to recover from Tenant: (a) the worth, at the time of award, of the unpaid Rent that had been earned at the time of termination, (b) the worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after the date of termination until the time of award exceeds the amount of loss of rent that Tenant proves could have been reasonably avoided, (c) the worth, at the time of award, of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided, and (d) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. The phrase "worth, at the time of award," as used in (a) and (b) above, shall be computed at the Applicable Interest Rate, and as used in (c) above, shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 15.2.2 Continuation. Even though an Event of Default may have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession; and Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover all rent as it becomes due under this Lease. Landlord, without terminating this Lease, may, during the period Tenant is in default, enter the Premises and relet the same, or any portion thereof, to third parties for Tenant's account and Tenant shall be liable to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, expenses of remodeling the Premises and like costs. Reletting may be for a period shorter or longer than the remaining Term. Tenant shall continue to pay the Rent on the date the same is due. No act by Landlord hereunder, including acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease, shall terminate this Lease unless Landlord notifies Tenant that Landlord elects to terminate this Lease. In the event that Landlord elects to relet the Premises, the rent that Landlord receives from reletting shall be applied to the payment of, first, any indebtedness from Tenant to Landlord other than Base Rent and Tenant's Share of Operating Expenses and Real Property Taxes; second, all costs, including maintenance, incurred by Landlord in reletting; and, third, Base Rent and Tenant's Share of Operating Expenses and Real Property Taxes under this Lease. After deducting the payments referred to above, any sum remaining from the rental Landlord receives from reletting shall be held by Landlord and applied in payment of future Rent as Rent becomes due under this Lease. In no event, and notwithstanding anything in Section 16 to the contrary, shall Tenant be entitled to any excess rent received by Landlord. If, on the date Rent is due under this Lease, the rent received from the reletting is less than the Rent due on that date, Tenant shall pay to Landlord, in addition to the remaining Rent due, all costs, including maintenance, which Landlord incurred in reletting the Premises that remain after applying the rent received from reletting as provided hereinabove. So long as this Lease is not terminated, Landlord shall have the right to remedy any default of Tenant, to maintain or improve the Premises, to cause a receiver to be appointed to administer the Premises and new or existing subleases and to add to the Rent payable hereunder all of Landlord's reasonable costs in so doing, with interest at the Applicable Interest Rate from the date of such expenditure. Landlord shall have no duty to relet the Premises so long as it has other unleased space available in the Project. 15.3 Cumulative. Each right and remedy of Landlord provided for herein or now or hereafter existing at law, in equity, by statute or otherwise shall be cumulative and shall not preclude Landlord from exercising any other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity, by statute or -13- 19 otherwise. No payment by Tenant of a lesser amount than the Rent nor any endorsement on any check or letter accompanying any check or payment as Rent shall be deemed an accord and satisfaction of full payment of Rent; and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. 16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, sublet or otherwise transfer, whether voluntarily or involuntarily or by operation of law, the Premises or any part thereof without Landlord's prior written approval, which shall not be unreasonably withheld; provided, however, Tenant agrees it shall be reasonable for Landlord to disapprove of a requested sublease or assignment, if the proposed subtenant or assignee does not have a tangible net worth (as determined in accordance with generally accepted accounting principles consistently applied) equal to or greater than that of Tenant as of the date of the Lease as shown in the financial information provided to Landlord, or if the proposed subtenant or assignee is currently a tenant in any other space leased by Landlord or if such proposed subtenant or assignee is in the process of negotiation with Landlord to lease other space owned or managed by Landlord. The merger of Tenant with any other entity or the transfer of any controlling or managing ownership or beneficial interest in Tenant, or the assignment of a substantial portion of the assets of Tenant, whether or not located at the Premises, shall constitute an assignment hereunder. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice thereof with copies of all related documents and agreements associated with the assignment or sublease, including without limitation, the financial statements of any proposed assignee or subtenant, forty-five (45) days prior to the anticipated effective date of the assignment or sublease. Tenant shall pay Landlord's reasonable attorneys' fees incurred in the review of such documentation plus an administrative fee of Five Hundred Dollars ($500.00) for each proposed transfer. Landlord shall have a period of thirty (30) days following receipt of such notice and all related documents and agreements to notify Tenant in writing of Landlord's approval or disapproval of the proposed assignment or sublease. If Landlord fails to notify Tenant in writing of such election, Landlord shall be deemed to have disapproved such assignment or subletting. This Lease may not be assigned by operation of law. If the proposed assignment or sublease is for substantially the remainder of the Term, Landlord may terminate the Lease (or in the case of a partial sublease, terminate the Lease with respect to the portion of the Premises proposed to be subject to the sublease) by giving written notice to Tenant within such thirty (30) day period. Any purported assignment or subletting contrary to the provisions hereof shall be void and shall constitute an Event of Default hereunder. If Tenant receives rent or other consideration for any such transfer in excess of the Rent, or in case of the sublease of a portion of the Premises, in excess of such Rent that is fairly allocable to such portion, after appropriate adjustments to assure that all other payments required hereunder are appropriately taken into account, Tenant shall pay Landlord one hundred percent (100%) of the difference between each such payment of rent or other consideration and the Rent required hereunder. Landlord may, without waiving any rights or remedies, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the Rent herein reserved and apportion any excess rent so collected in accordance with the terms of the preceding sentence. Such acceptance of Rent shall in no event be deemed to imply that Landlord is approving a subtenant or assignee which Landlord has not approved in writing pursuant to the requirements of this Section 16. Tenant shall continue to be liable as a principal and not as a guarantor or surety to the same extent as though no assignment or subletting had been made. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to the Lease by assignees of Tenant without notifying Tenant or any successor of Tenant and without obtaining their consent. No permitted transfer shall be effective until there has been delivered to Landlord a counterpart of the transfer instrument in which the transferee agrees to be and remain jointly and severally liable with Tenant for the payment of Rent pertaining to the Premises and for the performance of all the terms and provisions of this Lease relating thereto arising on or after the date of the transfer. 17. ESTOPPEL, ATTORNMENT AND SUBORDINATION 17.1 Estoppel. Within ten (10) days after written request by Landlord, Tenant shall deliver an estoppel certificate duly executed (and acknowledged if required by any lender), in the form attached hereto as Exhibit H, or in such other form as may be acceptable to the lender, which form may include some or all of the provisions contained in Exhibit H, to any proposed mortgagee, purchaser or Landlord. Tenant's failure to deliver said statement in such time period shall be an Event of Default hereunder and shall be conclusive upon Tenant that (a) this Lease is in full force and effect, without modification except as may be represented by Landlord; (b) there are no uncured defaults in Landlord's performance and Tenant has no right of offset, counterclaim or deduction against Rent hereunder; and (c) no more than one month's Base Rent has been paid in advance. If any financier should require -14- 20 that this Lease be amended (other than in the description of the Premises, the Term, the Permitted Use, the Rent or as will substantially, materially or adversely affect the rights of Tenant), Landlord shall give written notice thereof to Tenant, which notice shall be accompanied by a Lease supplement embodying such amendments. Tenant shall, within ten (10) days after the receipt of Landlord's notice, execute and deliver to Landlord the tendered Lease supplement. If Tenant fails to deliver to Landlord the tendered Lease supplement within ten (10) days after receipt of Landlord's notice, Tenant shall be deemed to have given Landlord a power of attorney to execute such supplement on behalf of Tenant. 17.2 Subordination. This Lease shall be subject and subordinate to all ground leases, master leases and the lien of all mortgages and deeds of trust which now or hereafter affect the Premises or the Project or Landlord's interest therein, and all amendments thereto, all without the necessity of Tenant's executing further instruments to effect such subordination. If requested, Tenant shall execute and deliver to Landlord within ten (10) days after Landlord's request whatever documentation that may reasonably be required to further effect the provisions of this paragraph including a Subordination, Nondisturbance and Attornment Agreement in the form required by the applicable lender, ground Lessor and/or master lessor. 17.3 Attornment. Tenant hereby agrees that Tenant will recognize as its landlord under this Lease and shall attorn to any person succeeding to the interest of Landlord in respect of the land and the buildings governed by this Lease upon any foreclosure of any mortgage upon such land or buildings or upon the execution of any deed in lieu of foreclosure in respect to such deed of trust. If requested, Tenant shall execute and deliver an instrument or instruments confirming its attornment as provided for herein; provided, however, that no such beneficiary or successor-in-interest shall be bound by any payment of Base Rent for more than one (1) month in advance, or any amendment or modification of this Lease made without the express written consent of such beneficiary where such consent is required under applicable loan documents. 18. RELOCATION. Notwithstanding anything to the contrary contained in this Lease, Landlord shall have the right to require Tenant, upon at least ninety (90) days' prior written notice, to move from the Premises to other space of comparable size in the Building or Project for any business reason, including, without limitation, additions to or refurbishment of the Building, or expansion of other tenants in the Building. In the event of any such relocation, Landlord shall pay all expenses of preparing and decorating the new space so that it will be substantially similar to the Premises, as well as the reasonable cost of moving Tenant's furniture and equipment to the new space. In such event, this Lease and every term, covenant and condition hereof shall remain in full force and effect and thereupon be deemed applicable to the new space, except that a revised Exhibit A reflecting the location of the new premises shall be substituted in place of Exhibit A hereto and shall become a part of this Lease. Base Rent and Tenant's Share of Operating Expenses and Real Property Taxes shall be adjusted as necessary to reflect any increase or decrease in the aggregate number of rentable square feet contained in the new premises, and Tenant shall, upon request, promptly execute a document confirming such adjustments. 19. MISCELLANEOUS 19.1 General 19.1.1 Entire Agreement. This Lease sets forth all the agreements between Landlord and Tenant concerning the Premises; and there are no agreements either oral or written other than as set forth herein. 19.1.2 Time of Essence. Time is of the essence of this Lease. 19.1.3 Attorneys' Fees. In any action or proceeding which either party brings against the other to enforce its rights hereunder, the nonprevailing party shall pay all costs incurred by the prevailing party, including reasonable attorneys' fees, which amounts shall be a part of the judgment in said action or proceeding. 19.1.4 Severability. If any provision of this Lease or the application of any such provision shall be held by a court of competent jurisdiction to be invalid, void or unenforceable to any extent, the remaining provisions of this Lease and the application thereof shall remain in full force and effect and shall not be affected, impaired or invalidated. -15- 21 19.1.5 Law. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises are located. 19.1.6 No Option. Submission of this Lease to Tenant for examination or negotiation does not constitute an option to lease, offer to lease or a reservation of, or option for, the Premises; and this document shall become effective and binding only upon the execution and delivery hereof by Landlord and Tenant. 19.1.7 Successors and Assigns. This Lease shall be binding upon and inure to the benefit of the successors and assigns of Landlord and, subject to compliance with the terms of Section 16, Tenant. 19.1.8 Third Party Beneficiaries. Nothing herein is intended to create any third party benefit. 19.1.9 Memorandum of Lease. Tenant shall not record this Lease or a short form memorandum hereof without Landlord's prior written consent which Landlord may withhold in its sole discretion. 19.1.10 Agency, Partnership or Joint Venture. Nothing contained herein nor any acts of the parties hereto shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership or of joint venture by the parties hereto or any relationship other than the relationship of landlord and tenant. 19.1.11 Merger. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation thereof or a termination by Landlord shall not work a merger and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 19.1.12 Headings. Section headings have been inserted solely as a matter of convenience and are not intended to define or limit the scope of any of the provisions contained therein. 19.1.13 Security Measures. Tenant hereby acknowledges that Landlord shall have no obligation to provide a guard service or other security measures whatsoever. Tenant assumes all responsibility for the protection of the Premises, Tenant, its agents and invitees and their property from the acts of third parties. 19.2 Signs. All signs and graphics of every kind visible in or from public view or corridors, the Common Areas or the exterior of the Premises (whether located inside or outside of the Premises) shall be subject to Landlord's prior written approval and shall be subject to any applicable governmental laws, ordinances, and regulations and in compliance with Landlord's signage program. Tenant shall remove all such signs and graphics prior to the termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the Premises; and Tenant shall repair any injury or defacement, including without limitation, discoloration caused by such installation or removal. 19.3 Waiver. No waiver of any default or breach hereunder shall be implied from any omission to take action on account thereof, notwithstanding any custom and practice or course of dealing. No waiver by either party of any provision under this Lease shall be effective unless in writing and signed by such party. No waiver shall affect any default other than the default specified in the waiver and then such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant shall not be construed as a waiver of any subsequent breach of the same. 19.4 Financial Statements. Tenant shall provide, and cause each Guarantor, if applicable, to provide to any lender, purchaser or Landlord, within ten (10) days after request, a current, accurate, audited financial statement for Tenant and Tenant's business and financial statements for Tenant and Tenant's business for each of the three (3) years prior to the current financial statement year prepared under generally accepted accounting principles consistently applied. Tenant shall also provide within said 10-day period such other financial information or tax returns as may be reasonably required by Landlord, purchaser or any lender of either. -16- 22 19.5 Limitation of Liability. The obligations of Landlord under this Lease are not personal obligations of the individual partners, members, managers, directors, officers, shareholders, agents or employees of Landlord; and Tenant shall look solely to the Building for satisfaction of any liability of Landlord and shall not look to other assets of Landlord nor seek recourse against the assets of the individual partners, directors, officers, shareholders, agents or employees of Landlord. Whenever Landlord transfers its interest, Landlord shall be automatically released from further performance under this Lease and from all further liabilities and expenses hereunder and the transferee of Landlord's interest shall assume all liabilities and obligations of Landlord hereunder from the date of such transfer. 19.6 Notices. All notices to be given hereunder shall be in writing and mailed postage prepaid by certified or registered mail, return receipt requested, or delivered by personal or courier delivery, or sent by facsimile, electronically confirmed, (immediately followed by one of the preceding methods), to Landlord's Address and Tenant's Address, or to such other place as Landlord or Tenant may designate in a written notice given to the other party. Notices shall be deemed served upon the first attempted delivery by the U.S. Postal Service, the courier or a recognized overnight delivery service, or upon receipt of the facsimile prior to 5 p.m. on any business day, or, if after 5 p.m., on the next business day. 19.7 Brokerage Commission. Landlord shall pay a brokerage commission to Landlord's Broker specified in the Basic Lease Information in accordance with a separate agreement between Landlord and Landlord's Broker. Landlord shall have no further or separate obligation for payment of any commissions or fees to any other broker or finder. Tenant warrants to Landlord that Tenant's sole contact with Landlord or with the Premises in connection with this transaction has been directly with Landlord, Landlord's Broker and Tenant's Broker specified in the Basic Lease Information, and that no other broker or finder can properly claim a right to a commission or a finder's fee based upon contacts between the claimant and Tenant. Any commissions or fees payable to Tenant's Broker with respect to this transaction shall be paid by Landlord's Broker or Tenant, and Landlord shall have no obligation with respect thereto. Subject to the foregoing, Tenant agrees to indemnify and hold Landlord harmless from any claims or liability, including reasonable attorneys' fees, in connection with a claim by any person for a real estate broker's commission, finder's fee or other compensation based upon any statement, representation or agreement of Tenant, and Landlord agrees to indemnify and hold Tenant harmless from any such claims or liability, including reasonable attorneys' fees, based upon any statement, representation or agreement of Landlord. 19.8 Authorization. Each individual executing this Lease on behalf of Tenant represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant and that such execution is binding upon Tenant. 19.9 Holding Over; Surrender 19.9.1 Holding Over. If Tenant holds over the Premises or any part thereof after expiration of the Term, such holding over shall, at Landlord's option, constitute a month-to-month tenancy, at a rent equal to two hundred percent (200%) of the Base Rent in effect immediately prior to such holding over and shall otherwise be on all the other terms and conditions of this Lease. This paragraph shall not be construed as Landlord's permission for Tenant to hold over. Acceptance of Rent by Landlord following expiration or termination shall not constitute a renewal of this Lease or extension of the Term except as specifically set forth above. If Tenant fails to surrender the Premises upon expiration or earlier termination of this Lease, Tenant shall indemnify and hold Landlord harmless from and against all loss or liability resulting from or arising out of Tenant's failure to surrender the Premises, including, but not limited to, any amounts required to be paid to any tenant or prospective tenant who was to have occupied the Premises after the expiration or earlier termination of this Lease and any related attorneys' fees and brokerage commissions. 19.9.2 Surrender. Upon the termination of this Lease or Tenant's right to possession of the Premises, Tenant will surrender the Premises broom clean, together with all keys, in good condition and repair, reasonable wear and tear excepted. Tenant shall patch and fill all holes within the Premises and all penetrations of the roof shall be resealed to a watertight condition. In no event may Tenant remove from the Premises any mechanical or electrical systems or any wiring or any other aspect of any systems within the Premises. Conditions existing because of Tenant's failure to perform maintenance, repairs or replacements shall not be deemed "reasonable wear and tear." -17- 23 19.10 Joint and Several. If Tenant consists of more than one person, the obligation of all such persons shall be joint and several. 19.11 Covenants and Conditions. Each provision to be performed by Tenant hereunder shall be deemed to be both a covenant and a condition. 19.12 Auctions. Tenant shall not conduct, nor permit to be conducted, any auction upon the Premises without Landlord's prior written consent. Landlord shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. 19.13 Consents. Except as otherwise provided elsewhere in this Lease, Landlord's actual reasonable costs and expenses (including, but not limited to, architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Tenant for any Landlord consent, including but not limited to, consents to an assignment, a subletting or the presence or use of a Hazardous Material, shall be paid by Tenant upon receipt of an invoice and supporting documentation therefor. Landlord's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Event of Default or breach by Tenant of this Lease exists, nor shall such consent be deemed a waiver of any then existing Event of Default or breach, except as may be otherwise specifically stated in writing by Landlord at the time of such consent. Except as otherwise set forth herein, the failure to specify herein any particular condition to Landlord's consent shall not preclude the imposition by Landlord at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 19.14 Force Majeure. "Force Majeure" as used herein means delays resulting from causes beyond the reasonable control of the other party, including, without limitation, any delay caused by any action, inaction, order, ruling, moratorium, regulation, statute, condition or other decision of any private party or governmental agency having jurisdiction over any portion of the Project, over the construction anticipated to occur thereon or over any uses thereof, or by delays in inspections or in issuing approvals by private parties or permits by governmental agencies, or by fire, flood, inclement weather, strikes, lockouts or other labor or industrial disturbance (whether or not on the part of agents or employees of either party hereto engaged in the construction of the Premises), civil disturbance, order of any government, court or regulatory body claiming jurisdiction or otherwise, act of public enemy, war, riot, sabotage, blockage, embargo, failure or inability to secure materials, supplies or labor through ordinary sources by reason of shortages or priority, discovery of hazardous or toxic materials, earthquake, or other natural disaster, delays caused by any dispute resolution process, or any cause whatsoever beyond the reasonable control (excluding financial inability) of the party whose performance is required, or any of its contractors or other representatives, whether or not similar to any of the causes hereinabove stated. 19.15 Mortgagee Protection. Tenant agrees to give any holder of any mortgage or deed of trust secured by the Real Property, by registered or certified mail or nationally recognized overnight delivery service, a copy of any notice of default served upon the Landlord by Tenant, provided that, prior to such notice, Tenant has been notified in writing (by way of service on Tenant of a copy of assignment of rents and leases or otherwise) of the address of such holder of a mortgage or deed of trust. Tenant further agrees that if Landlord shall have failed to cure such default within thirty (30) days after such notice to Landlord (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if Landlord has commenced within such thirty (30) day period and is diligently pursuing the remedies or steps necessary to cure or correct such default), then the holder of any mortgage or deed of trust shall have an additional sixty (60) days within which to cure or correct such default (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if such holder of any mortgage or deed of trust has commenced within such sixty (60) day period and is diligently pursuing the remedies or steps necessary to cure or correct such default). Notwithstanding the foregoing, in no event shall any holder of any mortgage or deed of trust have any obligation to cure any default of the Landlord. 19.16 Guarantors. The Guarantors, if any, shall each execute a guaranty in a form provided by Landlord. It shall constitute an Event of Default of the Tenant if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution and continued enforceability of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an estoppel certificate, or (d) written confirmation that the guaranty is still in effect as a valid binding obligation. -18- 24 19.17 Addenda. The Addenda attached hereto, if any, and identified with this Lease are incorporated herein by this reference as if fully set forth herein. [Text Continued on Next Page] -19- 25 IN WITNESS WHEREOF, the parties have executed this Lease as of the date set forth above. "Landlord" "Tenant" SANTA FE BAYFRONT VENTURE, VALLEY INDUSTRIES, LLC, a California general partnership a Delaware limited liability company By: Catellus Development Corporation, By: ____________________________________________ a Delaware corporation Name: __________________________________________ Its: Managing General Partner Its: ___________________________________________ By: ____________________________________________ Date: __________________________________________ Name: __________________________________________ Its: ___________________________________________ By: ____________________________________________ Name: __________________________________________ Date: __________________________________________________ Its: ___________________________________________ Date: __________________________________________ WITNESSED: WITNESSED: By: ____________________________________________________ By: ____________________________________________ Print Name: ________________________________________ Print Name: ________________________________ WITNESSED: WITNESSED: By: ____________________________________________________ By: ____________________________________________ Print Name: _______________________________________ Print Name: ________________________________
-20- 26 STATE OF ___________ ) ) ss. COUNTY OF _________________________________ ) On ______________________, before me, ______________________, a Notary Public in and for said state, personally appeared _____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ________________________________________ Notary Public in and for said State (SEAL) STATE OF _____________ ) ) ss. COUNTY OF _________________________________ ) On ______________________, before me, ______________________, a Notary Public in and for said state, personally appeared _____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ________________________________________ Notary Public in and for said State (SEAL) -21- 27 STATE OF _______________ ) ) ss. COUNTY OF _________________________________ ) On ______________________, before me, ______________________, a Notary Public in and for said state, personally appeared _____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ________________________________________ Notary Public in and for said State (SEAL) -22- 28 ADDENDUM TO LEASE THIS ADDENDUM TO LEASE ("Addendum") is attached to and constitutes an integral part of the Lease between SANTA FE BAYFRONT VENTURE, a California general partnership, as Landlord, and VALLEY INDUSTRIES, LLC, a Delaware limited liability company, as Tenant. The terms of this Addendum shall be incorporated in the Lease for all purposes. All words and phrases not specifically defined in this Addendum are as defined in the Lease. In the event of a conflict between the provisions of the Lease and the provisions of this Addendum, this Addendum shall control. The following new Section is hereby added to the Lease which states in its entirety as follows: 20. FREE RENT PERIOD. Tenant's obligation to pay Base Rent shall be conditionally abated for the first thirty (30) days, commencing with the Possession Date and ending on the thirtieth (30th) day thereafter ("Free Rent Period"). Commencing with the first day after the Free Rent Period, Tenant shall pay Base Rent. Such abatement shall apply to Base Rent only and shall not apply to any other sums payable under this Lease. The abatement of Base Rent described above is expressly conditioned on Tenant's performance of its obligations under the Lease throughout the Term; and the amount of the abated Base Rent is based in part on the amount of Base Rent due under the Lease for the full Term. If Tenant defaults under the Lease and such default results in a termination of the Lease prior to the expiration of the Term, then Tenant shall pay to Landlord on the date of such termination, in addition to all other amounts and damages to which Landlord is entitled, the amount of Base Rent which would otherwise have been due and payable during the Free Rent Period. Each of the parties acknowledges the incorporation of this Addendum to the Lease. _________________________________ _____________________________ Tenant Landlord ADDENDUM -1- 29 EXHIBIT A PREMISES EXHIBIT A -1- 30 EXHIBIT B WORK LETTER 1. Landlord's Work. Landlord agrees to install, at Landlord's cost and expense (except as expressly provided below), carpet of 20 ounce face weight cut pile glue down carpet of third or fourth generation nylon, price not to exceed $13.00 per square yard installed (collectively, "Landlord's Work") promptly following the Commencement Date and subject to the terms of this Work Letter. Landlord's Work is to be installed only in the approximately 1,500 square foot office portion of the Premises ("OfficeSpace") and only in that portion of the Office Space that was carpeted prior to the Possession Date. The improvements to be constructed as part of Landlord's Work are hereinafter collectively referred to as the "Tenant Improvements." 2. Substantial Completion of Landlord's Work. Tenant acknowledges and agrees that the Tenant Improvements shall be constructed after the Commencement Date and that there will be certain interference with Tenant's business operations as a result of Tenant's occupancy of the Premises while Landlord is installing such improvements. Tenant acknowledges and agrees that such interruption shall not under any circumstances constitute constructive eviction or grounds for rental abatement. EXHIBIT B -1- 31 EXHIBIT C COMMENCEMENT DATE MEMORANDUM With respect to that certain lease ("Lease") dated January __, 2001, between Valley Industries, LLC, a Delaware limited liability company ("Tenant"), and Santa Fe Bayfront Venture, a California general partnership ("Landlord"), whereby Landlord leased to Tenant and Tenant leased from Landlord approximately 70,644 rentable square feet of the building located at 2200 Southwest Boulevard, Grove City, Ohio 43123 ("Premises"), Tenant hereby acknowledges and certifies to Landlord as follows: (1) The Possession Date Occurred on January __, 2001.; (2) The Commencement Date occurred on February __, 2001; (3) The Free Rent Period occurred from January __, 2001 through February __, 2001; and (4) Tenant has accepted and is currently in possession of the Premises and the Premises are acceptable for Tenant's use. IN WITNESS WHEREOF, this Commencement Date Memorandum is executed this ___ day of ______________________. "Tenant" VALLEY INDUSTRIES, LLC, a Delaware limited liability company By: _____________________________________ Its: ________________________________ By: _____________________________________ Its: ________________________________ EXHIBIT C -1- 32 EXHIBIT D INSURANCE CERTIFICATE EXHIBIT D -1- 33 EXHIBIT E PROHIBITED USES The following types of operations and activities are expressly prohibited on the Premises: 1. automobile/truck maintenance, repair or fueling; 2. battery manufacturing or reclamation; 3. ceramics and jewelry manufacturing or finishing; 4. chemical (organic or inorganic) storage, use or manufacturing; 5. drum recycling; 6. dry cleaning; 7. electronic components manufacturing; 8. electroplating and metal finishing; 9. explosives manufacturing, use or storage; 10. hazardous waste treatment, storage, or disposal; 11. leather production, tanning or finishing; 12. machinery and tool manufacturing; 13. medical equipment manufacturing and hospitals; 14. metal shredding, recycling or reclamation; 15. metal smelting and refining; 16. mining; 17. paint, pigment and coating operations; 18. petroleum refining; 19. plastic and synthetic materials manufacturing; 20. solvent reclamation; 21. tire and rubber manufacturing; 22. above- and/or underground storage tanks; and 23. residential use or occupancy. EXHIBIT E -1- 34 EXHIBIT F RULES AND REGULATIONS 1. No automobile, recreational vehicle or any other type of vehicle or equipment shall remain upon the Common Area longer than 24 hours and no vehicle or equipment of any kind shall be dismantled or repaired or serviced on the Common Area. All vehicle parking shall be restricted to areas designated and marked for vehicle parking. The foregoing restrictions shall not be deemed to prevent temporary parking for loading or unloading of vehicles in designated areas. 2. Signs will conform to sign standards and criteria established from time to time by Landlord. No other signs, placards, pictures, advertisements, names or notices shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the building without the written consent of Landlord and Landlord shall have the right to remove any such non-conforming signs, placards, pictures, advertisements, names or notices without notice to and at the expense of Tenant. 3. No antenna, aerial, discs, dishes or other such device shall be erected on the roof or exterior walls of the Premises, or on the grounds, without the written consent of the Landlord in each instance. Any device so installed without such written consent shall be subject to removal without notice at any time. 4. No loud speakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the Premises without the prior written consent of the Landlord. 5. The outside areas immediately adjoining the Premises shall be kept clean and free from dirt and rubbish by the Tenant to the satisfaction of Landlord and Tenant shall not place or permit any obstruction or materials in such areas or permit any work to be performed outside the Premises. 6. No open storage shall be permitted in the Project. 7. All garbage and refuse shall be placed in containers placed at the location designated for refuse collection, in the manner specified by Landlord. 8. No vending machine or machines of any description shall be installed, maintained or operated upon the Common Area. 9. Tenant shall not disturb, solicit, or canvass any occupant of the building and shall cooperate to prevent same. 10. No noxious or offensive trade or activity shall be carried on upon any units or any part of the Common Area nor shall anything be done thereon which would in any way interfere with the quiet enjoyment of each of the other tenants of the Project or which would increase the rate of insurance or overburden utility facilities from time to time existing in the Project. 11. Landlord reserves the right to make such amendments to these rules and regulations from time to time as are nondiscriminatory and not inconsistent with the Lease. EXHIBIT F -1- 35 EXHIBIT G REQUIREMENTS FOR IMPROVEMENTS OR ALTERATIONS BY TENANT If Landlord shall permit Tenant to construct any initial tenant improvements in the Premises or to have any work performed in the Premises at any time prior to or during the Lease term by a contractor retained by Tenant ("Tenant's Work"), then Tenant shall comply with the requirements set forth herein. If Tenant's Work has been properly authorized, Tenant will receive written approval and consent for alterations to the Premises. All alterations to the Premises, excepting movable furniture and trade fixtures, shall, at Landlord's option, become a part of the realty and belong to Landlord. 1. SUBMITTAL OF PLANS. Prior to commencing any work in the Premises, Tenant shall submit to Landlord for approval its proposed plans for the work. Without limiting the foregoing, Tenant shall provide: (a) A separate scale drawing denoting all proposed construction and/or demolition, if necessary. (b) A separate drawing for each trade proposing structural, electrical, mechanical, civil or landscaping modifications. (c) Specify all dimensions and complete references to all work to be performed in the affected areas. (d) If adding extra electrical or mechanical equipment, provide complete operating and maintenance specifications for each item. 2. CHECKLIST. With respect to each project, Landlord will provide Tenant with a checklist listing the items required to be furnished to Landlord in connection with the proposed work. Tenant shall furnish to Landlord prior to, during, or upon completion of Tenant's Work, as applicable, each of the items specified in the checklist attached hereto as Attachment 1. 3. CONTRACTORS PROVIDING TENANT IMPROVEMENT SERVICES. (a) The contractor employed by Tenant and any subcontractors shall be (i) duly licensed in the state in which the Premises are located, and (ii) subject to Landlord's prior written approval, which approval shall not be unreasonably withheld. If more than one trade is employed on a single job, state law requires the services of a general contractor in addition to contractors for specialty work being performed. (b) Each contractor shall provide proof of licensing as a general or specialty contractor in accordance with state law. Additionally, each contractor shall furnish proof of licensing in the city or municipality in which the construction related activity is to take place. (c) Tenant shall use Landlord's subcontractor for mechanical, electrical, plumbing, roofing and roofing consultant. (d) Tenant and Tenant's contractors shall comply with all Applicable Laws pertaining to the performance of Tenant's Work and the completed improvements and all applicable safety regulations established by Landlord or the general contractor. (e) Prior to commencement of any work in the Premises, Tenant and Tenant's contractors (and any subcontractors) shall obtain and provide Landlord with certificates evidencing Workers' Compensation, public liability and property damage insurance in amounts and forms and with companies satisfactory to Landlord. Each general contractor (and any subcontractor) employed on the Premises shall provide Landlord with a current certificate of insurance in effect for that contractor with a thirty day notice of cancellation or revocation clause. Insurance requirements are as follows: EXHIBIT G -1- 36 (i) Comprehensive General Liability with a $2,000,000 Combined Single Limit covering the liability of Landlord and contractor for bodily injury and property damage arising as a result of the construction of the improvements and the services performed thereunder. Landlord shall be named as an additional insured. (ii) Comprehensive Automobile Liability with a $2,000,000 Combined Single Limit covering Landlord and vehicles used by contractor (and any subcontractor) in connection with the construction of the improvements. (iii) Workers' Compensation and Employer's Liability as required by law, for employees of the contractor (and any subcontractors) performing work on the Premises. (f) The following requirements shall be incorporated as "Special Conditions" into the contract between Tenant and its contractors and a copy of the contract shall be furnished to Landlord prior to the commencement of Tenant's Work: (i) Prior to start of Tenant's Work, Tenant's contractor shall provide Landlord with a construction schedule in "bar graph" form indicating the completion dates of all phases of Tenant's Work. (ii) Tenant's contractor shall be responsible for the repair, replacement or clean-up of any damage done by it to other contractors' work which specifically includes accessways to the Premises which may be concurrently used by others. (iii) Tenant's contractor shall accept the Premises prior to starting any trenching operations. Any rework of sub-base or compaction required after the contractor's initial acceptance of the Premises shall be done by Tenant's contractor, which shall include the removal from the Project of any excess dirt or debris. (iv) Tenant's contractor shall contain its storage of materials and its operations within the Premises and such other space as it may be assigned by Landlord or Landlord's contractor. Should Tenant's contractor be assigned space outside the Premises, it shall move to such other space as Landlord or Landlord's contractor shall direct from time to time to avoid interference or delays with other work. (v) Tenant's contractor shall clean up the construction area and surrounding exterior areas daily. All trash, demolition materials and surplus construction materials shall be stored within the Premises and promptly removed from the Premises and the Project and disposed of in an approved sanitation site. (vi) Tenant's contractor shall provide temporary utilities, portable toilet facilities, and potable drinking water as required for its work within the Premises and shall pay to Landlord's contractor the cost of any temporary utilities and facilities provided by Landlord's contractor at Tenant's contractor's request. (vii) Tenant's contractor shall notify Landlord or Landlord's project manager of any planned work to be done on weekends or other than normal job hours. (viii) Tenant's contractor or subcontractors shall not post signs on any part of the Project or on the Premises. 4. COSTS. (a) Tenant shall promptly pay any and all costs and expenses in connection with or arising out of the performance of Tenant's Work (including the costs of permits therefor) and shall furnish to Landlord evidence of such payment upon request. (b) Tenant shall pay Landlord an amount equal to five percent (5%) of the total hard costs of construction and installation of Tenant's Work as compensation to Landlord for review of plans, use of facilities and other miscellaneous costs of Landlord incurred as a result of such work. EXHIBIT G -2- 37 5. CONTRACTOR'S BONDS. Prior to the commencement of construction, Tenant shall obtain or cause its contractor to obtain and deliver evidence thereof to Landlord payment and performance bonds covering the faithful performance of the contract for the construction of the Tenant's Work and the payment of all obligations arising thereunder. In the alternative, and at Landlord's option, Tenant may appoint Landlord as its contractor, and in so doing, Tenant shall deposit with the Landlord a sum of money equal to the entire amount of the estimated construction cost, as is required for the installation of the Tenant improvements on the Premises. If Tenant deposits with Landlord monies for construction costs, it is agreed that Landlord will not be placed in a fiduciary capacity as a trustee, or any other fiduciary title, for the sums of monies in Landlord's possession. Tenant agrees to hold Landlord harmless from any and all claims, for workmanship and installation of improvements, and for merchantability and quality of goods used for the installation of Tenant's improvements, as are requested by Tenant. Any bonds obtained pursuant hereto shall be for the mutual benefit of both Landlord and Tenant as obligees and beneficiaries. 6. MECHANIC'S LIENS. (a) Tenant shall not suffer or permit to be enforced against the Premises or any part of the Project any mechanic's, materialman's, contractor's or subcontractor's lien arising out of any work of improvement, however it may arise. (b) Tenant shall (i) notify Landlord at least ten (10) days prior to the commencement of construction of any Tenant's Work and (ii) file a notice of commencement, the form of which must be pre-approved by Landlord in accordance with Section 1311.04 of the Ohio Revised Code before any labor is performed, supplied, furnished or services rendered on or at the Premises. Within ten (10) days following completion of Tenant's Work, Tenant shall file a Notice of Completion and deliver to Landlord an unconditional release and waiver of lien executed by each contractor, subcontractor and materialman involved in Tenant's Work. (c) In the event any lien is filed against the Project or any portion thereof or against Tenant's leasehold interest therein, Tenant shall obtain the release and/or discharge of said lien, within ten (10) days after the filing thereof. In the event Tenant fails to do so, Landlord may obtain the release and/or discharge of said lien and Tenant shall indemnify Landlord for the costs thereof, including reasonable attorney's fees, together with interest at the Applicable Interest Rate from the date of demand. Nothing herein shall prohibit Tenant from contesting the validity of any such asserted claim, provided Tenant has furnished to Landlord a lien release bond freeing the Premises from the effect of the lien claim. 7. INDEMNITY. Tenant shall indemnify, defend (with counsel satisfactory to Landlord) and hold Landlord harmless from and against any and all suits, claims, actions, loss, cost or expense (including claims for workers' compensation, attorney's fees and costs) based on personal injury or property damage, or otherwise (including, without limitation, contract and breach of warranty claims) arising from the performance of Tenant's Work. Tenant shall repair or replace (or, at Landlord's election, reimburse Landlord for the cost of repairing or replacing) any portion of the Building or item of Landlord's equipment or any of Landlord's real or personal property damaged, lost or destroyed in the performance of Tenant's Work. 8. BUILDING STANDARDS. All work shall conform to Landlord's established building standards and specifications. Tenant is required to make these standards part of the construction documents. 9. ROOF PENETRATIONS. If improvements penetrate the roof membrane, the penetrations will be sealed per Landlord/IRC roofing specifications and inspected by IRC to maintain roof warranty. The cost of inspection and all corrective work shall be borne by Tenant. Tenant shall use Landlord's original roofing contractor. 10. BUILDING MODIFICATIONS. Work will only be approved within the confines of a given space. Tenant will not be allowed to modify building exterior or mechanical and electrical service as provided to the building in common with other tenants. 11. ELECTRICAL WORK. All electrical work shall be approved from the unit space electrical panel only. Additional service requirements shall be secured only by direction of Landlord. Tenant shall use Landlord's original electrical contractor. EXHIBIT G -3- 38 12. SCHEDULE OF WORK. Tenant may be required to provide a schedule of all work to be performed, subject to Landlord approval. All costs to produce such schedule shall be borne solely by Tenant. 13. CLEAN UP AND DISPOSAL OF CONSTRUCTION DEBRIS. Building trash containers are provided for office generated trash only and are not to be used for disposal of construction-related materials and debris. Unapproved usage will result in a penalty assessment to the Tenant equal to the cost of an extra pick-up service as provided under the current rate schedule of regular trash removal service. 14. INSPECTION BY LANDLORD. Landlord reserves the following rights: (i) the right of inspection prior to, during and at completion of all construction and/or demolition, (ii) the right to post and record a notice of nonresponsibility in conformity with applicable law, and (iii) the right to order a total stop to all improvements underway for non-compliance with any of the requirements hereof. 15. GENERAL PROVISIONS. (a) If Landlord has agreed to provide an allowance toward the cost of tenant improvements, Landlord shall retain from such funds an amount determined by Landlord until Tenant has fully complied with the requirements hereof. (b) All materials, work, installations and decorations of any nature whatsoever brought on or installed in the Premises before the commencement of the Term or throughout the Term shall be at Tenant's risk, and neither Landlord nor any party acting on Landlord's behalf shall be responsible for any damage thereto or loss or destruction thereof due to any reason or cause whatsoever. (c) Nothing contained herein shall make or constitute Tenant as the agent of Landlord. EXHIBIT G -4- 39 EXHIBIT H TENANT ESTOPPEL CERTIFICATE To: [INSERT NAME OF PARTY TO RELY ON DOCUMENT] ("Relying Party") __________________________________________ __________________________________________ __________________________________________ Attn: ____________________________________ Re: Lease Dated: _____________________________ Current Landlord: ________________________ Current Tenant: __________________________ Square Feet: Approximately ______________ Floor(s): ________________________________ Located at: ______________________________ ("Tenant") hereby certifies that as of ____________, 200__: 1. Tenant is the present owner and holder of the tenant's interest under the lease described above, as it may be amended to date (the "Lease") with _______________ as Landlord (who is called "Landlord" for the purposes of this Certificate). (USE THE NEXT SENTENCE IF THE LANDLORD OR TENANT NAMED IN THE LEASE IS A PREDECESSOR TO THE CURRENT LANDLORD OR TENANT.) [The original landlord under the Lease was _______________, and the original tenant under the Lease was _______________.] The Lease covers the premises commonly known as _______________ (the "Premises") in the building (the "Building") at the address set forth above. (CHOOSE ONE OF THE FOLLOWING SECTION 2(a)s BELOW) [2. (a) A TRUE, CORRECT AND COMPLETE COPY OF THE LEASE (INCLUDING ALL MODIFICATIONS, AMENDMENTS, SUPPLEMENTS, SIDE LETTERS, ADDENDA AND RIDERS OF AND TO IT) IS ATTACHED TO THIS CERTIFICATE AS EXHIBIT A.] [2 (a) THE ATTACHED EXHIBIT A ACCURATELY IDENTIFIES THE LEASE AND ALL MODIFICATIONS, AMENDMENTS, SUPPLEMENTS, SIDE LETTERS, ADDENDA AND RIDERS OF AND TO IT.] (b) (IF APPLICABLE) [THE LEASE PROVIDES THAT IN ADDITION TO THE PREMISES, TENANT HAS THE RIGHT TO USE OR RENT __________ [ASSIGNED/UNASSIGNED] PARKING SPACES NEAR THE BUILDING OR IN THE GARAGE PORTION OF THE BUILDING DURING THE TERM OF THE LEASE.] (c) The term of the Lease commenced on __________, 200__ and will expire on ____________, _____, including any presently exercised option or renewal term. (CHOOSE ONE OF THE FOLLOWING TWO SENTENCES.) [TENANT HAS NO OPTION OR RIGHT TO RENEW, EXTEND OR CANCEL THE LEASE, OR TO LEASE ADDITIONAL SPACE IN THE PREMISES OR BUILDING, OR TO USE ANY PARKING (IF APPLICABLE) [OTHER THAN THAT SPECIFIED IN SECTION 2(b) ABOVE].] [EXCEPT AS SPECIFIED IN PARAGRAPH(S) __________ OF THE LEASE (COPY ATTACHED), TENANT HAS NO OPTION OR RIGHT TO RENEW, EXTEND OR CANCEL THE LEASE, OR TO LEASE ADDITIONAL SPACE IN THE PREMISES OR BUILDING, OR TO USE ANY PARKING (IF APPLICABLE) [OTHER THAN THAT SPECIFIED IN SECTION 2(b) ABOVE].] (CHOOSE ONE OF THE FOLLOWING SECTION 2(d)s) [(d) TENANT HAS NO OPTION OR PREFERENTIAL RIGHT TO PURCHASE ALL OR ANY PART OF THE PREMISES (OR THE LAND OF WHICH THE PREMISES ARE A PART). TENANT HAS NO RIGHT OR INTEREST WITH RESPECT TO THE PREMISES OR THE BUILDING OTHER THAN AS TENANT UNDER THE LEASE.] EXHIBIT H -1- 40 [(d) EXCEPT AS SPECIFIED IN PARAGRAPH(S) __________ OF THE LEASE (COPY ATTACHED), TENANT HAS NO OPTION OR PREFERENTIAL RIGHT TO PURCHASE ALL OR ANY PART OF THE PREMISES (OR THE LAND OF WHICH THE PREMISES ARE A PART). EXCEPT FOR THE FOREGOING, TENANT HAS NO RIGHT OR INTEREST WITH RESPECT TO THE PREMISES OR THE BUILDING OTHER THAN AS TENANT UNDER THE LEASE.] (e) The annual minimum rent currently payable under the Lease is $__________ and such rent has been paid through __________, __. (IF APPLICABLE) [THE ANNUAL PERCENTAGE RENT CURRENTLY PAYABLE UNDER THE LEASE IS AT THE RATE OF __________ AND SUCH RENT HAS BEEN PAID THROUGH ___________, 200__.] (f) (IF APPLICABLE) [ADDITIONAL RENT IS PAYABLE UNDER THE LEASE FOR (I) OPERATING, MAINTENANCE OR REPAIR EXPENSES, (II) PROPERTY TAXES, (III) CONSUMER PRICE INDEX COST OF LIVING ADJUSTMENTS, OR (IV) PERCENTAGE OF GROSS SALES ADJUSTMENTS (I.E., ADJUSTMENTS MADE BASED ON UNDERPAYMENTS OF PERCENTAGE RENT). SUCH ADDITIONAL RENT HAS BEEN PAID IN ACCORDANCE WITH LANDLORD'S RENDERED BILLS THROUGH __________, 2000__. THE BASE YEAR AMOUNTS FOR ADDITIONAL RENTAL ITEMS ARE AS FOLLOWS: (1) OPERATING, MAINTENANCE OR REPAIR EXPENSES $__________, (2) PROPERTY TAXES $__________, AND (3) CONSUMER PRICE INDEX ___________ (PLEASE INDICATE BASE YEAR CPI LEVEL).] (g) Tenant has made no agreement with Landlord or any agent, representative or employee of Landlord concerning free rent, partial rent, rebate of rental payments or any other similar rent concession (IF APPLICABLE) [EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPH(S) ______ OF THE LEASE (COPY ATTACHED)]. (h) Landlord currently holds a security deposit in the amount of $__________ which is to be applied by Landlord or returned to Tenant in accordance with Paragraph(s) _____ of the Lease. Tenant acknowledges and agrees that Relying Party shall have no responsibility or liability for any security deposit, except to the extent that any security deposit shall have been actually received by Relying Party. 3. (a) The Lease constitutes the entire agreement between Tenant and Landlord with respect to the Premises, has not been modified changed, altered or amended and is in full force and effect in the form (CHOOSE ONE) [ATTACHED AS/ DESCRIBED IN] Exhibit A. There are no other agreements, written or oral, which affect Tenant's occupancy of the Premises. (b) All insurance required of Tenant under the Lease has been provided by Tenant and all premiums have been paid. (c) To the best knowledge of Tenant, no party is in default under the Lease. To the best knowledge of Tenant, no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default. (d) The interest of Tenant in the Lease has not been assigned or encumbered. Tenant is not entitled to any credit against any rent or other charge or rent concession under the Lease except as set forth in the Lease. No rental payments have been made more than one month in advance. 4. All contributions required to be paid by Landlord to date for improvements to the Premises have been paid in full and all of Landlord's obligations with respect to tenant improvements have been fully performed. Tenant has accepted the Premises, subject to no conditions other than those set forth in the Lease. 5. Neither Tenant nor any guarantor of Tenant's obligations under the Lease is the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships. 6. (a) As used here, "Hazardous Substance" means any substance, material or waste (including petroleum and petroleum products) which is designated, classified or regulated as being "toxic" or "hazardous" or a "pollutant" or which is similarly designated, classified or regulated, under any federal, state or local law, regulation or ordinance. EXHIBIT H -2- 41 (b) Tenant represents and warrants that it has not used, generated, released, discharged, stored or disposed of any Hazardous Substances on, under, in or about the Building or the land on which the Building is located (IF APPLICABLE) [, OTHER THAN HAZARDOUS SUBSTANCES USED IN THE ORDINARY AND COMMERCIALLY REASONABLE COURSE OF TENANT'S BUSINESS IN COMPLIANCE WITH ALL APPLICABLE LAWS]. (IF APPLICABLE) [EXCEPT FOR SUCH COMMERCIALLY REASONABLE USE BY TENANT,] Tenant has no actual knowledge that any Hazardous Substance is present, or has been used, generated, released, discharged, stored or disposed of by any party, on, under, in or about such Building or land. 7. Tenant hereby acknowledges that Landlord intends to [DISCUSS ACTION TO BE TAKEN VIS-A-VIS RELYING PARTY]. Tenant acknowledges the right of Landlord, Relying Party and any and all of Landlord's present and future lenders and their successors and assigns to rely upon the statements and representations of Tenant contained in this Certificate and further acknowledges that any action taken by such parties will be made and entered into in material reliance on this Certificate. 8. Tenant hereby agrees to furnish Relying Party with such other and further estoppel as Relying Party may reasonably request. __________________________________________ _________________________________________, a ________________________________________ By: ______________________________________ Name: ________________________________ Title: _______________________________ EXHIBIT H -3- EX-12.1 7 k61038ex12-1.txt COPUTATION OF RATIOS 1 ADVANCED ACCESSORY SYSTEMS, LLC EXHIBIT 12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS - FIXED CHARGE COVERAGE RATIO FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2000 1999 1998 ------- ------- ------- Pre-tax income from continuing operations .......................................... $ 7,515 $ 5,395 $ 813 ------- ------- ------- Fixed Charges: Interest expense and amortization of debt discount and premium on all indebtedness .................................................. 17,950 17,453 18,633 Rentals (1) ...................................................... 2,711 1,390 1,317 ------- ------- ------- Total fixed charges .............................................. 20,661 18,843 19,950 ------- ------- ------- Earnings before income taxes, minority interest and fixed charges ............................ $28,176 $24,238 $20,763 ======= ======= ======= Ratio of earnings to fixed charges ............................... 1.36x 1.29x 1.04x ======= ======= =======
- ---------- (1) Amount included in fixed charges for rentals is considered by management to be a reasonable approximation of the interest factor. 59 EX-24.1 8 k61038ex24-1.txt POWER OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY Each of the undersigned, being a Member of the Board of Managers of Advanced Accessory Systems, LLC (the "Registrant"), hereby severally constitutes and appoints Terence C. Seikel, the Registrant's Chief Executive Officer, with full powers of substitution and resubstitution, his true and lawful attorney, with full powers to sign for him, in his name, in the capacities indicated below, (a) the annual report of the Registrant for the fiscal year ending December 31, 2000 on Form 10-K and (b) a registration statement on Form S-4, and any and all amendments to such Form 10-K and Form S-4, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes said attorney might or could do in person, and hereby ratifying and confirming all that said attorney, or his substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. This power of attorney may be executed in separate original or facsimile counterparts. 2 IN WITNESS WHEREOF, the undersigned have executed this instrument this 12th day of March, 2001. /s/ F. ALAN SMITH ----------------------------------- F. Alan Smith /s/ BARRY BANDICCI ----------------------------------- Barry Banducci /s/ RICHARD E. BORGHI ----------------------------------- Richard E. Borghi /s/ GERARD J. BRINK ----------------------------------- Gerard Jacobus Brink /s/ GERRIT DE GRAAF ----------------------------------- Gerrit de Graaf /s/ DONALD J. HOFMANN ----------------------------------- Donald J. Hofmann /s/ BRYAN FLETCHER ----------------------------------- Bryan Fletcher -----END PRIVACY-ENHANCED MESSAGE-----