-----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, Be+xQhMSOPPhApKxBLFe86Ya69qnAT01ml/JlfjuzBRF+OpXqgz7Jkjo2Y4SHKEY 97A2GlwMcJGcW1E9VUfc8g== 0000950124-03-000880.txt : 20030326 0000950124-03-000880.hdr.sgml : 20030325 20030326150211 ACCESSION NUMBER: 0000950124-03-000880 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 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: 1934 Act SEC FILE NUMBER: 333-49011 FILM NUMBER: 03618086 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 k74279e10vk.txt ANNUAL REPORT ================================================================================ UNITED STATES 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, 2002 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, LLC 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: (586) 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] The aggregate market value of the registrant's Class A and A-1 Units held by non-affiliates of the registrant as of June 30, 2002 (the last business day of the registrant's most recently completed second fiscal quarter), based upon the good faith determination of the Board of Managers, was approximately $8,946,000. 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 managers 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 25, 2003 was 9,226 and 5,133, respectively. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ ADVANCED ACCESSORY SYSTEMS, LLC FORM 10-K YEAR ENDED DECEMBER 31, 2002 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 .............. 11 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBER 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 ............................................................. 21 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................... 24 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .............................. 52 PART III Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 52 Item 11. EXECUTIVE COMPENSATION ........................................... 53 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ....................................................... 56 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 58 Item 14. CONTROLS AND PROCEDURES .......................................... 58 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ......................................................... 59 SIGNATURES ................................................................ 62
i 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. FORWARD LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF TERMS SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "BELIEVE," "INTEND," "PLAN," "ESTIMATE," "PREDICT," "POTENTIAL," "FORECAST," "CONTINUE" OR VARIATIONS OF SUCH TERMS, OR THE USE OF THESE TERMS IN THE NEGATIVE. 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, THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 11 OF THE PROSPECTUS DATED APRIL 26, 2002 INCLUDED IN OUR REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-49011). 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 and related 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 2002, the Company estimates that more than 65% of its net sales were generated from products sold for light trucks. For the year ended December 31, 2002, the Company's net sales and EBITDA were $329.8 million and $41.9 million, respectively. AAS is a Delaware limited liability company that was formed on August 28, 1995 and commenced business on September 28, 1995. In September 1995, the Company, through its SportRack, LLC subsidiary ("SportRack"), acquired substantially all of the 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 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 Accessories, Inc. ("SportRack Accessories" formerly SportRack International, Inc.), a subsidiary of SportRack. SportRack Accessories acquired from Bell Sports Corporation ("Bell") the 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 Accessories 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 Accessories Acquisition." In January 1998, the Company, through Brink, acquired (the "Ellebi Acquisition") the 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 Accessories, acquired (the "Transfo-Rakzs Acquisition") the 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. 1 In February 2000, the Company, through Valley, acquired (the "Titan Acquisition") the 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 Accessories, acquired (the "Barrecrafters Acquisition") the 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. As announced on March 14, 2003 the Company and Castle Harlan, Inc., a private equity investment firm ("Castle Harlan"), are in the latter stages of negotiations regarding the purchase of the Company by affiliates of Castle Harlan. Consummation of the sale would be contingent upon satisfaction of customary legal and business conditions, including, among other things, Castle Harlan's obtaining sufficient third party debt financing to complete the transaction. Any definitive transaction is expected to involve a redemption of the Company's outstanding 9 3/4% Senior Subordinated Notes due 2007 at the current optional redemption price of 104 7/8% of principal amount, plus accrued interest. PRODUCTS The principal product lines of the Company are towing systems, rack systems and related accessories. In 2002, towing systems and towing accessories constituted approximately 53% of the Company's net sales and rack systems and rack accessories constituted approximately 47% 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. In Europe, the Company sells both fixed ball towbars as well as more sophisticated detachable ball systems. Fixed ball towbars are designed to be permanently attached to a vehicle, while detachable ball systems are designed so that the towing ball can be easily removed when not in use. The detachable ball systems are becoming increasingly popular especially with owners of more expensive cars and for cars on which the license plates would otherwise be blocked by a fixed ball towbar. The Company's towing systems sold in Europe are designed to satisfy European Community ("EC") regulatory standards and undergo rigorous durability and safety testing in order to comply with these 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. In many cases, the rack system includes cross rails, which are attached to the side rails with stanchions, and 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 Liberty, DaimlerChrysler minivans, Dodge Durango, Chevrolet Suburban, Tahoe and Trailblazer, GMC Yukon and Envoy, Cadillac Escalade, Oldsmobile Bravada, Hummer H2, Mercedes Benz M-Class and BMW X5. 2 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. 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 2002. In addition, sales to DaimlerChrysler and General Motors were approximately 23% and 22%, respectively, of the Company's aggregate net sales in 2002. Automotive OEMs. The Company obtains most of its new orders through a sourcing process by which the customer invites 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 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 2002 PRODUCTION(a) FUTURE PRODUCTION(b) - -------------- --------------- ------------------------------------------ -------------------------------------- Towing Systems Alpha Romeo 146, 147, 166, 156/156 Wagon, Spider-GTV 147 Sprint Audi A6 Citroen C3, Evasion, Jumper, Jumpy Saxo Daewoo Kalos, Lanos, Leganza, Mexia, Nubira Espero, Evanda, J-200 Hatchback, J 200 Hatchback, Nubira Notchback, Nubira Notchback, M200, Nubira Wagon, Ssangyong Korando, Ssangyong Sedan/Hatchback/Wagon Musso, Tacuma Daihatsu Charade, Cuore, Gran Move, HiJet, HiJet- D02 Pick-up, Move, NCX Minivan, Rocky, Sirion, Terios, Valera DaimlerChrysler 300M, Dakota, Durango, Grand Cherokee, Grand Cherokee, LX Liberty, Neon, Prowler, PT Cruiser, Sebring, Voyager, Wrangler FIAT Barchetta, Bravo, Cucato, Coble, Fiorino, Punto Facelift, Punto MPV Marea, Multipla, Palio, Pando, Punto, Seisento, Stilo, Strada178 Pick-up, Ulysse Ford Connect, Econoline, Explorer, F Series, Moneo Wagon Fiesta Courier, Focus Sedan/Wagon, Probe, Ranger, Scorpio, Villager, Windstar General Motors Frontera, Gran Prix, G-Van, Movano, S-10, Saturn Vue, Sonoma, Suburban, Tracker, U-Van, Vectra Honda Accura MD Hyundai Accent/Verna, Atos Prime/Spirit, Coupe, Accent, XG Elantra, Excel/Accent, Excel/Pony, Getz, H1 Strex, H1/H200, H1/Pick-up,
3
AWARDED BUSINESS ON PRODUCT OEM CUSTOMER 2002 PRODUCTION(a) FUTURE PRODUCTION(b) - -------------- --------------- ------------------------------------------ -------------------------------------- Towing Systems Hyundai H100/H150, Lantra, Lantra Wagon, Matrix, (continued) (continued) Santa Fe, Scoupe Jaguar X 400, X Type, XJ S-Type KIA Carens, Carnival, Clarus Notchback, Clarus Wagon, Joice, K-2700/Frontier, Magentis, Pregio, Pride Wagon, Retona, Rio, Shuma Mentor, Shuma Sephia, Sorento, Sportage 3/5, Sportage Wagon Lancia Delta, Kappa, Lybra, Ypsilon Ypsilon Mazda 121, 323, 626, B2500, Demio, E2000/2200, 3Series Fastbreak/Sedan, MPV (J16E) E-Series, MPV, MX3, Premacy, Tribute, Xedos-6, Xedos-9 Mitsubishi Carisma, Colt, Galant, Galant Wagon, L200, Airtreck NCC, Lancer Sedan, Lancer Lancer Wagon, Pajero, Pajero Pini, Pajero Wagon, NQZ Sport, Sigma Wagon, Space Gear, Space Runner, Space Star, Space Wagon Nissan Almera Hatchback, Almera Sedan, Almera Micra, WQW (X61), X-Trail Tino, Almera Wagon, D22 Pick-up, Frontier, Micra, Pathfinder, Primera Hatchback, Primera Sedan, Primera Wagon, Quest, Terrano II Peugeot 106, 206, 806, 307 Estate, 406 Coupe, 406 206, 407 Coupe/Break/Sedan, A08 Estate, 406 Saloon, Boxer, Expert Range Rover 200, 400, 600, 800, 75 Estate, Rover 45 Defender, Discovery, RD60 Hatchback Renault Espace, Trafic, Twingo Megane Hatchback SAAB 900, 9000, 9-3 Sedan, 9-5 Sedan/Wagon Toyota 4Runner, Avensis Sedan/Wagon/Verso, 050X, Avensis Hatchback/Notchback, Camry, Celica, Corolla H-back, Corolla Avensis Wagon, Corolla Verso, Lexus Sedan/Wagon/Veros, Dyna, Hi-ace, Hi-lux, 620N, Previa Landcruiser, Lexus 200/300/430, Lite-ace, Paseo, Previa, Rav4, Sequoia, Sienna, Yaris, Yaris Verso Volkswagen MiniVan Volvo 200/P20, 854/P80, 855 S/V70, 900S/V90, P11/P12, XC90 S/V40, S/v70 AWD, S60, S80, XC70, XC90 Rack Systems DaimlerChrysler Caravan, Durango, Grand Cherokee, Durango, Grand Cherokee, Grand Liberty, Mercedes M-Class, PT Cruiser, Cherokee XK, M80, Pacifica, KJ Town & Country, Voyager Renegade Ford Freestyle General Motors Astro, Avalanche, Bravada, Envoy, Astro, Escalade EXT, Hummer III Escalade, Escalade XL, Hummer II, Safari, Hummer SUT, Safari Saturn Vue, Suburban, Tahoe, Trail Blazer, Trail Blazer EXT, Yukon, Yukon Z-71 Honda Accura MDX Accura GX Isuzu Ascender KIA Sedona Mitsubishi Endeavor Nissan Infinity QX4, Pathfinder Frontier, TT, WZW, Xterra, Pathfinder, Titan Opel Astra Vectra Skoda Octavia Octavia SEAT Vario 359 Subaru Forester, Impreza, Legacy, Outback Volkswagen Polo BMW X5 E-83 Toyota Sienna Tacoma
- ---------- (a) Represents models for which the Company produced products in 2002. (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. 4 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, 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. The Company's sales in the automotive aftermarket are seasonal. Historically the highest sales have been in the second quarter of each year and the second highest sales have been in the first quarter of each year. 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 approximately 135 members of the Company's engineering and design staff possess strong technical skills. The Company currently holds more than 150 U.S. and foreign patents, and has several 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 $8.5 million, $9.4 million and $9.8 million on engineering, research and development in 2002, 2001 and 2000, respectively. The Company works closely with OEMs to 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 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, 15 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 always 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 17 of its 23 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 5 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 25% 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. 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. Following are some of the significant trends impacting the automotive OEM market and automotive aftermarket. 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. Pricing pressures. As a result of increased global competition, excess capacity and recent recessionary trends, many automotive OEMs have increased the pressures on suppliers to reduce selling prices. This pricing pressure in conjunction with the need to increase investment in product engineering and development capabilities has reduced the profitability of many tier one automotive suppliers. The Company works closely with its customers to find ways to reduce selling prices through design and engineering changes or to minimize the impact of price reductions through internal cost reductions and manufacturing efficiency gains. The Company believes that its design and engineering capabilities and manufacturing expertise may allow it to offset much of the mandated price reductions, while allowing the Company to increase business as customers look to reduce costs. 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, Greece, Finland, Denmark, Ireland and Portugal. Other EC countries are expected to adopt the legislation. All of the Company's towing systems sold in Europe are designed and tested to satisfy these EC regulatory standards. 6 Increased Levels of Manufacturing in North America by Transplants. 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 21% in 2002. 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. Toyota launched production of its Tundra pickup truck in Indiana during 1999 and launched production of its Sequoia SUV during 2000, and Honda began production of its Odyssey minivan in North America during 1999 and began production of its Acura MD SUV during 2000. During 2002, Nissan announced plans to begin production of its Pathfinder, Frontier and XTerra models in a new facility to be constructed in Canton, Mississippi and Hyundai announced its intention to begin production of a new SUV in Alabama. 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. COMPETITION The Company's industry is highly competitive. Although, the Company is one of the world's largest suppliers of towing and rack systems, 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 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 relationships 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 Cequent, a division of TriMas 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 28 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 modern 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. 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, 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 used for towing in North America and Europe. The Company is one of a limited number of European manufacturers with 7 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. 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 17 of its 23 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 8 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 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, 2002, the Company had approximately 2,300 employees of whom approximately 1,780 are hourly employees and approximately 520 are salaried personnel. Approximately 170 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 and net sales by product line, see "Note 12" of the Company's "Notes to Consolidated Financial Statements" included in Item 8 of this report. 9 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 28 facilities with a total of 2,197,678 square feet of space. The Company believes that substantially all of its property and equipment is suitable for its needs and 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 216,000 Owned -- Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003 Sterling Heights, Michigan* Manufacturing 58,000 Leased 2006 Madison Heights, Michigan* Administration and 90,000 Leased 2004 manufacturing Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2004 Williston, Vermont Warehousing 10,000 Leased 2006 Wyandotte, Michigan Manufacturing 5,000 Leased 2004 Lodi, California Administration, engineering 150,000 Owned -- and manufacturing Lodi, California Warehousing 77,760 Leased 2005 Grove City, Ohio Warehousing 70,644 Leased 2006 Dallas, Texas Warehousing 23,800 Leased 2005 Granby, Quebec Administration, manufacturing 103,924 Leased 2003 and warehousing Bromptonville, Quebec Manufacturing 5,000 Leased Month to Month Hamer Bay, Ontario* Manufacturing 15,000 Owned -- Barrie, Ontario Manufacturing and warehousing 5,200 Leased Month to Month Europe Sandhausen, Germany* Administration and engineering 5,000 Leased Month to Month Barcelona, Spain Manufacturing 6,200 Leased 2004 Bakov nad Jizerou, Czech Manufacturing 34,000 Leased Month to Month Republic* Staphorst, The Netherlands* Administration, engineering, 405,000 Owned -- manufacturing, and warehousing Hoogeveen, The Netherlands* Manufacturing 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 2006 Wolsztyn, Poland Warehousing 5,000 Leased Month to Month Reims, France* Manufacturing and warehousing 151,000 Leased 2015 St. Victoria di Gualtieri, Administration, engineering, 170,000 Leased 2008 Italy* manufacturing and warehousing
- ---------- * QS 9000 and/or ISO 9000 certification. ** Gives effect to all renewal options. ITEM 3. LEGAL PROCEEDINGS Gibbs v. Advanced Accessory Systems, LLC. In February 1996, the Company commenced an action against two former employees 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 $3.8 million plus interest and reasonable attorney fees. The Company is currently pursuing an appeal in the Sixth Circuit Court of Appeals. During 2002, the Company increased its estimated accrual for this matter by $600,000 which charge is included in interest expense. No amounts have been paid as of December 31, 2002. In addition to the above, from time to time, the Company is subject to legal proceedings and other claims arising in the ordinary course of its business. Management believes that the resolution of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company maintains insurance coverage against claims in an amount which it believes to be adequate. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBER MATTERS There is no established public trading market for the Company's Class A or Class A-1 Units. At March 25, 2003, 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. Class A Units are convertible into Class A-1 Units by holders that are regulated financial institutions. Class A-1 Units are convertible into Class A Units provided such conversion is not in violation of certain governmental regulations of the unit holder. As listed below, since January 1, 2000, the Company has issued unregistered securities to investors. 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 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. 2) 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 ITEM 6. SELECTED FINANCIAL DATA The information below presents consolidated financial data of the Company and includes (i) the operations of Ellebi subsequent to the Ellebi Acquisition on January 2, 1998, (ii) the operations of Transfo-Rakzs subsequent to the Transfo-Rakzs Acquisition on February 7, 1998, (iii) the operations of Titan subsequent to the Titan Acquisition on February 22, 2000 and (iv) 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, ------------------------------------------------------------------- 2002 2001 2000(2) 1999 1998(1) --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales .................................. $ 329,782 $ 314,035 $ 318,817 $ 314,142 $ 292,145 Cost of sales(3) ........................... 250,516 239,583 239,090 227,889 215,441 --------- --------- --------- --------- --------- Gross profit ............................. 79,266 74,452 79,727 86,253 76,704 Selling, administrative and product development expenses(3) .................. 49,309 44,769 45,527 50,258 50,839 Amortization of intangible assets .......... 122 3,312 3,297 3,245 3,551 Impairment charge(3) ....................... -- -- -- -- 7,863 --------- --------- --------- --------- --------- Operating income ......................... 29,835 26,371 30,903 32,750 14,451 Other (income) expense Interest expense ......................... 15,907 17,684 17,950 17,453 18,633 Foreign currency (gain) loss(4) .......... (8,429) 4,948 5,386 7,912 (4,995) Other, net ............................... 520 743 52 1,990 -- --------- --------- --------- --------- --------- Income before cumulative effect of accounting change and income taxes ..... 21,837 2,996 7,515 5,395 813 Cumulative effect of accounting change for goodwill impairment(5) ............... (29,207) -- -- -- -- --------- --------- --------- --------- --------- Income (loss) before income taxes ........ (7,370) 2,996 7,715 5,395 813 Provision (benefit) for income taxes(6) .... 4,252 602 (278) 417 903 --------- --------- --------- --------- --------- Net income (loss) ........................ $ (11,622) $ 2,394 $ 7,793 $ 4,978 $ (90) ========= ========= ========= ========= ========= OTHER DATA: Cash flows provided by operating activities ............................... $ 21,004 $ 27,651 $ 21,416 $ 25,014 $ 21,879 Cash flows (used for) investing activities ............................... (15,354) (7,580) (13,249) (11,775) (31,618) Cash flows provided by (used for) financing activities ..................... (5,526) (20,389) (14,982) (18,185) (8,367) EBITDA(7) .................................. 41,892 40,252 44,546 46,539 38,364 Depreciation ............................... 11,299 10,569 10,346 10,418 10,857 Capital expenditures ....................... 15,354 7,580 10,445 11,775 9,998 Ratio of EBITDA to interest expense ........ 2.63x 2.28x 2.48x 2.67x 2.06x Ratio of earnings to fixed charges(8) ...... 2.16x 1.15x 1.36x 1.29x 1.04x BALANCE SHEET DATA (AT END OF PERIOD) Cash ....................................... $ 2,653 $ 2,139 $ 3,315 $ 8,718 $ 11,240 Working capital ............................ 20,954 23,380 34,791 36,825 49,232 Total assets ............................... 224,155 228,290 242,497 251,213 258,981 Total debt, including current maturities ... 154,947 156,649 175,635 178,498 187,524 Mandatorily redeemable warrants ............ 5,250 5,130 5,010 4,810 4,409 Distributions to members ................... 3,356 801 6,090 4,720 195 Members' equity ............................ (6,388) 8,324 5,896 10,331 15,147
12 - ---------- 1) The Company acquired the towbar segment of Ellebi S.p.A. on January 2, 1998 and the assets of Transfo-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 Transfo-Rakzs are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. 2) The Company acquired the assets of Titan Industries, Inc. on February 22, 2000 and the 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. 3) 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 Accessories 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 Accessories, 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 Accessories 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. 4) Primarily represents net currency gains and loss on indebtedness of the Company's foreign subsidiaries denominated in currencies other than their functional currency. 5) On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 142 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29.2 million to write down goodwill related to the Valley Industries Acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change. Under the new standard, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which are determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley Industries, LLC for which taxable income accrues to the individual members, no tax effect was recorded for this charge. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. The effect of no longer amortizing goodwill resulted in a reduction of $3.0 million in amortization of intangible assets during 2002 as compared with each of 2001 and 2000. The adoption of SFAS 144 did not have a material impact on the Company's financial position, results of operations or cash flows. 6) The Company is a limited liability company 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. 7) 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. 8) 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 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, in the material set forth below, in the material set forth in Item 1. "Business," as well as in this Form 10-K generally. These may include statements projecting, forecasting or estimating Company performance and industry trends. General risks that may impact the achievement of such forecasts include, but are not limited to, compliance with new laws and regulations, general economic conditions in the markets in which the Company operates, fluctuation in demand for the Company's products and in the production of vehicles for which the Company is a supplier, significant raw material price fluctuations, labor disputes involving the Company or its significant customers or suppliers, changes in consumer preferences, dependence on significant automotive customers, the level of competition in the automotive supply industry, pricing pressure from automotive customers, the substantial leverage of the Company, limitations imposed by the Company's debt facilities, changes in the popularity of particular vehicle models or towing and rack systems, the loss of programs on particular vehicle models, risks associated with conducting business in foreign countries and other business factors. 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. All of these forward looking statements are based on estimates and assumptions made by management of the Company which, although believed to be reasonable, are inherently uncertain. The Company does not intend to update these forward-looking statements. 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. On March 14, 2003 the Company and Castle Harlan jointly announced that they are in the latter stages of negotiations regarding the purchase of the Company by affiliates of Castle Harlan. Consummation of the sale would be contingent upon satisfaction of customary legal and business conditions, including, among other things, Castle Harlan's obtaining sufficient third party debt financing to complete the transaction. Any definitive transaction is expected to involve a redemption of the Company's outstanding 9 3/4% Senior Subordinated Notes due 2007 at the current optional redemption price of 104 7/8% of principal amount, plus accrued interest. RECENT ACQUISITIONS In February 2000, the Company through Valley, acquired the 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 Accessories, acquired the 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. 14 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, ------------------------------------------------------------ 2002 2001 2000 ----------------- ----------------- ----------------- (DOLLARS IN THOUSANDS) Net sales .................................. $ 329,782 100.0% $ 314,035 100.0% $ 318,817 100.0% Gross profit ............................. 79,266 24.0% 74,452 23.7% 79,727 25.0% Selling, administrative and product development expenses ..................... 49,309 15.0% 44,769 14.3% 45,527 14.3% Amortization of intangible assets .......... 122 0.0% 3,312 1.1% 3,297 1.0% Operating income ......................... 29,835 9.0% 26,371 8.4% 30,903 9.7% Interest expense ........................... 15,907 4.8% 17,684 5.6% 17,950 5.6% Foreign currency (gain) loss ............... (8,429) (2.6)% 4,948 1.6% 5,386 1.7% Other expense .............................. 520 0.2% 743 1.2% 52 0.1% Income before cumulative effect of accounting change and income taxes .... 21,837 6.6% 2,996 1.0% 7,515 2.4% Cumulative effect of accounting change for goodwill impairment ........... (29,207) (8.9)% -- -- -- -- Income before income taxes ................. (7,370) (2.2)% 2,996 1.0% 7,515 2.4% Income tax provision (benefit) ............ 4,252 1.3% 602 0.2% (278) (0.1)% Net income ................................. (11,622) (3.5)% 2,394 0.8% 7,793 2.4%
RESULTS OF OPERATIONS 2002 COMPARED TO 2001 Net sales. Net sales for 2002 were $329.8 million, representing an increase of $15.7 million, or 5.0%, compared with net sales for 2001. This increase resulted primarily from increased sales to automotive OEMs of approximately $12.9 million primarily resulting from increased production levels of vehicles in North America compared to the prior year. Additionally, sales were higher by $4.0 million due to an increase in average exchange rates for the period between the U.S. Dollar and the currencies, primarily the European Euro, used by the Company's foreign subsidiaries. Partially offsetting these increases was a decline in aftermarket sales of approximately $1.2 million. Gross profit. Gross profit for 2002 was $79.3 million, representing an increase of $4.8 million, or 6.5%, from the gross profit for 2001. This increase resulted from the increase in sales and an increase in the gross margin percentage. Gross profit as a percentage of net sales was 24.0% in 2002 compared to 23.7% in 2001. The increase in the gross margin percentage is primarily attributable to the effects of spreading fixed costs over a higher sales base and increased gross margin for North American towing products resulting from increased productivity and cost cutting efforts. These increases were partially offset by reduced gross margin resulting from a change in the mix of products sold being weighted more towards lower margin products and lower production efficiency at Brink which restructured its Netherlands manufacturing facilities during the first quarter of 2002. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2002 were $49.3 million, representing an increase of $4.5 million, or 10.1%, from the selling, administrative and product development expenses for 2001. This increase was primarily the result of a $3.0 million expense recorded for the recall of the G 3.0 model removable towbar system at Brink and unexecuted transaction costs of $1.2 million. In early July 2002, three European automotive OEM customers of Brink Sweden recalled in total approximately 41,000 towbars, which were supplied by the Company. The recall affects vehicles fitted with the G 3.0 model removable towbar system sold between January 1999 and March 2000. During the fourth quarter of 2002, based upon information gathered concerning the costs of the recall and from discussions with its customers management estimated and recorded an expense of approximately $3.0 million for the recall. The unexecuted transaction expenses are associated with the negotiations with Castle Harlan to purchase the Company. Without the effects of the recall and unexecuted transaction expenses, selling, administrative and product development expenses would have been $45.1 million representing an increase of $310,000. Also before the effects of the recall and unexecuted transaction costs, selling, administrative and product development expenses as a percentage of net sales was 13.7% compared with 14.3% for 2001. This decrease is primarily attributable to the effect of covering fixed costs with greater sales, the Company's ongoing cost containment initiatives and the lack in 2002 of costs incurred to relocate a warehouse operation during the first quarter of 2001. Amortization of intangible assets. Amortization of intangible assets for 2002 was $122,000, representing a decrease of $3.2 million compared with amortization of intangible assets, which included amortization of goodwill, for 2001. This decrease was the result of a new accounting standard adopted on January 1, 2002, which ceased the amortization of goodwill as of that date. See "New Accounting Pronouncements". 15 Operating income. Operating income for 2002 was $29.8 million, an increase of $3.5 million, or 13.1%, over operating income for 2001, reflecting the increase in gross profit and the decrease in amortization of intangible assets partially offset by the increase in selling, administrative and product development expenses. Operating income as a percentage of net sales increased to 9.0% in 2002 from 8.4% in 2001. Interest expense. Interest expense for 2002 was $15.9 million, which was $1.8 million lower than interest expense for 2001. The decrease was due to lower average interest rates charged on the Company's variable rate indebtedness and reduced average borrowings. Foreign currency (gain) loss. Foreign currency gain in 2002 was $8.4 million, compared to a foreign currency loss of $4.9 million in 2001. The Company's foreign currency gain is primarily related to Brink which has indebtedness denominated in U.S. Dollars, including intercompany debt and a portion of the loans under the Company's Second Amended and Restated Credit Agreement. During 2002 the U.S. Dollar weakened significantly in relation to the European Euro, the functional currency of Brink, whereas during 2001, the U.S. Dollar strengthened in relation to the European Euro. This was partially offset by the foreign currency loss of SportRack Accessories which has intercompany indebtedness denominated in U.S. Dollars. During 2002 the U.S. Dollar strengthened in relation to the Canadian Dollar, the functional currency of SportRack Accessories. 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 2002, the Company recorded a tax provision amounting to $263,000 related to an ongoing income tax audit in Italy covering the periods 1998 to 2001. During 2002, the Company had income before income taxes for its taxable subsidiaries totaling $8.1 million and recorded a provision for income taxes of $4.0 million exclusive of the $263,000 provision related to the income tax audit. 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 recorded during 2002 and differences in the tax rates of foreign countries. During 2001, the Company had a loss before income taxes for its taxable subsidiaries totaling $3.2 million and recorded a provision for income taxes of $602,000. The provision in 2001 resulted primarily from the pretax income of Brink which was offset by the pretax losses of SportRack Accessories. The tax benefit of SportRack Accessories was offset by the increase in the valuation allowance recorded against the tax assets of the subsidiary. Cumulative effect of accounting change. On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). See "New Accounting Pronouncements". As a result of this accounting change, the Company recorded a loss totaling $29.2 million to write down goodwill recorded in connection with the Valley Industries Acquisition. Net income (loss). Net loss for 2002 was $11.6 million, as compared to net income of $2.4 million in 2001, a change of $14.0 million. The change in net loss is primarily attributable to the cumulative effect of accounting change due to the adoption of SFAS 142 and the increase in the provision for income taxes, offset partially by the increase in operating income, lower interest expense and the foreign currency gain in 2002 as compared with the foreign currency loss in 2001. 2001 COMPARED TO 2000 Net sales. Net sales for 2001 were $314.0 million, representing a decrease of $4.8 million, or 1.5%, from net sales for 2000. This decrease resulted from decreased sales to OEMs of approximately $4.2 million and the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries totaling $2.1 million. The North American OEMs reduced vehicle production beginning in the fourth quarter of 2000 and continuing in 2001 in response to lower sales of new vehicles in the North American automotive market, resulting in an approximately $9.0 million decrease in sales. Sales were also reduced by approximately $6.0 million as a result of price decreases given to the Company's OEM customers during 2001. Additionally, in efforts to reduce overall vehicle cost, certain of the Company's customers reduced or eliminated certain components of their vehicles, including products manufactured by the Company, resulting in an approximately $6.0 million decrease in sales. These decreases were partially offset by approximately $17.0 million in sales of new products for new vehicles introduced during 2001 and higher sales to the automotive aftermarket totaling $1.4 million Gross profit. Gross profit for 2001 was $74.5 million, representing a decrease of $5.3 million, or 6.6%, from the gross profit for 2000. Gross profit as a percentage of net sales was 23.7% in 2001 compared to 25.0% in 2000. The decrease in the gross margin percentage was primarily attributable to price reductions given to the Company's largest customer which were only partially offset by internal cost reductions. Additionally, the Company's North American OEM towing business continued to experience reduced productivity during 2001. 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 European Euro and the U.S. Dollar for 2001 compared with 2000. 16 Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2001 were $44.8 million, representing a decrease of $758,000, or 1.7%, compared with the selling, administrative and product development expenses for 2000. The decrease resulted from an approximately $633,000 reduction in corporate administrative expenses, lower sales at Brink, which has greater selling, administrative and product development expenses as a percentage of sales compared to the Company as a whole, and the lack of approximately $900,000 of legal and accounting costs incurred in 2000 related to a potential recapitalization of the Company's equity securities during the year, partially offset by the lack of the $1.9 million benefit recognized in 2000 related to a contingent obligation to a customer. Selling, administrative and product development expenses as a percentage of net sales was 14.3% in 2001 and 2000. Operating income. Operating income for 2001 was $26.4 million, a decrease of $4.5 million, or 14.7%, compared with operating income for 2000. The decrease in operating income reflects the decrease in gross profit partially offset by the decrease in selling, administrative and product development expenses. Operating income as a percentage of net sales decreased to 8.4% in 2001 from 9.7% in 2000 due primarily to the decrease in the gross margin percentage. Interest expense. Interest expense for 2001 was $17.7 million, a decrease of $266,000 from interest expense for 2000. Lower average indebtedness and lower interest rates on the Company's variable rate debt were partially offset by $342,000 of bank fees related to amending the Second Amended and Restated Credit Agreement and $150,000 more interest recorded in 2001 than 2000 for an estimated contingent legal liability, see Item 3 "Legal Proceedings". Foreign currency loss. Foreign currency loss in 2001 was $4.9 million, compared to a foreign currency loss of $5.4 million in 2000. The Company's foreign currency loss during 2001 was primarily related to Brink and SportRack Accessories, each of which have indebtedness, including intercompany indebtedness, denominated in U.S. Dollars. During 2001 and 2000, the U.S. Dollar strengthened significantly in relation to the European Euro, the functional currency of Brink. The U.S. Dollar strengthening was less significant during 2001 than 2000. Additionally, the U.S. Dollar strengthened significantly in relation to the Canadian Dollar, the functional currency of SportRack Accessories. Other expense. Other expense for 2001 consists primarily of losses on the disposal of property and equipment. 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, most of 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 2001, the Company had a loss before income taxes for its taxable subsidiaries totaling $3.1 million but recorded a provision for income taxes of $602,000. The provision resulted primarily from the pretax income of Brink which was offset by the pretax losses of SportRack Accessories. The tax benefit for SportRack Accessories was offset by the increase in the valuation allowance recorded against the tax assets of the subsidiary. Additionally, the effective tax rate differs from the U.S. federal income tax rate due to differences in the tax rates of foreign countries. 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. Net income. Net income for 2001 was $2.4 million, as compared to net income of $7.8 million in 2000, a decrease of $5.4 million. The change in net income is primarily attributable to the decrease in operating income and increases in other expenses and taxes, partially offset by the decrease in foreign currency losses. 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, 2001 was $154.9 million, including current maturities of $18.2 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") or a replacement facility which the Company plans to negotiate on or prior to October 30, 2003. 17 Working Capital and Cash Flows Working capital and key elements of the consolidated statement of cash flows are:
2002 2001 2000 -------- -------- -------- (IN THOUSANDS) Working capital ...................... $ 20,954 $ 23,380 $ 34,791 Cash flows provided by operating activities ......................... 21,004 27,651 21,416 Cash flows used for investing activities ......................... (15,354) (7,580) (13,249) Cash flows used for financing activities ......................... (5,526) (20,389) (14,982)
Working Capital Working capital decreased by $2.4 million to $21.0 million at December 31, 2002 from $23.4 million at December 31, 2001. This decrease was due primarily to a decrease in inventory of $2.0 million, a change in current deferred tax assets and liabilities of $1.5 million, an increase in accrued liabilities of $6.2 million, an increase in accounts payable of $2.5 million, an increase in the current portion of long term debt of $7.2 million and an increase in mandatorily redeemable warrants of $120,000. These working capital decreases were partially offset by an increase in accounts receivable of $4.4 million, an increase of $8.5 million in other current assets, an increase in cash of $514,000 and an increase related to foreign currency exchange rate of the Company's subsidiaries' functional currencies against the U.S. dollar of $6.1 million The increase in accounts receivable was attributable to increased sales levels in the fourth quarter of 2002 as compared with the fourth quarter of 2001 and to a difference in the timing of a payment from the Company's second largest OEM customer. Differences in sales levels between the two quarters are partly due to increased sales to automotive OEMs. Increases in accounts payable during the quarter reflected increased purchasing activities to support the increased sales volume. Inventory decreased primarily at Brink and Valley which sold product out of inventory during a plant reorganization in the Netherlands. Accrued liabilities increased as a result of an increase of $2.9 million in accrued expenses for the G 3.0 recall, by $2.7 million in accrued income taxes and by $1.0 million for accrued unexecuted transaction costs. Other current assets increased primarily due to an increased amount of tooling costs reimbursable from the Company's North American OEM customers related to new programs currently under development and for advances receivable under an operating lease at Brink. Operating Activities Cash flow provided by operating activities for 2002 was $21.0 million, compared to $27.7 million in 2001 and $21.4 million in 2000. Cash flow provided by operating activities for 2002 decreased from 2001 primarily due to a smaller decrease in working capital during 2002 and a net investment in noncurrent assets in 2002 (compared to a decrease in noncurrent assets in 2001), partially offset by higher income in 2002 (before depreciation and amortization, deferred taxes, foreign currency gains and losses, loss on disposal of assets, and the cumulative effect of the accounting change for goodwill impairment). Cash flow for 2001 increased from 2000 primarily due to a net decrease in working capital investment during 2001. The Company's European and Canadian subsidiaries have income tax net operating loss carryforwards ("NOLs") of approximately $1.6 million and $2.4 million, respectively, at December 31, 2002. The European NOLs have no expiration date and the Canadian NOLs expire in 2005 through 2008. 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 $2.8 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 $15.4 million, $7.6 million and $10.4 million in 2002, 2001 and 2000, respectively. Capital expenditures for 2002 include approximately $9.0 million for a new production facility constructed in France during the year. The facility replaced a former factory also in France. The move from the old facility occurred in October 2002 and the plant is currently ramping up to full production capacity. The lower capital expenditures during 2001 reflected a reduced need to increase production capacity and management's efforts to increase the productivity of existing equipment. The Company estimates that capital expenditures for 2003 will be approximately $11.0 million, primarily for the expansion of capacity, productivity and process improvements and maintenance. The Company's 2003 capital expenditures are anticipated to be paid for from cash flow 18 provided by operating activities or borrowings against the Company's revolving notes and include approximately $4.0 million for replacing and upgrading existing equipment. The Company's ability to make capital expenditures is subject to restrictions in the U.S. Credit Facility, including a maximum of $12.5 million of capital expenditures annually plus the amount that capital expenditures were less than $12.5 million in the preceding year. Maximum capital expenditures for 2002 was $17.4 million. Investing cash flows in 2000 include $2.8 million for the acquisitions of Titan and Barrecrafters. Financing Activities During 2002, financing cash flows included payments of principal on the Company's term indebtedness of $13.4 million, net borrowing of $5.6 million on the Company's revolving line of credit, borrowing against a new capital lease for the new plant in France of $5.6 million and distributions to members in amounts sufficient to meet the tax liability of the Company's domestic taxable income which accrues to individual members totaling $3.4 million. During 2001, financing cash flows included payments of principal on the Company's term indebtedness of $11.7 million, net payments of $8.3 million on the Company's revolving line of credit and distributions to members in amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members totaling $801,000. 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 U.S. Credit Facility. 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 $17.6 million in 2003 and $6.4 million in 2004. On December 15, 2001, the Company entered into Amendment No. 9 to the U.S. Credit Facility which reset certain financial covenants for fiscal years 2001 and 2002 and provided the Company with additional liquidity by adding a conditional supplemental revolving loan facility of up to $10.0 million which is available until March 31, 2003. The Notes bear interest at 9.75% which is payable semiannually in arrears. See "Note 3" 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. On October 30, 2003 the U.S. Credit Facility and the Canadian Credit Facility will expire. The Company plans to negotiate a replacement facility on or before that date. The Company's indebtedness was $154.9 million at December 31, 2002. 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, 2002, the Company had $8.6 million borrowed under the revolving note of the U.S. Credit Facility and had outstanding letters of credit of $8.3 million issued to benefit plaintiffs in a lawsuit against the Company and $800,000 provided as security for the Company's workers compensation benefit program in North America. For a description of the Company's contingent obligations with respect to that lawsuit, see Item 3 "Legal Proceedings". After the above items, the Company had $17.3 million of available borrowing capacity. No amounts were borrowed under the revolving note of the Canadian Credit Facility or the conditional supplemental revolving note. 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. As announced on March 14, 2003 the Company and Castle Harlan, a private equity investment firm, are in the latter stages of negotiations regarding the purchase of the Company by affiliates of Castle Harlan. Consummation of the sale would be contingent upon satisfaction of customary legal and business conditions, including, among other things, Castle Harlan's obtaining sufficient third party debt financing to complete the transaction. Any definitive transaction is expected to involve a redemption of the Company's outstanding 9 3/4% Senior Subordinated Notes due 2007 at the current optional redemption price of 104 7/8% of principal amount, plus accrued interest. 19 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 U.S. Credit Facility and the Canadian Credit Facility or successor facilities. 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" and the introductory paragraph of this Item 7. 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 2002 were approximately $98.6 million, or 29.9% of the Company's net sales. At December 31, 2002, assets associated with these operations were approximately 46.7% of total assets, and the Company had indebtedness denominated in currencies other than the U.S. dollar of approximately $1.9 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, 2002 and does not use derivative financial instruments for trading or speculative purposes. CRITICAL ACCOUNTING POLICIES The Company prepared its financial statements in conformity with accounting principles generally accepted in the Unites States of America. In this process, it is often necessary for management to select accounting policies and make estimates about matters that are inherently uncertain. Estimates are developed using various methods and by making certain assumptions and require management to make subjective and complex judgments. Variations in these accounting policies and estimates can significantly affect the amounts reported in the consolidated financial statements and the attached notes. These methods and assumptions have been developed based upon available information. However actual results can differ from assumed and estimated amounts. The significant accounting polices applied in preparing the Company's financial statements are described in Note 1 to the financial statements. Policies which are considered critical are described below. Impairment of Long-Lived Assets. Management evaluates the potential impairment of long-lived assets on an ongoing basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At that time, a comparison is made between estimated future cash flows expected to result from the use of the asset and its eventual disposition and the carrying value of the asset. Future cash flows are estimated using current and forecasted revenues, projected profit margins and the current and expected future economic environment. Impairments of long-lived assets may be reported if the facts and circumstances surrounding assumptions made in developing estimates of future cash flows were to change. The Company changed its methodology for assessing goodwill impairments beginning on January 1, 2002, see "New Accounting Pronouncements". Contingent obligations and losses. The Company is subject to various contingent obligations and losses including contingent legal obligations, see Item 3. "Legal Proceedings". The Company establishes reserves for contingent obligations and losses when information concerning an obligation or loss indicates that it is probable that an asset had been impaired or a liability had been incurred provided that the amount of the loss can be reasonably estimated. Estimates of the cost are derived using known and assumed facts related to the specific circumstances surrounding each obligation. Management reviews and updates these estimates periodically. The ultimate cost of the Company's contingent obligations may be greater or less than the established accruals and could have a material impact upon the Company's financial position, results of operations or cash flows. 20 Workers compensation expense. The Company establishes accruals for workers' compensation claims utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy the claims. The estimates are based both on historical experience, industry trends and current legal, economic and regulatory factors. The ultimate cost of these claims may be greater than or less than the established accrual and could have a material impact upon the Company's financial position and results of operations. NEW ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and also clarifies that a guarantor is require to recognize, at the inception for a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are not expected to have a material effect on the Company's financial position, results of operations or cash flows. On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 142 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29.2 million to write down goodwill related to the Valley Industries Acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change. Under the new standard, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which are determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley Industries, LLC for which taxable income accrues to the individual members, no tax effect was recorded for this charge. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. The effect of no longer amortizing goodwill resulted in a reduction of $3.0 million in amortization of intangible assets during 2002 as compared with each of 2001 and 2000. The adoption of SFAS 144 did not have a material impact on the Company's financial position, results of operations or cash flows. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars, indebtedness, including intercompany indebtedness, of foreign subsidiaries denominated in currencies other then their functional currency and movements in Federal Funds rates and the London Interbank Offered Rate ("LIBOR"). The Company, as a matter of policy, does not engage in trading or speculative transactions. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates, which consist of debt obligations. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Intercompany indebtedness is due on demand and is therefore shown as maturing in 2003. Weighted average variable rates are based on current rates. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instrument's actual cash flows are denominated in U.S. dollars ($US) and Canadian dollars ($CAN), as indicated in parentheses. 21
DECEMBER 31, 2002 EXPECTED MATURITY DATE ------------------------------------------------------------------------ 2003 2004 2005 2006 2007 THEREAFTER FAIR VALUE -------- -------- -------- -------- -------- ---------- ---------- ($US EQUIVALENT IN THOUSANDS) Fixed Rate ($US) $ 54 $ 129 $ 64 $ 59 $ -- $125,000 $118,750 Average interest rate 7.0% 7.0% 7.0% 7.0% -- 9.75% Fixed Rate (Euro) $ 286 $ 299 $ 299 $ 299 $ 299 $ 1,507 $ 2,989 Average interest rate 5.21% 5.21% 5.21% 5.21% 5.21% 5.21% Variable Rate ($US) $ 15,595 $ 6,356 $ -- $ -- $ -- $ -- $ 21,951 Average interest rate 5.47% 5.47% -- -- -- -- Variable Rate (Euro) $ 286 $ 299 $ 299 $ 299 $ 299 $ 1,507 $ 2,989 Average interest rate 4.96% 4.96% 4.96% 4.96% 4.96% 4.96% Variable Rate ($CAN) $ 1,946 $ -- $ -- $ -- $ -- $ -- $ 1,946 Average interest rate 5.25% -- -- -- -- -- Intercompany indebtedness denominated in currency other than the functional currency (Euro) $ 76,548 $ -- $ -- $ -- $ -- $ -- 76,548 Average interest rate 4.25% -- -- -- -- -- Intercompany indebtedness denominated in currency other than the functional currency ($CAN) $ 23,784 $ -- $ -- $ -- $ -- $ -- 23,784 Average interest rate 4.25% -- -- -- -- --
DECEMBER 31, 2001 EXPECTED MATURITY DATE ------------------------------------------------------------------------ 2002 2003 2004 2005 2006 THEREAFTER FAIR VALUE -------- -------- -------- -------- -------- ---------- ---------- ($US EQUIVALENT IN THOUSANDS) Fixed Rate ($US) $ 103 $ 102 $ 76 $ 62 $ 56 $125,000 $104,149 Average interest rate 7.0% 7.0% 7.0% 7.0% 7.0% 9.75% Variable Rate ($US) $ 8,341 $ 10,073 $ 8,654 $ -- $ -- $ -- $ 27,041 Average interest rate 5.79% 5.79% 5.79% -- -- -- Variable Rate ($CAN) $ 2,579 $ 1,930 $ -- $ -- $ -- $ -- $ 4,509 Average interest rate 4.75% 4.75% -- -- -- -- Intercompany indebtedness denominated in currency other than the functional currency (Euro) $ 30,650 $ -- $ -- $ -- $ -- $ -- $ 30,650 Average interest rate 7.08% -- -- -- -- -- Intercompany indebtedness denominated in currency other than the functional currency ($CAN) $ 28,866 $ -- $ -- $ -- $ -- $ -- $ 28,866 Average interest rate 7.08%
The changes from 2001 to 2002 are primarily due to the Company's repayment of approximately $13.4 million of term indebtedness, and net borrowings of approximately $5.6 million of revolving loans and approximately $5.6 million against a new capital lease financing in connection with the Company's new plant in France. The table below provides information about the Company's financial instruments and foreign currency earnings by functional currency and presents such information in U.S. dollar equivalents. The table summarizes information on instruments, consisting of foreign currency investments in subsidiaries, and foreign currency earnings that are sensitive to foreign currency exchange rates. The Company has foreign currency investments in other currencies that are not included in the table since they are not material. For foreign currency investments, the table presents the amount invested (translated into U.S. dollars at year-end exchange rates) and identifies the currency of the investment and the exchange rate. For foreign currency earnings, the table presents the amount of earnings (translated from the functional currency into U.S. dollars at the average exchange rate for the year) and identifies the functional currency and the exchange rate. 22
DECEMBER 31, ----------------------- 2002 2001 -------- -------- ($US EQUIVALENT IN THOUSANDS) Foreign Currency Investments In Subsidiaries (U.S.$ functional currency) Euro 10,660 8,949 Exchange Rate 1.05 0.89 $CAN 7,872 -- Exchange Rate 0.63 -- Foreign Currency Earnings (Losses) Euro Functional Currency 8,340 349 Exchange Rate .94 0.89 $CAN Functional Currency (1,104) (4,082) Exchange Rate .64 0.64
23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Accountants ......................................... 25 Consolidated Balance Sheets -- December 31, 2002 and 2001 ................. 26 Consolidated Statements of Operations -- Years Ended December 31, 2002, 2001 and 2000 ........................................................... 27 Consolidated Statements of Cash Flows -- Years Ended December 31, 2002, 2001 and 2000 ........................................................... 28 Consolidated Statements of Changes in Members' Equity -- Years Ended December 31, 2002, 2001 and 2000 ........................................ 29 Notes to Consolidated Financial Statements ................................ 30
24 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 (the "Company") at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 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 15-(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. On January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standard No. 142, "Goodwill and Intangible assets", which changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29.2 million. The impairment was due solely to the change in accounting standards, and was reported as a cumulative effect of accounting change (See Note 1 "New accounting pronouncements"). PricewaterhouseCoopers LLP Detroit, Michigan February 28, 2003 25 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------- 2002 2001 --------- --------- (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash ...................................................... $ 2,653 $ 2,139 Accounts receivable, less reserves of $1,857 and $1,788, respectively ................................... 51,526 44,790 Inventories ............................................... 40,682 39,432 Deferred income taxes ..................................... 109 1,643 Other current assets ...................................... 13,370 4,133 --------- --------- Total current assets ................................. 108,340 92,137 Property and equipment, net ................................. 60,572 54,404 Goodwill, net ............................................... 47,308 73,394 Other intangible assets, net ................................ 3,635 4,685 Deferred income taxes ....................................... 1,981 1,932 Other noncurrent assets ..................................... 2,319 1,738 --------- --------- $ 224,155 $ 228,290 ========= ========= LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt ...................... $ 18,215 $ 11,023 Accounts payable .......................................... 33,159 29,051 Accrued liabilities ....................................... 30,762 23,553 Mandatorily redeemable warrants ........................... 5,250 5,130 --------- --------- Total current liabilities ............................ 87,386 68,757 --------- --------- Noncurrent liabilities Deferred income taxes ..................................... 629 828 Other noncurrent liabilities .............................. 5,796 4,755 Long-term debt, less current maturities ................... 136,732 145,626 --------- --------- Total noncurrent liabilities ......................... 143,157 151,209 --------- --------- Commitments and contingencies (Note 11) Members' equity Class A Units 25,000 authorized, 9,226 and 9,236 issued at December 31, 2002 and 2001, respectively .............. 7,348 7,348 Class A-1 Units 25,000 authorized, 5,133 issued at December 31, 2002 and 2001, respectively ................. 4,117 4,117 Class B Units, 2,000 authorized, no Units issued at December 31, 2002 and 2001 ............................... -- -- Other comprehensive income (loss) ......................... 85 (181) Accumulated deficit ....................................... (17,938) (2,960) --------- --------- (6,388) 8,324 --------- --------- $ 224,155 $ 228,290 ========= =========
See accompanying notes to consolidated financial statements. 26 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------- 2002 2001 2000 --------- --------- --------- (DOLLAR AMOUNTS IN THOUSANDS) Net sales .................................................. $ 329,782 $ 314,035 $ 318,817 Cost of sales .............................................. 250,516 239,583 239,090 --------- --------- --------- Gross profit ............................................. 79,266 74,452 79,727 Selling, administrative and product development expenses ..................................... 49,309 44,769 45,527 Amortization of intangible assets .......................... 122 3,312 3,297 --------- --------- --------- Operating income ......................................... 29,835 26,371 30,903 --------- --------- --------- Other expense Interest expense ......................................... 15,907 17,684 17,950 Foreign currency (gain) loss ............................. (8,429) 4,948 5,386 Other expense ............................................ 520 743 52 --------- --------- --------- Income before cumulative effect of accounting change and income taxes ............................................. 21,837 2,996 7,515 Cumulative effect of accounting change for goodwill impairment ............................................... (29,207) -- -- --------- --------- --------- Income (loss) before income taxes .......................... (7,370) 2,996 7,515 Provision (benefit) for income taxes ....................... 4,252 602 (278) --------- --------- --------- Net income (loss) .......................................... $ (11,622) $ 2,394 $ 7,793 ========= ========= =========
See accompanying notes to consolidated financial statements. 27 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------- 2002 2001 2000 -------- -------- -------- (DOLLAR AMOUNTS IN THOUSANDS) CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net (loss) income .......................................... $(11,622) $ 2,394 $ 7,793 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation and amortization ............................ 13,054 14,599 14,304 Cumulative effect of accounting change for goodwill impairment .............................................. 29,207 -- -- Deferred taxes ........................................... 1,298 (161) (908) Foreign currency (gain) loss ............................. (8,190) 4,965 5,159 Loss on disposal of assets ............................... 365 701 37 Changes in assets and liabilities net of acquisitions: Accounts receivable ................................... (4,411) (2,645) 3,425 Inventories ........................................... 1,954 1,427 (4,055) Other current assets .................................. (8,530) 2,771 (1,546) Other noncurrent assets ............................... (996) 685 (346) Accounts payable ...................................... 2,533 4,084 (199) Accrued liabilities ................................... 6,210 (950) (763) Other noncurrent liabilities .......................... 132 (219) (1,485) -------- -------- -------- Net cash provided by operating activities ....................................... 21,004 27,651 21,416 -------- -------- -------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES Acquisition of machinery and equipment ..................... (15,354) (7,580) (10,445) Acquisition of subsidiaries, net of cash acquired ................................................. -- -- (2,804) -------- -------- -------- Net cash used for investing activities ....................................... (15,354) (7,580) (13,249) -------- -------- -------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES Increase (decrease) in revolving loan ...................... 5,572 (8,341) 11,343 Repayment of debt .......................................... (13,379) (11,706) (13,878) Collections of membership notes receivable ................. -- 59 65 Borrowing of debt .......................................... 5,637 400 -- Repurchase of membership units ............................. -- -- (6,422) Distributions to members ................................... (3,356) (801) (6,090) -------- -------- -------- Net cash used for financing activities ........................................ (5,526) (20,389) (14,982) -------- -------- -------- Effect of exchange rate changes ............................ 390 (858) 1,412 -------- -------- -------- Net increase (decrease) in cash ............................ 514 (1,176) (5,403) Cash at beginning of period ................................ 2,139 3,315 8,718 -------- -------- -------- Cash at end of period ...................................... $ 2,653 $ 2,139 $ 3,315 ======== ======== ======== Cash paid for interest ..................................... $ 14,395 $ 16,304 $ 17,032 ======== ======== ======== Cash paid for income taxes ................................. $ 362 $ 845 $ 1,763 ======== ======== ========
See accompanying notes to consolidated financial statements. 28 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, 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 Notes receivable for unit purchase ....... 59 -- -- 59 Accretion of membership warrants ......... (120) -- -- (120) Distributions to members ................. -- -- (801) (801) Comprehensive income: Minimum pension liability adjustment ... -- (285) -- Currency translation adjustment ........ -- 1,181 -- Net income for 2001 .................... -- -- 2,394 Total comprehensive income ........... 3,290 -------- -------- -------- -------- Balance at December 31, 2001 ............. 11,465 (181) (2,960) 8,324 Distributions to members ................. -- -- (3,356) (3,356) Comprehensive income: Minimum pension liability adjustment ... -- (565) -- Currency translation adjustment ........ -- 831 -- Net loss for 2002 ...................... -- -- (11,622) Total comprehensive income ........... (11,356) -------- -------- -------- -------- Balance at December 31, 2002 ............. $ 11,465 $ 85 $(17,938) $ (6,388) ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 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 BUSINESS ACTIVITIES Advanced Accessory Systems, LLC (the "Company") supplies towing and rack systems and related accessories for the automotive original equipment manufacturer ("OEM") market and the automotive aftermarket. The Company's business commenced on September 28, 1995. The Company's products include a comprehensive line of towing systems and rack systems including accessories. The Company's towing systems products include fixed and detachable towing hitches and 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. 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 Accessories, Inc and its consolidated subsidiary ..................... A Canadian corporation, 90% owned by the Advanced Accessory Systems, LlC and 10% owned by SportRack, LLC ValTek, LLC .......................................... 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 ................................. 100% owned by Advanced Accessory Systems, 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. 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. FINANCIAL INSTRUMENTS Financial instruments at December 31, 2002 and 2001, 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, 2002 and 2001. The fair value of the Notes (as defined below) as of December 31, 2002 and 2001 was approximately $118,750 and $103,750 respectively, based upon quoted prices in the market in which the Notes are traded. 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) 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 will use 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, 2002, 2001 and 2000 includes net currency (gains) and losses of $(8,429), $4,948 and $5,386, respectively, relating primarily to debt denominated in U.S. Dollars at Brink International B.V., and SportRack Accessories, Inc. whose functional currencies are the European Euro and Canadian Dollar, respectively. At December 31, 2002, U.S. Dollar denominated debt recorded at Brink includes intercompany debt and substantially all outstanding term notes 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 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 $302 and $1,111 at December 31, 2002 and 2001, 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 and incurred. PROPERTY AND EQUIPMENT Property and equipment is stated at acquisition cost, which reflects the fair 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 $11,299, $10,569 and $10,445 for the years ended December 31, 2002, 2001 and 2000, 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
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) GOODWILL, LONG-LIVED ASSETS AND OTHER INTANGIBLE ASSETS Goodwill of $47,308 and $73,394 at December 31, 2002 and 2001, respectively, represents the costs in excess of net assets acquired and, until December 31, 2001, was amortized using the straight line method over periods of up to 30 years. Beginning in 2002, goodwill is no longer amortized, but is tested at least annually for impairment. During 2002 Goodwill decreased by $29,207 for an impairment charge resulting of the application of a new accounting standard and increased by $3,121 due to the effects of the change in foreign currency rates of the functional currencies of the Company's foreign subsidiaries between December 31, 2002 and 2001. See "New Accounting Pronouncements" below. 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. Debt issuance costs net of accumulated amortization of $3,254 and $4,093 at December 31, 2002 and 2001, respectively, are amortized over the terms of the loan agreements, which are six to ten years. Debt issuance cost amortization of $906, $677 and $625 for 2002, 2001 and 2000, respectively, has been included in interest expense. 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 $3,356, $801 and $6,090 were made during 2002, 2001 and 2000, 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. RESEARCH, DEVELOPMENT AND ENGINEERING Research, development and engineering costs are expensed as incurred and aggregated approximately $8,490, $9,397 and $9,779 for the years ended December 31, 2002, 2001 and 2000, respectively. 32 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) NEW ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and also clarifies that a guarantor is require to recognize, at the inception for a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. In addition, FIN 45 requires additional disclosures about the guarantees that an entity has issued including those related to product warranties (See Note 11). The recognition and measurement provisions of FIN 45 are not expected to have a material effect on the Company's financial position, results of operations or cash flows. On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). The adoption of SFAS 144 did not have a material impact on the Company's financial position, results of operations or cash flows. SFAS 142 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29,207 to write down goodwill related to the Valley Industries Acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change in 2002. Under SFAS 142, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which are determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley Industries, LLC for which taxable income accrues to the individual members, no tax effect was recorded for this charge. Additionally, under the new standard, goodwill is no longer amortized but is to be tested at least annually for impairment. The effect of no longer amortizing goodwill resulted in a reduction in amortization of intangible assets during 2002 as compared with 2001 and 2000 of $2,996 and $2,998, respectively. The following table presents net income (loss) for 2001 and 2000 as adjusted for the non-amortization provisions of SFAS 142.
Year Ended December 31, ------------------------------------- 2002 2001 2000 -------- -------- -------- Reported net income (loss) .......... $(11,622) $ 2,394 $ 7,793 Add back: Goodwill amortization ..... -- 2,996 2,998 -------- -------- -------- Adjusted net income (loss) .......... $(11,622) $ 5,390 $ 10,791 ======== ======== ========
Other intangible assets at December 31, 2002 and 2001 consist of deferred financing costs, a defined benefit pension asset and patents and licenses. Aggregate amortization expense related to other intangible assets for each of the five succeeding fiscal years is as follows: 2003................................................................ $807 2004................................................................ 567 2005................................................................ 608 2006................................................................ 653 2007................................................................ 689
For the year ended December 31, 2002, the carrying amount of goodwill decreased by $29,207 as a result of the impairment write down discussed above and increased by $3,121 as a result of the change in exchange rates between the U.S. Dollar and the European Euro, the functional currency of Brink International B.V. Effective June 30, 2001, the Company adopted Emerging Issues Task Force (EITF) Consensus 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock'". Accordingly, based upon the terms of the warrants, the Company has reclassified the mandatorily redeemable warrants to a component of current liabilities. Accretion is included in the determination of net income or loss for each reporting period. 33 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 2. ACQUISITIONS Acquisitions of the Company from January 1, 2000 through December 31, 2002 are as follows:
PURCHASE GOODWILL ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES - ----------------------------------------- ------------------ -------- -------- ------------- -------------- 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 assets of the respective company and each acquired company was purchased for cash. Pro forma results have not been presented as they are substantially the same as the Company's actual results. 3. LONG-TERM DEBT Long-term debt is comprised of the following:
OUTSTANDING AT INTEREST RATE AT DECEMBER 31, DECEMBER 31, --------------------- 2002 2002 2001 ---------------- -------- -------- Senior Subordinated Notes, less discount of $283 and $327 respectively ............................ 9.75% $124,717 $124,673 Second Amended and Restated Credit Agreement (U.S. Credit Facility) Term note A ................................... -- -- 1,794 Term note B ................................... 5.42% 9,489 12,079 Acquisition note .............................. 4.92% 3,937 9,188 Revolving line of credit note ................. 5.78% 8,574 3,002 Supplemental revolving loan note .............. -- -- -- First Amended and Restated Credit Agreement (Canadian Credit Facility) Canadian term note ............................ 5.25% 1,946 4,509 Canadian revolving line of credit note ........ -- -- -- Capital lease obligations .......................... 5.09% 6,284 399 Other .............................................. -- -- 1,005 -------- -------- 154,947 156,649 Less -- current portion ............................ 18,215 11,023 -------- -------- $136,732 $145,626 ======== ========
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 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 restrictions on 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. 34 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) 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 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. On December 15, 2001, the Company entered into Amendment No. 9 to the U.S. Credit Facility which reset certain financial covenants for fiscal years 2001 and 2002 and provided the Company with additional liquidity by adding a conditional supplemental revolving loan facility of up to $10.0 million which is available until March 31, 2003. The U.S. Credit Facility provides for two term notes (Term note A and Term note B), a revolving line of credit note, an acquisition note and a supplemental revolving loan note. Loans under each of the term notes and the revolving notes 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 Leverage 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, 2002 and 2001, the Company had irrevocable letters of credit outstanding in the amount of $9,125 and $8,041, respectively (see Note 11). 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 $29 and $518 were made in August 2001 and June 2000, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. No amounts remain outstanding under the note as of December 31, 2002. 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 $2,299 and $833 were made in August 2002 and June 2000, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. At December 31, 2002, the applicable margin for Term note B ranges from 2.75% to 3.75% for Base Rate Loans and from 3.50% to 4.50% for Eurocurrency Loans. Repayments under Term note B are required in the following installments: March 31, 2003 through September 30, 2003 (quarterly)............... $ 73 December 31, 2003................................................... 2,914 March 31, 2004...................................................... 3,764 June 30, 2004....................................................... 2,592
35 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) Acquisition note On December 31, 1997, the Company borrowed $21,000 under its acquisition note. The proceeds were used to acquire the assets of Ellebi on January 2, 1998. At December 31, 2002, the applicable margin for acquisition note ranges from 2.25% to 3.25% for Base Rate Loans and from 3.00% to 4.00% for Eurocurrency Loans. Repayments under the acquisition note are due in equal quarterly installments of $1,312 through September 30, 2003. 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% of 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. At December 31, 2002, $7,301 was available for borrowing on the note. At December 31, 2002, the applicable margin for revolving line of credit note ranges from 2.25% to 3.25% for Base Rate Loans and from 3.00% to 4.00% 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. Supplemental revolving loan note When the availability under the revolving line of credit note reaches zero, the Company has the ability to borrow up to $10,000 under the supplemental revolving loan note. Available borrowings are limited to the same borrowing base as the revolving line of credit note to the extent the borrowing base exceeds $25,000. At December 31, 2002, $10,000 in borrowings were available on the note. At December 31, 2002, the applicable margin for supplemental revolving note ranges from 2.25% to 3.25% for Base Rate Loans and from 3.00% to 4.00% 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. A mandatory prepayment of all outstanding loans under the note is due if the Company reports Earnings Before Interest, Taxes, Depreciation and Amortization ('EBITDA'), as defined by the agreement, of less than $32,000 on a trailing four quarter basis at the end of any fiscal quarter. The note expires on March 31, 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. $12,662 and U.S. $2,532, respectively at December 31, 2002). 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 Floating Rate advances and U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR advances. 36 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) Canadian term note Repayments under the Canadian term note are required in the following installments:
QUARTERLY --------- March 31, 2003 through June 30, 2003................................. $650 Final installment on October 30, 2003................................ 646
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 before the earlier of October 30, 2004 and 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 were accreted to their estimated redemption value through periodic charges against Members' Equity through October 30, 2001 or the time redemption first becomes available. Thereafter the warrants are being recorded at the then estimated redemption value. The aforementioned warrants have been presented as mandatorily redeemable warrants in the accompanying balance sheets. CAPITAL LEASES During 2002, the Company borrowed Euro 5,702 (U.S. $5,978 as of December 31, 2002) under a Euro 6,850 ($7,183 as of December 31, 2002) 12 year lease for a new manufacturing plant in France. The remaining amount available under the lease will be borrowed by the Company in the first quarter of 2003. Repayments under the lease are due in 48 equal quarterly installments of Euro 143 (U.S. $150 as of December 31, 2002) plus interest and commence on March 31, 2003. Interest accrues at a fixed rate of 5.21% on half of the outstanding loan balance and accrues on the balance of the outstanding loan balance at an adjustable rate, which is determined each quarter by reference to the three month Euribor rate plus a margin of 0.85%. The Company also has entered into various other capital lease arrangements for certain machinery and equipment. These leases generally require monthly payments of principal and interest and have terms from three to five years. At December 31, 2002 the present value of the remaining payments outstanding under these other capital leases totaled $306. 37 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) SCHEDULED MATURITIES The aggregate scheduled annual principal payments due in each of the years ending December 31, is as follows: 2003............................................................ $ 18,215 2004............................................................ 7,083 2005............................................................ 662 2006............................................................ 658 2007............................................................ 125,599 Thereafter...................................................... 3,013 -------- 155,230 Less -- discount................................................ (283) -------- $154,947 ========
4. MEMBERS' EQUITY Holders of Class A Units are eligible to vote in elections of Managers of the Company and other matters as set forth 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, 2002 or 2001. 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. 5. 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 companies; as such, the Company's earnings are included in the taxable income of the Company's members. Income (loss) before income taxes were attributable to the following sources:
YEAR ENDED DECEMBER 31, -------------------------------------------- 2002 2001 2000 -------- -------- -------- United States ............ $(15,475) $ 6,160 $ 10,491 Foreign .................. 8,105 (3,164) (2,976) -------- -------- -------- $ (7,370) $ 3,002 $ 7,515 ======== ======== ========
38 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 5. INCOME TAXES -- (CONTINUED) The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31, ----------------------------------------- 2002 2001 2000 ------- ------- ------- CURRENTLY PAYABLE United States ............. $ 5 $ 26 $ -- Foreign ................... 2,972 737 630 ------- ------- ------- 2,977 763 630 ------- ------- ------- DEFERRED United States ............. -- -- -- Foreign ................... 1,275 (161) (908) ------- ------- ------- 1,275 (161) (908) ------- ------- ------- $ 4,252 $ 602 $ (278) ======= ======= =======
The effective tax rates differ from the U.S. federal income tax rate as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 2002 2001 2000 ------- ------- ------- Income tax provision (benefit) at U.S. statutory rate (35%) .... $(2,580) $ 1,051 $ 2,630 U. S. income taxes attributable to members ..................... 5,416 (2,147) (3,674) Change in valuation allowance .................................. (2,817) 841 (86) Deemed forgiveness of subsidiary intercompany debt ............. 2,884 -- -- Nondeductible foreign goodwill ................................. 212 391 224 Foreign rate differences and other, net ........................ 1,137 466 628 ------- ------- ------- $ 4,252 $ 602 $ (278) ======= ======= =======
Deferred tax assets and liabilities, related primarily to the Company's foreign subsidiaries, comprise the following:
DECEMBER 31, ------------------------------ 2002 2001 ------------- ------------- DEFERRED TAX ASSETS Net operating loss carryforwards of foreign subsidiaries $ 1,472 $ 6,229 Fixed assets 2,356 2,169 Goodwill 541 452 Inventory 54 52 Other 2,260 2,369 ------------- ------------- 6,683 11,271 ------------- ------------- DEFERRED TAX LIABILITIES Fixed assets (1,272) (1,565) Inventory (849) (783) Goodwill (192) (194) Other (110) (243) ------------- ------------- (2,423) (2,785) Valuation allowance (2,799) (5,739) ------------- ------------- Net deferred tax asset $ 1,461 $ 2,747 ============= =============
The net operating loss carryforwards of the Company's European subsidiaries approximate $1,554 at December 31, 2002 and have no expiration date. The net operating loss carryforwards of the Company's Canadian subsidiaries approximate $2,425 at December 31, 2002 and expire primarily in 2005 through 2008. As of December 31, 2002 and 2001, respectively, the Company recorded a valuation allowance of $2,799 and $5,739 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, 2002. 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. 39 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 6. 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 and Chase Canada, which are each affiliates of a member of the Company, and J.P. Morgan Partners (23A SBIC), LLC, respectively. Charges to operations related to consulting services provided to the Company by certain members of the Company aggregated approximately $100, $361 and $406 for the years ended December 31, 2002, 2001 and 2000, respectively. Certain employees and consultants of the Company hold Class A Units of the Company. 7. OPTION PLAN The Company uses the disclosure requirements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The Company, however, 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, 2002 and 2001, 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, 2002, there were 184 options that remained available for grant under the Plan. Information concerning options to purchase Class A Units is as follows:
2002 2001 2000 --------------------------- --------------------------- --------------------------- 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 2,264 $ 1,247 2,358 $ 1,417 2,405 $ 1,499 Options cancelled 5 $ 4,000 94 $ 5,524 47 $ 5,610 ------------ ------------ ------------ Outstanding at December 31 2,259 $ 1,240 2,264 $ 1,247 2,358 $ 1,417 ============ ============ ============ Exercisable at December 31 1,563 $ 1,309 1,247 $ 1,282 1,581 $ 1,515 ============ ============ ============
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. 1,290 $ 1,183 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. 565 $ 1,080 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 expense of $450 for the year ended December 31, 2000. No compensation expense was recognized during 2002 or 2001 as no options vested during those years. 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 (loss) income of the Company would have been $(11,676), $2,256 and $8,047 for the years ended December 31, 2002, 2001 and 2000, respectively. 40 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 7. OPTION PLAN -- (CONTINUED) 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 ---- Dividend yield........................... 0.0% Risk-free rate of return................. 6.0% Expected option term (in years).......... 8
The following table summarizes the status of the Company's options outstanding and exercisable at December 31, 2002:
OPTIONS OUTSTANDING ------------------------------------------------------ WEIGHTED AVERAGE REMAINING EXERCISE CONTRACTUAL OPTIONS PRICES UNITS LIFE EXERCISABLE --------- --------- ------------- ------------ $ 1,000 2,025 8 1,959 $ 3,029 129 10 129 $ 3,485 65 10 65 $ 4,000 40 12 25
8. 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, 2002 and 2001:
DECEMBER 31, ------------------ 2002 2001 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year ........................... $ 3,080 $ 2,703 Benefits earned during the year ................................... 149 136 Interest on projected benefit obligation .......................... 217 201 Actuarial loss (gain) ............................................. 90 133 Benefits paid ..................................................... (93) (93) ------- ------- Benefit obligation at end of year ................................. 3,443 3,080 ------- ------- Change in plan assets: Market value of assets at beginning of year ....................... 2,610 2,424 Actual return on plan assets ...................................... (235) (79) Employer contributions ............................................ 196 358 Benefits paid ..................................................... (93) (93) ------- ------- Market value of assets at end of year ............................. 2,478 2,610 ------- ------- Funded status ........................................................ (965) (470) Unrecognized prior service cost ...................................... 292 318 Unrecognized net (gain) loss ......................................... 850 285 ------- ------- Net amount recognized ................................................ $ 177 $ 133 ======= ======= Amounts recognized in the statement of financial position consist of: Accrued benefit liability ......................................... $ (965) $ (470) Intangible asset .................................................. 292 318 Accumulated other comprehensive income adjustment ................. 850 285 ------- ------- Net amount recognized ............................................. $ 177 $ 133 ======= =======
41 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. PENSION PLANS -- (continued)
YEAR ENDED DECEMBER 31, -------------------------------------- 2002 2001 2000 ---------- ---------- ---------- Components of net periodic benefit cost: Service cost ........................... $ 149 $ 136 $ 124 Interest cost .......................... 217 201 182 Expected return on plan assets ......... (240) (232) (205) Recognized net actuarial gain .......... -- -- (10) Amortization of prior service cost ..... 27 27 27 ---------- ---------- ---------- Net periodic benefit cost ................. $ 153 $ 132 $ 118 ========== ========== ==========
The weighted average discount rate used in determining the actuarial present value of the accumulated benefit obligation was 7.00%, 7.25%, and 7.50% at December 31, 2002, 2001 and 2000, respectively. The expected long-term rate of return on plan assets was 9.00% at December 31, 2002, 2001 and 2000. 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 $375, $296 and $369 in 2002, 2001 and 2000, 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 $1,302, $1,086 and $1,270 for the years ended December 31, 2002, 2001 and 2000, respectively. 9. OPERATING LEASES The Company leases certain equipment under leases expiring on various dates through 2007. Future minimum annual lease payments required under leases that have a noncancellable lease term in excess of one year at December 31, 2002 are as follows: 2003.................................................................................... $ 2,571 2004.................................................................................... 1,986 2005.................................................................................... 1,276 2006.................................................................................... 431 2007.................................................................................... 13 ------- $ 6,277
Rental expense charged to operations was approximately $4,399, $4,069 and $4,066 for the years ended December 31, 2002, 2001 and 2000, respectively. 42 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 10. ACCOUNT BALANCES Account balances included in the consolidated balance sheets are comprised of the following:
DECEMBER 31, ------------------------------ 2002 2001 ------------- ------------- INVENTORIES Raw materials ....................................... $ 14,631 $ 14,689 Work-in-process ..................................... 9,893 10,323 Finished goods ...................................... 19,068 17,248 Reserves ............................................ (2,910) (2,828) ------------- ------------- $ 40,682 $ 39,432 ============= ============= PROPERTY AND EQUIPMENT Land, buildings and improvements .................... $ 26,570 $ 23,138 Land, buildings and improvements under capital leases 7,183 -- Furniture, fixtures and computer hardware ........... 15,497 11,582 Machinery, equipment and tooling .................... 65,468 57,994 Machinery and equipment under capital leases ........ 409 409 Construction-in-progress ............................ 1,557 2,262 ------------- ------------- 116,684 95,385 Less -- accumulated depreciation .................... (56,112) (40,981) ------------- ------------- $ 60,572 $ 54,404 ============= ============= ACCRUED LIABILITIES Compensation and benefits ........................... $ 15,387 $ 13,594 Interest ............................................ 3,078 2,983 Other ............................................... 12,297 6,976 ------------- ------------- $ 30,762 $ 23,553 ============= =============
11. 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 is currently pursuing an appeal in the Sixth Circuit Court of Appeals. During 2002 and 2001, the Company increased its estimated accrual for this matter by $600 and $600, respectively, representing accrued interest for the year which charge is included in interest expense. At December 31, 2002, the Company had an outstanding irrevocable letter of credit totaling $8,325 benefiting the individuals. No amounts have been paid as of December 31, 2002. The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. The majority of the Company's product warranties are customer specific. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records and estimate for future warranty related costs based on actual historical return rates. The Company has not experienced significant costs related to its warranties. In early July 2002, three European automotive OEM customers of Brink Sweden recalled in total approximately 41,000 towbars which were supplied by the Company. The recall affects vehicles fitted with the G 3.0 model removable towbar system sold between January 1999 and March 2000. The Company is in the process of working with its customers to provide technical and other support in response to the recall. During the fourth quarter of 2002, based upon information gathered concerning the costs of the recall and from discussions with its customers during the fourth quarter, management estimated and recorded an expense of approximately $3,000 for the recall. The expense is included in selling, administrative and product development expenses. At December 31, 2002 the unpaid liability for the recall totaling $2,854 was included in accrued liabilities. 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. 43 12. 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, ----------------------------------- 2002 2001 2000 --------- --------- --------- REVENUES United States................................................. $ 231,133 $ 223,662 $ 222,159 The Netherlands............................................... 35,177 31,768 32,344 Italy......................................................... 16,437 15,788 15,725 Other foreign................................................. 47,035 42,817 48,589 --------- --------- --------- $ 329,782 $ 314,035 $ 318,817 ========= ========= =========
YEAR ENDED DECEMBER 31, ----------------------------------- 2002 2001 2000 --------- --------- --------- REVENUES Towing systems................................................ $ 175,348 $ 173,327 $ 186,753 Rack systems.................................................. 154,434 140,708 132,064 --------- --------- --------- $ 329,782 $ 314,035 $ 318,817 ========= ========= =========
DECEMBER 31, ----------------------------------- 2002 2001 2000 --------- --------- --------- LONG-LIVED ASSETS United States................................................. $ 62,489 $ 93,068 $ 96,201 The Netherlands............................................... 24,978 22,326 24,197 Italy......................................................... 4,214 4,705 6,280 Other foreign................................................. 19,834 12,384 13,975 --------- --------- --------- $ 111,515 $ 132,483 $ 140,653 ========= ========= =========
The Company has two significant customers in the automotive OEM industry. Sales to these customers represented 23% and 22% of total Company sales for the year ended December 31, 2002, 28% and 17% for the year ended December 31, 2001, and 32% and 11% for the year ended December 31, 2000. Accounts receivable from these customers represented 21% and 18% of the Company's trade accounts receivable at December 31, 2002, and 27% and 10% at December 31, 2001, 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, 2002. Consistent with industry practice, the Company does not require collateral to reduce such credit risk. 13. CONDENSED CONSOLIDATING INFORMATION On October 1, 1997, the Company and its wholly-owned subsidiary, AAS Capital Corporation, issued and sold $125,000 of its 9 3/4% Senior Subordinated Notes due 2007. The Notes are guaranteed on a full, unconditional and joint and several basis, by all of the Company's direct and indirect wholly-owned domestic subsidiaries. The following condensed consolidating financial information for 2002, 2001 and 2000 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. and its subsidiaries, SportRack Accessories, Inc. and its subsidiary, and SportRack Automotive, GmbH and its subsidiaries. The operating results of the guarantor and non-guarantor subsidiaries include management fees of $1,407 and $320, respectively, for the year ended December 31, 2002, $1,416 and $310,respectively, for the year ended December 31, 2001 and $1,410 and $330, respectively, for the year ended December 31, 2000. Since its formation in September 1997, AAS Capital Corporation has had no operations and has no assets or liabilities at December 31, 2002. 44 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------- -------------- -------------- -------------- -------------- ASSETS Current assets Cash .................................. $ 440 $ 77 $ 2,136 $ -- $ 2,653 Accounts receivable ................... -- 31,920 19,606 -- 51,526 Inventories ........................... -- 16,810 23,872 -- 40,682 Deferred income taxes and other current assets ....................... 80 6,836 6,563 -- 13,479 -------------- -------------- -------------- -------------- -------------- Total current assets ............. 520 55,643 52,177 -- 108,340 Property and equipment, net ............. -- 33,433 27,139 -- 60,572 Goodwill, net ........................... 985 24,729 21,594 -- 47,308 Other intangible assets, net ............ 2,971 371 293 -- 3,635 Deferred income taxes and other noncurrent assets ..................... 93 794 3,413 -- 4,300 Investment in subsidiaries .............. 78,872 9,955 -- (88,827) -- Intercompany notes receivable ........... 59,487 3,591 -- (63,078) -- -------------- -------------- -------------- -------------- -------------- Total assets ..................... $ 142,928 $ 128,516 $ 104,616 $ (151,905) $ 224,155 ============== ============== ============== ============== ============== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt .. $ 8,574 $ 54 $ 9,587 $ -- $ 18,215 Accounts payable ...................... -- 22,346 10,813 -- 33,159 Accrued liabilities and deferred income taxes ........................ 8,060 7,846 14,856 -- 30,762 Mandatorily redeemable warrants ....... 5,250 -- -- -- 5,250 -------------- -------------- -------------- -------------- -------------- Total current liabilities ........ 21,884 30,246 35,256 -- 87,386 Deferred income taxes and other noncurrent liabilities ................ 2,003 1,391 3,031 -- 6,425 Long-term debt, less current maturities . 124,717 252 11,763 -- 136,732 Intercompany debt ....................... -- -- 63,078 (63,078) -- Members' equity ......................... (5,676) 96,627 (8,512) (88,827) (6,388) -------------- -------------- -------------- -------------- -------------- Total liabilities and members' equity ........................... $ 142,928 $ 128,516 $ 104,616 $ (151,905) $ 224,155 ============== ============== ============== ============== ==============
45 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- ASSETS Current assets Cash ..................................... $ 334 $ 2 $ 1,803 $ -- $ 2,139 Accounts receivable ...................... -- 29,094 15,696 -- 44,790 Inventories .............................. -- 15,603 23,829 -- 39,432 Deferred income taxes and other current assets .......................... 7 2,326 3,443 -- 5,776 ------------- ------------- ------------- ------------- ------------- Total current assets ................ 341 47,025 44,771 -- 92,137 Property and equipment, net ................ -- 34,071 20,333 -- 54,404 Goodwill, net .............................. 985 53,930 18,479 -- 73,394 Other intangible assets, net ............... 3,670 412 603 -- 4,685 Deferred income taxes and other noncurrent assets ........................ 93 1,340 2,237 -- 3,670 Investment in subsidiaries ................. 70,323 9,955 -- (80,278) -- Intercompany notes receivable .............. 74,601 -- -- (74,601) -- ------------- ------------- ------------- ------------- ------------- Total assets ........................ $ 150,013 $ 146,733 $ 86,423 $ (154,879) $ 228,290 ============= ============= ============= ============= ============= LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt ..... $ -- $ 1,108 $ 9,915 $ -- $ 11,023 Accounts payable ......................... -- 19,562 9,489 -- 29,051 Accrued liabilities and deferred income taxes ........................... 6,731 7,804 9,018 -- 23,553 Mandatorily redeemable warrants ............ 5,130 -- -- -- 5,130 ------------- ------------- ------------- ------------- ------------- Total current liabilities ........... 11,861 28,474 28,422 -- 68,757 Deferred income taxes and other noncurrent liabilities ................... 2,003 719 2,861 -- 5,583 Long-term debt, less current maturities .... 127,675 297 17,654 -- 145,626 Intercompany debt .......................... -- 16,920 57,681 (74,601) -- Members' equity ............................ 8,474 100,323 (20,195) (80,278) 8,324 ------------- ------------- ------------- ------------- ------------- Total liabilities and members' equity .............................. $ 150,013 $ 146,733 $ 86,423 $ (154,879) $ 228,290 ============= ============= ============= ============= =============
46 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net sales .............................. $ -- $ 231,133 $ 98,649 $ -- $ 329,782 Cost of sales .......................... -- 180,421 70,095 -- 250,516 ------------- ------------- ------------- ------------- ------------- Gross profit ......................... -- 50,712 28,554 -- 79,266 Selling, administrative and product development expenses ................. 1,088 23,817 24,404 -- 49,309 Amortization of intangible assets ...... 109 13 -- 122 ------------- ------------- ------------- ------------- ------------- Operating income (loss) .............. (1,088) 26,786 4,137 -- 29,835 Interest expense ....................... 11,310 316 4,281 -- 15,907 Equity in net (income) of subsidiaries . (776) -- -- 776 -- Foreign currency (gain) ................ -- -- (8,429) -- (8,429) Other expense .......................... -- 340 180 -- 520 ------------- ------------- ------------- ------------- ------------- Income before cumulative effect of accounting change and income taxes .. 11,622 26,130 8,105 (776) 21,837 Cumulative effect of accounting change for goodwill impairment ............. -- (29,207) -- -- (29,207) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes ...... (11,622) (3,077) 8,105 (776) (7,370) Provision for income taxes ............. -- -- 4,252 -- 4,252 ------------- ------------- ------------- ------------- ------------- Net income (loss) ...................... $ (11,622) $ (3,077) $ 3,853 $ (776) $ (11,622) ============= ============= ============= ============= =============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net sales .............................. $ -- $ 223,662 $ 90,373 $ -- $ 314,035 Cost of sales .......................... -- 178,092 61,491 -- 239,583 ------------- ------------- ------------- ------------- ------------- Gross profit ......................... -- 45,570 28,882 -- 74,452 Selling, administrative and product development expenses ................. 247 24,822 19,700 -- 44,769 Amortization of intangible assets ...... 40 2,372 900 -- 3,312 ------------- ------------- ------------- ------------- ------------- Operating income (loss) .............. (287) 18,376 8,282 -- 26,371 Interest expense ....................... 8,853 2,533 6,298 -- 17,684 Equity in net (income) of subsidiaries . (11,534) -- -- (11,534) -- Foreign currency loss .................. -- -- 4,948 -- (4,948) Other expense .......................... -- 543 200 -- 743 ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes ...... 2,394 15,300 (3,164) (11,534) 2,996 Provision for income taxes ............. -- -- 602 -- 602 ------------- ------------- ------------- ------------- ------------- Net income (loss) ...................... $ 2,394 $ 15,300 $ (3,766) $ (11,534) $ 2,394 ============= ============= ============= ============= =============
47 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. 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) of subsidiaries . (15,640) -- -- 15,640 -- Foreign currency 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 ============= ============= ============= ============= =============
48 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net cash provided by (used for) operating activities ............................. $ (10,224) $ 27,238 $ 3,990 $ -- $ 21,004 ------------- ------------- ------------- ------------- ------------- Cash flows from investing activities: Acquisition of property and equipment ............................ -- (5,554) (9,800) -- (15,354) Investment in Subsidiary ............... (7,000) -- -- 7,000 -- ------------- ------------- ------------- ------------- ------------- Net cash used for investing activities (7,000) (5,554) (9,800) 7,000 (15,354) ------------- ------------- ------------- ------------- ------------- Cash flows provided by (used for) financing activities: Change in intercompany debt ............ 15,114 (20,510) 5,396 -- -- Net increase in revolving loan ......... 5,572 -- -- -- 5,572 Repayment of debt ...................... -- (1,099) (12,280) -- (13,379) Borrowing of debt ...................... -- -- 5,637 -- 5,637 Issuance of Membership Units ........... -- -- 7,000 (7,000) -- Distributions to members ............... (3,356) -- -- -- (3,356) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used for) financing activities ............... 17,330 (21,609) 5,753 (7,000) (5,526) ------------- ------------- ------------- ------------- ------------- Effect of exchange rate changes .......... -- -- 390 -- 390 ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash .......... 106 75 333 -- 514 Cash at beginning of period .............. 334 2 1,803 -- 2,139 ------------- ------------- ------------- ------------- ------------- Cash at end of period .................... $ 440 $ 77 $ 2,136 $ -- $ 2,653 ============= ============= ============= ============= =============
49 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------ ------------- ------------- ------------ Net cash provided by (used for) operating activities .................................... $ (8,830) $ 32,749 $ 3,732 $ -- $ 27,651 ------------ ------------ ------------ ------------ ------------ Cash flows from investing activities: Acquisition of property and equipment ................................... -- (4,249) (3,331) -- (7,580) ------------ ------------ ------------ ------------ ------------ Net cash used for investing activities ...... -- (4,249) (3,331) -- (7,580) ------------ ------------ ------------ ------------ ------------ Cash flows provided by (used for) financing activities: Change in intercompany debt ................... 17,094 (29,144) 12,050 -- -- Net decrease in revolving loan ................ (8,341) -- -- -- (8,341) Repayment of debt ............................. -- -- (11,706) -- (11,706) Collection on members notes receivable ........ 59 -- -- -- 59 Borrowing of debt ............................. -- 400 -- -- 400 Distributions to members ...................... (801) -- -- (801) ------------ ------------ ------------ ------------ ------------ Net cash provided by (used for) financing activities ...................... 8,011 (28,744) 344 -- (20,389) ------------ ------------ ------------ ------------ ------------ Effect of exchange rate changes ................. -- -- (858) -- (858) ------------ ------------ ------------ ------------ ------------ Net decrease in cash ............................ (819) (244) (113) -- (1,176) Cash at beginning of period ..................... 1,153 246 1,916 -- 3,315 ------------ ------------ ------------ ------------ ------------ Cash at end of period ........................... $ 334 $ 2 $ 1,803 $ -- $ 2,139 ============ ============ ============ ============ ============
50 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. 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 ============= ============= ============= ============= =============
51 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"), or as an executive officers of the Company.
NAME AGE POSITION MANAGER OR OFFICER SINCE ------------------------ ---- ------------------------------------------------ ------------------------ F. Alan Smith........... 71 Chairman of the Board of Managers of the Company September 1995 Terence C. Seikel....... 45 President and Chief Executive Officer of the January 1996 Company; Board Member Richard E. Borghi....... 56 President and Chief Operating Officer of September 1995 SportRack; Board Member Gerrit de Graaf......... 39 General Manager and Chief Executive Officer of October 1996 Brink; Board Member Bryan A. Fletcher....... 43 President and Chief Operating Officer of Valley August 1997 Aftermarket (a division of Valley Industries, LLC), Board Member Barry G. Steele......... 32 Chief Financial Officer June 1999 J. Wim Rengelink........ 48 Finance Director of Brink October 1996 Donald J. Hofmann, Jr... 45 Board Member, Vice President and Secretary of the September 1995 Company Barry Banducci.......... 67 Board Member September 1995 Gerard J. Brink......... 59 Board Member October 1996
F. Alan Smith has served in the automotive industry for 41 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 TransPro, Inc. Terence C. Seikel has served in the automotive industry for 19 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 35 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 as a consultant for Philips Medical Systems (a division of Philips Electronics), a company engaged in the distribution of electronic medical equipment, and most recently as Philips' Marketing Manager in the United States. Bryan A. Fletcher has served in the automotive industry for 14 years and has been President and Chief Operating Officer of Valley Aftermarket (a division of Valley Industries, LLC) since July 2000. From 1991 until July 2000 Mr. Fletcher served as Vice President of Aftermarket Operations of Valley. Barry G. Steele has been Chief Financial Officer since April 1, 2002. Prior to that Mr. Steele served as Corporate Controller and Treasurer since July 2001. From June 1999 to July 2001 Mr. Steele was Corporate Controller of the Company. 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 16 years and has been Finance Director of Brink since 1995. From 1988 to 1995 he worked in Brink's internal audit department. 52 Donald J. Hofmann, Jr. has been a Board Member, Vice President and Secretary of the Company since October 1995. Since January 2003, Mr. Hofmann is a Senior Advisor of J.P. Morgan Partners and was 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 from 1992 to January, 2003. JPMP provides equity and mezzanine debt financing for management buyouts and recapitalizations, growth equity and venture capital. JPMP is an investment advisor to J.P. Morgan Partners (23A SBIC), LLC, a member of the Company. Mr. Hofmann is also a director of Pliant Corporation. Barry Banducci has been a Board Member of the Company since October 1995. Since September 1995, Mr. Banducci has been the Chairman of TransPro, Inc., a supplier to the automotive OEM market and aftermarket. 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, Inc. Gerard J. Brink has been a Board Member of the Company since October 1996. Mr. Brink has been retired since October 1996 prior to that he was General Manager of Brink from 1965 to 1996. Each member of the Board of Managers holds office until his successor is elected and qualified, or until his earlier death, resignation or removal. The Company's officers serve at the discretion of the Board of Managers. See the disclosures in Item 12. under the caption "Members' Agreement" for a description of arrangements to elect Messrs. Seikel, Borghi, Smith, Banducci, Brink, Fletcher and Hofmann as managers of the Company. See the disclosures in Item 11. under the caption "Employment Agreements" for a description of agreements with each of Messrs. Seikel, Borghi, de Graaf and Fletcher pursuant to which they are required to be appointed to the executive positions they currently hold. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for 2000 through 2002 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(#) ($) - ------------------------------------ -------- ------------- ------------- ----------------- ----------------- ------------ Terence C. Seikel................... 2002 265,000 175,000 -- -- 4,506 President and Chief Executive 2001 265,000 115,000 -- -- 5,100 Officer of the Company and 2000 265,000 175,000 -- -- 5,100 SportRack Barry G. Steele..................... 2002 134,105 42,000 -- -- 4,013 Chief Financial Officer of the 2001 106,950 20,000 -- -- 2,506 Company 2000 95,270 20,000 -- -- 3,120 Richard E. Borghi................... 2002 306,419 125,000 -- -- 4,494 President and Chief Operating 2001 324,964 105,000 -- -- 2,100 Officer of SportRack 2000 279,798 125,000 -- -- 4,439 Gerrit de Graaf..................... 2002 165,168 38,899 -- -- -- General Manager and Chief Executive 2001 151,577 41,250 -- -- -- Officer of Brink 2000 154,000 65,000 -- -- -- Bryan Fletcher...................... 2002 151,316 50,000 -- -- 400 President and Chief Operating 2001 142,000 57,200 -- -- 400 Officer of Valley Aftermarket 2000 132,664 40,500 -- 50 400
- ---------- OPTION GRANTS IN 2002 AND OPTION VALUES AT YEAR END During 2002, there were no options granted to the named executive officers. The following table sets forth information regarding outstanding membership unit options issued to the chief executive officer of the Company and the four next most highly compensated executive officers. 53 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT YEAR END(#) AT YEAR END($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE - -------------------- ----------- ----------- -------------------- --------------------- F. Alan Smith....... -- -- 332/150 1,743,000/788,000 Terence C. Seikel... -- -- 465/200 2,441,000/1,050,000 Richard E. Borghi... -- -- 432/200 2,268,000/1,050,000 Gerrit de Graaf..... -- -- 39/- 205,000/-- Bryan Fletcher...... -- -- 20/20 105,000/105,000
- ---------- 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 "Consulting Agreements." EMPLOYMENT AGREEMENTS Each of Terence C. Seikel, Richard E. Borghi, Gerrit de Graaf and Bryan Fletcher has 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 he is entitled to a one time bonus of $100,000 at his convenience or the earlier of his termination date, or 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, 2001. The Consulting Agreements each provide for an annual consulting fee of $50,000. Either party can terminate the Consulting Agreements upon 10 days notice. Following the termination date and for so long as the consultant shall continue to serve on the Board of Managers of the Company, the consultant will receive an annual board fee of no less than 10% of the aggregate purchase price for all Units of the Company acquired by him, currently $30,000 for Mr. Smith and $25,000 for Mr. Banducci. The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing non-public information about the Company. 54 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Managers has an Audit Committee consisting of Messrs. Banducci and Smith, and a Compensation Committee consisting of Messrs. Hofmann and Smith. Prior to August 2002, the Audit Committee consisted of Messrs. Banducci and Brink. 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. None of the members of the Compensation Committee was, during 2002, an officer or employee of the Company or any of its subsidiaries or was formerly an officer of the Company or any of its subsidiaries, except that Mr. Smith has been the Company's Chairman of the Board of Managers and Mr. Hofmann has been Vice President and Secretary of the Company since its formation in September 1995. None of the Compensation Committee members had any relationship with the Company requiring disclosure by the Company pursuant to Securities and Exchange Commission rules regarding disclosure of related-party transactions, except that Mr. Hofmann and Mr. Smith had the relationships with the Company described below: Chase Securities Inc. ("CSI"), Chase, Chase Canada and JPMP are affiliates of J.P. Morgan Partners (23A SBIC), LLC, which owns approximately 34.44% of the Company's issued and outstanding voting securities and currently beneficially owns 69.0% of the Company's equity securities. CSI acted as an Initial Purchaser in connection with the offering of Notes, for which it received customary fees. Chase is agent bank and a lender to the Company under the U.S. Credit Facility 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 U.S. Credit Facility from the proceeds of the offering of Notes. J.P. Morgan Partners (23A SBIC), 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 of Notes. As a result of the offering of Notes, 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 of Notes. Donald J. Hofmann, Jr., a Senior Advisor and former 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 a Consulting Agreement with F. Alan Smith, the Chairman of the Company. See "Consulting Agreements." 55 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS As of March 25, 2003, the outstanding membership interests of the Company consisted of 14,359 Units, including 9,226 Class A Units and 5,133 Class A-1 Units. The following table sets forth certain information regarding the beneficial ownership of the Units by (i) each person known by the Company to beneficially own more than 5% of the Units, (ii) each manager, (iii) each executive officer named in the Summary Compensation Table in Item 11. of this report, and (iv) all of the Company's managers 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 69.0% 1221 Avenue of the Americas New York, New York 10020 Celerity Partners.......................... 1,500 10.5 c/o Mark Benham 300 Sand Hill Road Building 4, Suite 230 Menlo Park, California 94025 F. Alan Smith(4)........................... 632 4.3 Terence C. Seikel(5)....................... 665 4.5 Richard E. Borghi(6)....................... 632 4.3 Gerrit de Graaf(7)......................... 59 0.4 Bryan A. Fletcher(8)....................... 50 0.4 Barry Banducci(9).......................... 500 3.4 Gerard J. Brink............................ 410 2.9 Donald J. Hofmann, Jr. (10)................ 10,251 69.0 All managers and executive officers as a group (nine 13,238 80.5 persons) (11)............................
(1) Addresses are provided only for persons beneficially owning more than five percent of the Units. (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 25, 2002 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) J.P. Morgan Partners(23A SBIC), LLC is an affiliate of JPMP. Includes 501 Units subject to warrants exercisable within 60 days. Includes 5,133 Class A-1 non voting Units that are immediately convertible into Class A voting Units. (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 39 Units subject to options exercisable within 60 days. (8) Includes 25 Units subject to options exercisable within 60 days. (9) Includes 250 Units subject to options exercisable within 60 days. 250 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 Senior Advisor to JPMP and Attorney-in-Fact for J.P. Morgan Partners (23A SBIC), LLC and its majority member, of J.P. Morgan Partners (23A SBIC Manager), Inc. Mr. Hofmann disclaims beneficial ownership of the Units held by J.P. Morgan Partners (23A SBIC), LLC except to the extent of his pecuniary interest therein which is not readily determinable because it is subject to several variables including without limitation the internal rates of return and vesting of interest in J.P. Morgan Partners (23A SBIC), LLC. (11) Includes 2,044 Units subject to options exercisable within 60 days. For a description of a potential change in control of the Company, see Item 1 "Business - General". MEMBERS' AGREEMENT As of September 30, 1999, the Company and the members entered into the Third Amended and Restated Members' Agreement, setting forth the relative voting rights of the members in the election of the Board of Managers. The Board of Managers consists of between six and eleven members, as designated by persons holding more than fifty percent of the voting Units held by J.P. Morgan Partners (23A SBIC), LLC, an affiliate of JPMP and its affiliates (defined in the Third Amended and Restated Members' Agreement as the "Chase Members"). The voting provisions apportion the Board of Managers among the Chase Members and all other members in the following way: 56 o for so long as Terence C. Seikel and Richard E. Borghi are employed by the Company, each shall be a manager; o as to each of F. Alan Smith and Barry Banducci, for so long as their respective affiliates, as defined in the Third Amended and Restated Members' Agreement, continue to hold 80% of the Units they acquired on September 28, 1995, each shall be a manager; o so long as Gerard Jacobus Brink, Koop Brink and Jan Willem Brink, along with certain affiliated persons or entities, continue to own at least 80% of the Units they acquired on October 30, 1996, persons controlling a majority of their voting Units may designate a manager from among the Brinks or their affiliates, who is currently Gerard J. Brink; o so long as Robert L. Fisher and Roger T. Morgan, along with certain affiliated persons or entities, continue to own at least 80% of the Units they acquired on August 5, 1997, persons controlling a majority of their voting Units may designate one manager, who is currently Bryan A. Fletcher; and o the Chase Members designate the remaining managers, one of which shall be a representative of J.P. Morgan Partners (23A SBIC), LLC, who is currently Donald J. Hofmann, Jr. J.P. Morgan Partners (23A SBIC), LLC has the right to remove any or all of the members of the Board of Managers if: o it reasonably believes circumstances exist that require it to assume control of the Company in order to protect its investment in the Company; o in its reasonable opinion, the Company shall have committed a breach or be in default of any covenant, obligation, agreement, representation or warranty given or made by the Company in certain agreements or contracts; o in its reasonable opinion, there has been a substantial change in the Company's operations, products or prospects during the two-year period prior to such determination; and o it determines that it is permitted under any applicable law to take control of the Company and determines that it is in its best interests to do so. EQUITY COMPENSATION PLAN INFORMATION The following information is provided as of December 31, 2002 with respect to compensation plans, including individual compensation arrangements, under with our equity securities are authorized for issuance:
(c) NUMBER OF SECURITIES (a) (b) REMAINING AVAILABLE FOR NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS OUTSTANDING OPTIONS, OUTSTANDING OPTIONS (EXCLUDING SECURITIES PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a)) - ------------------------------ ---------------------------- -------------------------- -------------------------- Equity compensation plans approved by security holders(1)....... 3,256 $ 859 184 Equity compensation plans not approved by security holders.......... 0 0 0 ----------- ------------ ----------- Total .................................. 3,256 $ 859 184 =========== ============ ===========
- ---------- (1) These plans consists of (1) the Advanced Accessory Systems LLC 1995 Option Plan, and (2) warrants granted to J.P. Morgan Partners (23A SBIC), LLC and International Mezzanine Capital, B.V. 57 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Item 11. under the caption "Compensation Committee Interlocks and Insider Participation" for a description of transactions between the Company and entities with which Donald J. Hofmann, Jr., a manager of the Company, and Senior Advisor of J.P. Morgan Partners (23A SBIC), LLC, a member beneficially owning 69.0% of our Units, are affiliated. The Company is a party to the Consulting Agreements with F. Alan Smith, the Chairman of the Company, and Barry Banducci, a manager of the Company. See Item 11. "Executive Compensation -- Consulting Agreements." In connection with the acquisition of the MascoTech Division by the Company, the Company loaned Mr. Borghi, the President and Chief Operating Officer of SportRack and a manager of the Company, $100,000 to enable him to make his initial equity investments in the Company. The loan bears interest at 6.2% and is due on demand. ITEM 14. CONTROLS AND PROCEDURES Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this annual report, and based on their evaluation, the principal executive officer and principal financial officer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are the Company's controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 58 PART IV ITEM 15. 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 Report 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, are not material, or the information called for thereby is otherwise included in the financial statements and, therefore, have been omitted. 3. Index to Exhibits: Each management contract or compensatory plan or arrangement filed as an exhibit to this report is identified in this index to exhibits with an asterisk before the exhibit number.
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------- 3(i) 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), filed March 31, 1998. 3(ii).1 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(ii).2 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). 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), filed March 31, 1998. 4.2 See Exhibits 10.2 through 10.7(i) and 10.8 Advanced Accessory Systems, LLC agrees to furnish to the Commission upon request in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K copies of instruments defining the rights of holders of long-term debt of Advanced Accessory Systems, LLC or any of its subsidiaries, which debt does not exceed 10% of the total assets of Advanced Accessory Systems, LLC and its subsidiaries on a consolidated basis. 10.1 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), filed March 31, 1998. 10.2 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), filed March 31, 1998. 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.
59
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------- 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. 10.7(h) Amendment No. 8 dated as of June 30, 2001 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(h) to AAS' Quarterly Report on Form 10-Q (File No. 333-49011) for the six months ended June 30, 2001. 10.7(i) Amendment No. 9 dated as of December 14, 2001 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(i) to AAS' Current Report on Form 8-K (File No. 333-49011). 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), filed March 31, 1998. *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 on Form 10-Q for the quarterly period ended September 30, 1999 (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, incorporated by reference to Exhibit 10.9(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 333-49011). *10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 2001. Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 333-49011). *10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 2001. Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (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), filed March 31, 1998. *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, incorporated by reference to Exhibit 10.13(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 333-49011). *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), filed March 31, 1998. 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), filed March 31, 1998. 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), filed March 31, 1998. 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 for the fiscal year ended December 31, 1999 (File No. 333-49011). 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), filed March 31, 1998. 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), filed March 31, 1998. 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), filed March 31, 1998. *10.22 Amended and Restated Employment Agreement dated as of March 14, 2001 between Valley Industries, LLC, and Bryan Fletcher, incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 333-49011). 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, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 333-49011). 10.24 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 on Form 10-Q for the quarterly period ended September 30, 1999 on (File No. 333-49011).
60
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------- 10.25 Unit Redemption Agreement dated as of October 26, 2000 between MascoTech, Inc. and Advanced Accessory Systems, LLC, incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 333-49011). *10.26 Advanced Accessory Systems, LLC 1995 Option Plan. Incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 333-49011). 10.27 Real Property Lease by Sogefimur and Auxicomi to SFEA dated October 21, 2002. 10.28 Operational lease between Amstel Lease and SFEA. 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), filed March 31, 1998. 24.1 Power of Attorney 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports of form 8-K: On March 14, 2003, the Company filed a report on Form 8-K to announce that it was in the late stages of negotiations for the sale of the Company to Castle Harlan, Inc. - ---------- 61 SIGNATURES Pursuant to the requirements of 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 Date: March 25, 2003 By: /s/ TERENCE C. SEIKEL -------------------------------------- Terence C. Seikel President and Chief Executive Officer (Authorized Signatory) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title --------- ----- /s/ TERENCE C. SEIKEL ----------------------------------------- President, Chief Executive Officer and Terence C. Seikel Manager (Principal Executive Officer) Dated: March 25, 2003 /s/ BARRY G. STEELE ----------------------------------------- Chief Financial Officer (Principal Accounting Barry G. Steele Officer and Principal Financial Officer) Dated: March 25, 2003 * Chairman of the Board of Managers ----------------------------------------- F. Alan Smith * Manager ----------------------------------------- Barry Banducci * Manager ----------------------------------------- Gerard Jacobus Brink * Manager ----------------------------------------- Donald J. Hofmann, Jr. * Manager ----------------------------------------- Richard E. Borghi * Manager ----------------------------------------- Bryan A. Fletcher * Manager ----------------------------------------- Gerrit de Graaf *By: /s/ TERENCE C. SEIKEL ----------------------------------------- Terence C. Seikel, Attorney-in-Fact Dated: March 25, 2003
62 CERTIFICATIONS I, Terence C. Seikel, certify that: 1. I have reviewed this annual report on Form 10-K of Advanced Accessory Systems, LLC; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Terence C. Seikel ----------------------------------- Terence C. Seikel, President and Chief Executive Officer 63 CERTIFICATIONS I, Barry G. Steele, certify that: 1. I have reviewed this annual report on Form 10-K of Advanced Accessory Systems, LLC; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Barry G. Steele ----------------------------------- Barry G. Steele, Chief Financial Officer 64 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, no annual report or proxy material has been sent to security holders. 65 ADVANCED ACCESSORY SYSTEMS, LLC- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000, (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, 2002 ................................. $ 1,788 $ 245 $ 120 $ 296 $ 1,857 2001 ................................. 2,140 818 (41) 1,129 1,788 2000 ................................. 4,997 (1,887) (41) 929 2,140 ALLOWANCE FOR INVENTORY AND LOWER OF COST OR MARKET RESERVE For the year ended December 31, 2002 ................................. $ 2,828 $ 1,284 $ 157 $ 1,359 $ 2,910 2001 ................................. 2,540 1,688 (140) 1,260 2,828 2000 ................................. 3,217 1,021 173 1,871 2,540 ALLOWANCE FOR REIMBURSABLE TOOLING For the year ended December 31, 2002 ................................. $ 816 $ 672 $ -- $ (100) $ 1,588 2001 ................................. 414 1,063 -- 661 816 2000 ................................. 541 266 -- 393 414 ALLOWANCE FOR DEFERRED TAX ASSETS 2002 ................................. $ 5,739 $ (2,970) $ 30 $ -- $ 2,799 2001 ................................. 4,945 1,023 (229) -- 5,739 2000 ................................. 5,258 (86) (227) -- 4,945
- ---------- (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. 66 EX-10.27 3 k74279exv10w27.txt REAL PROPERTY LEASE BY SOGEFIMUR AND AUXICOMI EXHIBIT 10.27 NOTARY/CLERK: GT CASE FILE No.: 021016 21 OCTOBER 2002 REAL PROPERTY LEASE BY SOGEFIMUR AND AUXICOMI TO S.F.E.A. (stamp: NOTARY'S OFFICE) 9, rue d'Astorg 75384 Paris Cedex 08 SIMPLE COPY (not authoritative) 313512 01 /B8/SG COMMERCIAL LEASE By "SOGEFIMUR" AND "AUXICOMI" to SOCIETE DE FABRICATION D'EQUIPEMENTS ET D'ACCESSOIRES: ON TWENTY-ONE OCTOBER, IN THE YEAR TWO THOUSAND AND TWO, Before Mr Guy Thienot, a partner notary of civil law professional partnership "Guy Thienot, Olivier Thienot, Notaires Associes, in Reims (Marne), at 23 rue Libergier. Replacing his colleague Ms Eliane Fremeaux, a partner notary of "Nicolas Thibierge, Andre Pone, Pierre Pecheteau, Eliane Fremeaux, Henri Palud, Herve Sarazin, and Jean-Francois Sagaut", a civil law professional partnership with a notarial office with its registered office located in Paris (8th arrondissement) at 9 rue d'Astorg. With the participation of Mr. name, a notary in Paris (17th arrondissement), adviser of Auxicomi, a company. And Mr. Guy Thienot, a notary in Reims, adviser of the Finance-Lessee. Duly notarised this document containing a: COMMERCIAL LEASE BETWEEN: 1) The company called "SOGEFIMUR", a public limited liability company with capital of E.55,854,600, with its registered office located in Paris (9th arrondissement), at 29, bd. Haussmann, identifIEd under SIREN number 339 993 214, registered with the Paris Registrar of Companies. Represented by: Ms Goussem Selmane, pursuant to the powers granted to her by Mr Bruno Sbalchiero, pursuant to a private power of attorney made at Courbevoie (Hauts de Seine) on 18 October 2002, the original of which is annexed hereto. Mr Sbalchiero, acting as special representative pursuant to the powers granted to him on 30 September 2002 by Mr Herve Pougin, SAID Mr Herve Pougin, having himself acted as assistant managing director of "SOGEFIMUR", a position to which he was appointed and that he accepted following the deliberations of said company's Board of Directors on 30 May 2002, a certified copy of which has been filed with the records of Ms Eliane Fremeaux, aforementioned notary, on 4 October 2002. 2) The company called "AUXICOMI", a public limited liability company with capital of E.3,625,000, with its registered office at Maisons-Alfort (Val de Marne), at 27-31 avenue du General Leclerc, identified under SIRET number 329 121 404, registered with the Creteil Registrar of Companies. Represented by: Mrs Marie Bialais, domiciled at Maisons-Alfort (Val de Marne), at 27-31 avenue du General Leclerc. Acting in the name and on behalf of Auxicomi pursuant to the powers granted to her by Mr Gerard Levy, domiciled at Maisons-Alfort (94170), at 27/31 avenue du General Leclerc, pursuant to a document notarised by Ms Sylvie Gouguenheim, undersigned notary in Paris, on 11 July 2002. Said Mr Gerard Levy, having himself acted pursuant to the powers granted to him by Mr Jean-Pierre Orcil, managing director of said company, pursuant to a document notarised by Ms Sylvie Gougenheim, undersigned notary in Paris, on 11 July 2002. Said Mr Jean-Pierre Orcil, appointed to said position pursuant to a deliberation of said company's Board of Directors on 17 May 2002, a certified copy of which was filed with the records of the civil law professional partnership called "Pierre Rochelois, Marie-Caroline Bessins, Chantal Benoit and Sylvie Gougenheim, partner notaries in Paris, on 11 July 2002. Said companies, hereinafter referred to in the rest of the document as "the Finance-Lessor". Said companies acting jointly between them, on an EQUAL basis. Sogefimur is the leading firm. FIRST PARTY AND: "SOCIETE DE FABRICATION D'EQUIPEMENTS ET D'ACCESSOIRES", known in abbreviated form as S.F.E.A., a public limited liability company with capital of E.77,749, with its registered office in Betheny (51450), chemin de lA Potiere, identified under SIREN number 336 580 378, registered with the Reims Registrar of Companies. Represented by: Mr Olivier Irdel, domiciled at said company's registered office. PURSUANT to the powers granted to him by a deliberation of said company's Board of Directors on 21 May 2002, a certified copy of the minutes of which is annexed hereto. Said company is referred to hereinafter in the rest of the document as "the Finance-Lessee" SECOND PARTY RECITALS In order to ensure the clarity of this document, it is hereby stipulated that the commercial lease is presented as follows: INTRODUCTION PART ONE - PRELIMINARY AGREEMENTS CHAPTER I - FINANCE-LESSOR'S COMMITMENTS CHAPTER II - FINANCE-LESSEE'S COMMITMENTS CHAPTER III - LAPSING OF THE PRELIMINARY AGREEMENTS PART TWO - COMMERCIAL LEASE CHAPTER I Article 1 - Commercial lease Article 2- Term of the commercial lease Article 3- Option to terminate by the Finance-Lessee Article 4- Inventory of the premises - Putting into compliance with standards A - Inventory of the premises B - Putting into compliance with standards Article 5 - Liabilities that could result from the use of the building leased, as well as from its structure CHAPTER II - CONDITIONS Article 6- Occupation conditions A- Allocation of the premises B - Enjoyment of the premises C - Usage authorisations D - Easements (if any) E - Building estate: "Les Naux" F - Conditions for the allocation of subsidies Article 7 - Work carried out during the term of the commercial lease A - Maintenance - Repairs B - Fitting out - Enlargement- Extension work C - Changes of layout D - Finance-Lessee's liability as a result of the work E - Inspection visits Article 8- Furnishings Article 9 - Pledging - Examination of the Finance-Lessee's financial position A- Pledging B- Examination of the Finance-Lessee's financial position Article 10 - Subletting Article 11 - Assignment of the Finance-Lessee's right to the commercial lease A- Assignment of the right to the commercial lease B- Receivership or legal liquidation Dissolution of the Finance-Lessee Article 12 - Finance-Lessor's obligation if the building is sold Article 13- Contributions - Taxes - Charges A - Contributions B - Taxes and charges C - Expenses incurred for examination and verification visits D - Charges related to the building estate Article 14- Value Added Tax Article 15 Expenses - Charges - Fees CHAPTER III - SAFETY - INSURANCE - LOSSES Article 16 - Safety/Security Article 17 - Insurance I- Construction insurance II- Insurance during the term of the commercial lease A - Content of the guarantees that must be taken out B - Conditions for the implementation of the guarantees C - Finance-Lessee's liability if the insurance is implemented D - Maintenance of the guarantees over time III - Finance-Lessee's obligation in the event of a loss Article 18 - Loss - Reconstruction A - Partial loss B - Total loss C - Reconstruction authorisation D - Reconstruction - Repair E - Provisions concerning rent CHAPTER IV - FINANCIAL EXPENSES Article 19 - Origination fees - Advance rent payments 1/ Origination fees 2/ Management expenses 3/ Subsidy management commission 4/ Lessee's loan 5/ Advance rent payments Article 20 - Base for calculating the rent Article 21 - Commercial lease rent A - Determination of the rent B - Indexing of the rent C - Elimination of the rates used Article 22 - Payability of the rent - Final financial summary - Summary statement and table prepared in accordance with the provisions of Decree No. 95-617 of 6 May 1995 Article 23- Payment of the value added tax and charges and other taxes Article 24- Penalty interest CHAPTER V- TERMINATION OF THE COMMERCIAL LEASE Article 25- Termination by the Finance-Lessor Article 26- Receivership or legal liquidation - Dissolution of the Finance-Lessee Article 27- Failure to obtain the certificate of conformity Article 28- Compensation if the commercial lease is terminated CHAPTER VI - EXPROPRIATION - REQUISITION Article 29 - Expropriation of the building A - Total expropriation B - Partial expropriation C - Dispute concerning the expropriation compensation Article 30 - Requisition of the building PART THREE - UNILATERAL PROMISE TO SELL Article 31 - Promise to sell Article 32 - Sales price A - Determination of the sales price B - Increase of the sales price (if applicable) PART FOUR - GUARANTEES Article 33 - Pledging of the commercial lease contract Article 34 - Letter of intent from Brink International BV PART FIVE - SUNDRY PROVISIONS Article 35 - Publication Article 36 - Powers Article 37 - Valuations Article 38- Statements Article 39 - Assignment of jurisdiction Article 40 - Law on data processing and privacy and professional secrecy Article 41 - Choice of address for notification purposes Prior to the agreements that are the subject hereof, the parties stated the following: RECITALS - I - For the needs of its activity, the Finance-Lessor wishes to have access to (but without assuming ownership of) a building to be used for industrial manufacturing, located in Betheny (Marne), With a view to financing this transaction, it contacted the Finance-Lessor. The object of this transaction, as defined by Article L. 313-7 of the Monetary and Financial Code (codification of Act No. 66-455 of 2 July 1966) in respect of companies engaged in leasing, is the leasing of non-equipped buildings for professional use. - II - The Finance-Lessee has asked the Finance-Lessor to: o acquire for this purpose a plot of land located on the territory of Betheny (Marne), o finance the work to build the building within the framework of a delegated contracting authority contract, o lease it the entire premises, within the framework of a commercial lease contract, for a period of twelve (12) years. The Finance-Lessor granted the Finance-Lessee's request. - III- BUILDING PERMIT The permit to build the building that is the object of this lease was issued by the mayor of Betheny (Marne) on 31 December 2001 under No. PC 5105501J1027. The Finance-Lessee declares that, in accordance with the provisions of Article R. 421-39 of the Town & Country Planning Code, the aforementioned building permit has been displayed, specifically: * at City Hall: as indicated by an attestation issued by the mayor of Betheny (Marne) on 1 August 2002. * at the site: as indicated by a report establishing facts prepared by Mr Vincent Bombart, a court bailiff in Reims (Marne), on 18 January 2002. The Finance-Lessee declares and guarantees the Finance-Lessor that to date, the aforementioned building permit has not been the object of: o any contentious recourse on the part of third parties, o any administrative recourse (non-contentious or involving an appeal to a higher administrative authority), o any cancellation or withdrawal. - IV - CLASSIFIED FACILITY - - Authorisation The Finance-Lessee declares that its activity is subject to the authorisation regime pursuant to the regulation on classified facilities for environmental protection. Pursuant to a letter dated 3 October 2002, the chief administrative officer of the La Marne departement sent the Finance-Lessee a draft prefecture authorisation decree. The Finance-Lessee undertakes not to use the building that is the object thereof until the final prefecture authorisation decree has been issued. - V - Pursuant to a document notarised by Mr Guy Thienot, a notary in Reims (Marne), dated today (21 October 2002) The Finance-Lessor acquired from the Finance-Lessee The base plot of land that is the object of this commercial lease contract. The sale was granted and accepted in exchange for the price of FIVE HUNDRED AND FIFTY-SEVEN THOUSAND, FIVE HUNDRED AND SIX EUROS AND SIX CENTS (E.557,506.06), excluding value added tax, paid in cash, in said document, which contains receipt thereof. The acquirer has borne all of the sale's expenses, fees and charges. In said document the parties have made the customary declarations applicable to such a case. An official copy of this document will be published at the Bureau des Hypotheques [Mortgage Office] before, or at the latest, at the same time, hereof. - VI - The Finance-Lessor has applied for subsidies of roughly THREE HUNDRED AND EIGHTY THOUSAND EUROS (E.380,000) with various subsidising entities. If these subsidies are granted and collected by the Finance-Lessor, the latter undertakes to repay this entire amount to the Finance-Lessee in the form of advances on rent payments, as will be indicated hereunder in Article 21. In the event that the Finance-Lessor repays the entities the amount of these subsidies as a result of the Finance-Lessee's failure to satisfy its obligations, pursuant to the decrees that will be issued and/or agreements that will be signed, or for any reason whatsoever, the latter undertakes to repay the Finance-Lessor in accordance with the terms defined below in Article 21. Finally, the Finance-Lessee releases the Finance-Lessor from any liability if these subsidies cannot be obtained for any reason whatsoever. In this case, the lease shall continue for the entire investment defined in Article 20 hereunder. In addition, the Finance-Lessee declares that it is fully aware that these applications for subsidies are currently in the process of being considered and expressly requires the Finance-Lessor to formalise this transaction without awaiting the handing down of the decision to grant said subsidies, which it undertakes to do. In this connection, it hereby releases the Finance-Lessor from any liability if said subsidies are not granted. WHEREFORE, the parties proceeded to the agreements that are the object hereof. PART ONE AGREEMENTS PRECEDING THE LEASING PERIOD These preliminary agreements shall govern the relationship between the parties as of this date and until the date of completion of the work to build the building, as will result from the provision of the premises between the parties stipulated in the delegated contracting authority contract analysed hereunder. CHAPTER I THE FINANCE-LESSOR'S COMMITMENTS NONE CHAPTER II THE FINANCE-LESSEE'S COMMITMENTS 1/ CONTRACTING AUTHORITY DELEGATION Pursuant to a private document concluded in Paris today, a copy of which, together with the specific technical specifications, will be attached and annexed to the original hereof, The parties hereto have concluded a contract for the project's management, the result of which will be: o The work must be carried out under the responsibility of the Finance-Lessee, acting as delegated contracting authority, in accordance with the stipulations of the building permit, as well as the descriptive plans and estimates prepared by the architect and approved by the Finance-Lessor. o The cost of the work cannot exceed SIX MILLION, TWO HUNDRED AND NINETY-EIGHT THOUSAND, NINE HUNDRED AND FIFTY-SIX EUROS AND NINETY-FOUR CENTS (E.6,290,956.94), excluding value added tax, and including any and all ancillary amounts. o The cost of the work shall be repaid by the Finance-Lessor to the Finance-Lessee as and when progress is made on said work on reports that shall be considered as invoices. o The work must be carried out on a continuous basis, in order to ensure that it is completed by 30 November 2002. o The work shall be made available between the parties as of the completion thereof, pursuant to a report that shall officially note, simultaneously, the conformity of the building built with the descriptive plans and estimates filed in support of the application for the building permit and any additional or rectifying requests. o The delegated contracting authority will be required to obtain the certificate of conformity stipulated by the regulations on the building permit, its expenses and risks. Given the fact that the Finance-Lessor, the Owner, is the sole owner of the constructions as they are built, the delegated contracting authority has taken note of the following points: * The building's construction shall be covered by the open policies taken out by Societe Generale with Axa via Gras Savoye, namely, a Damages to the Works policy and a "Constructeur Non Realisateur" policy NO. 37503 5151112 H. It is understood that the Constructeur Non Realisateur policy is taken out on behalf of both the Finance-Lessor, Owner, and the Finance-Lessee, delegated contracting authority. A note, indicating the main characteristics of the guaranty conditions and limits, as well as the financial conditions, was submitted for information to the delegated contracting authority on all of the aforementioned policies. It is understood that the delegated contracting authority may at any time supplement the guarantees of the policies taken out by Societe Generale with the insurer of its choice. The delegated contracting authority alone shall be responsible for the actual implementation of the aforementioned policies to cover the construction in question, and it has undertaken: * to have any measures taken to implement the guarantees and, in particular: + to fill out, under its sole responsibility the "Construction insurance" questionnaire + to furnish, under its sole responsibility, to Gras Savoye, all useful information on the transaction's technical conditions (content and value of the existing works and neighbouring works, aggravations of risks), both prior to the work and during the project. + to monitor and to obtain from Gras Savoye the issuance of the insurance certificates + to send Gras Savoye, on a timely basis, all of the documents necessary to the implementation of the policies, the list of which falls below: - the summary technical description and estimated cost of the work - the list of all participants in the construction work - the ten-year sinking fund insurance certificates of the builders, in effect on the date of the beginning of the work, as well as those of the architect, project manager, technical study bureau, building shell firms, foundations, roofing, and water-tightness firms. These certificate shall conform to the model "Appendix E" furnished by the Finance-Lessor in the letter of commitment, and must: - Be signed by an insurer, rather than an insurance broker - Be valid on the "DROC" [declaration of the start of work] date - Refer expressly to the project in question - Contain a list of the activities covered. The latter must correspond exactly to those contained in the contracts corresponding to the lot owned by the company. IF THESE CERTIFICATES ARE NOT SUBMITTED AT THE LATEST TWO MONTHS AFTER RECEIPT, CONSTITUTING AN AGGRAVATION OF RISK FOR THE INSURER, THE CLIENT MUST PAY AN ADDITIONAL PREMIUM CORRESPONDING TO 100% OF THE RATE IN ORDER TO COMPENSATE THIS AGGRAVATION (THE AMOUNT OF THIS ADDITIONAL PREMIUM WILL BE INCLUDED IN THE AMOUNT OF THE FINAL PREMIUM). - the report of receipt and, if applicable, the lifting of reservations - the estimate of the total cost of the work - the final closing of the accounts within two months after the acceptance of the work; OTHERWISE, GRAS SAVOYE SHALL BE ENTITLED TO ESTABLISH THE FINAL PREMIUM BASE BY ADDING 20% TO THE KNOWN PREMIUM BASE. The amount of the premiums and any increases shall be paid by the Owner to Axa and included in the base for the calculation of the lease's rent amounts (or re-invoiced in addition to the rent amounts). If there is no insurance policy on the market that is able to cover all construction-related risks, the taking out of these insurance policies cannot, in any manner whatsoever, release the delegated contracting authority, even partially, from the obligation to produce a specific result that it has contracted with the Owner, or any other obligations contracted as Finance-Lessee in this document. In the event of a loss, the delegated contracting authority must pay any difference between the cost of the complete reconstruction of the works and the amount of the compensation paid by the insurers. In addition, the delegated contracting authority has undertaken: * to take out, for its behalf and that of the Owner, the following insurance policy: "CONTRACTOR'S ALL RISKS" POLICY, which must satisfy at least the following conditions: * Regardless of the cause, and with the exception of any limitation to the concept of accident, coverage of work to repair damages of any nature, any deterioration, destruction, alteration, modification of appearance, loss, theft, disappearance of an object or substance, or if the same is rendered unusable, affecting the property insured, including the damaged parts resulting from an error and/or defect in the design of the flow chart, hidden defect, or a defect involving materials, construction, connection, or assembly, including fire or explosion, affecting the building. * The amount insured must be sufficient to permit a restoration of the work at any time. * In particular, the guarantee must not be conditional upon the setting into motion of the participants' liability. Moreover, the insurer undertakes to waive any recourse against the insured and its insurers. * Coverage must be acquired throughout the duration of the work and until the last date of acceptance, EVEN IN THE CASE OF EARLY TAKING OF POSSESSION OR STAGGERED ACCEPTANCE, on the basis of the following clause: "In case of staggered acceptance, the following shall remain covered, during the construction: the losses suffered by the works accepted, the origin of which is in the work carried out for the construction or the conversion of the other parts of the construction. It is understood that this excludes losses caused by fire, lightning, or explosion to said works accepted. It is agreed that the insurer of this contract will waive any recourse against the insurers of the parts accepted. If the premises are occupied and/or used prior to acceptance, the following shall remain covered, during the construction: losses suffered by property insured as of the date of total or partial occupancy, excluding losses caused by fire, lightning, or explosion to the works occupied and/or used." * Pursuant to the insurance contract, the payment of insurance compensation will only be made to the Owner. * The policy includes a first loss to surrounding properties resulting from fire, lightning or explosion covered by a multi-risk policy; * The effects of the insurance contract are extended to the maintenance period, for a period, after acceptance of the work, of at least 1 year, during which the following will be guaranteed: material losses or damages to the insured property that is attributable to those parties participating directly in the construction if they return to the site to satisfy their obligations in accordance with the contract, such as the withdrawal of reservations, inspection visits, repairs (excluding damages caused by fire, lightning and explosion, which will be covered by a multi-risk policy referred to below); The guarantee of interest expenses following a loss guaranteed under the Contractor's All Risks policy, covering: 1 - Either the amount of additional interest, called "pre-rent", up to the implementation of the lease contract, collected by the Finance-Lessor, Owner, for the amounts already paid on behalf of the delegated contracting authority, on the date of the loss or that it is required to pay based on the statements or invoices preceding the loss 2- Or the loss of financial revenue suffered by the delegated contracting authority, future Finance-Lessee, if it has paid the amounts of the work or fees from its own cash (prior to the implementation of the lease contract). 3- Or the combination of the final costs in the two paragraphs above if the pre-financing is furnished jointly by the Owner and the delegated contracting authority. And that result from a delay in delivering the building to the Owner, thereby deferring the implementation of the lease contract. * The insurer expressly waives, via a specific clause of the policy in this connection, the option to terminate after a loss; The excess must not exceed E.7,600 per loss. * A "WORK/AFTER WORK" CIVIL LIABILITY POLICY covering the consequences of the liability incurred by co-contracting party and/or the Owner vis-a-vis others, as a result of the project, for the duration of the legal liability. Moreover, the delegated contracting authority has committed itself to: * to send the Owner the certificates corresponding to the aforementioned policies, PRIOR TO ANY PAYMENT BY THE Owner. * carry out with insurers the formalities required to take out the insurance policies referred to in the above paragraphs, in accordance with the mandate given to the delegated contracting authority by the Owner * to furnish under its sole responsibility the information needed by the insurers. * to make with the insurers the declarations stipulated in these policies, both during the work and at the time of acceptance. * to make direct payment to the insurers for the premiums and premium adjustments resulting from the final total cost of construction, as well as related taxes and expenses, including additional premiums, expenses and taxes. The co-contracting party's taking out of the insurance referred to above cannot, in any way, be exonerated, including partially, from the obligation to produce a specific result contracted with the Owner. * Similarly, the delegated contracting shall be liable for any event occurring during the work that calls into question the guarantees. The same shall apply for the liquidation of the leading insurer's property up to and including the 10 years following the acceptance of the work. In this latter case, the delegated contracting authority will be responsible for taking any measures to obtain a new guarantee, at its exclusive expense; and, in particular, the responsibility to refer the matter in question to the Bureau Central de Tarification [Central Price-setting Office] if the insurers approached refuse to grant new guarantees. The same obligations apply if the liquidation of assets concerns one of the policy's co-insurers. * If, after all is said and done, it appears that the insurer approached by the delegated contracting authority refuses or is unable to guarantee the building in the conditions stated above, and to furnish the corresponding certificate, the Owner is hereby authorised to take out the necessary insurance, within the framework of the group insurance policies taking out by Societe Generale: a Contractor's All Risks policy NO. 37503 5151110 F, and to incorporate the amount of the premiums corresponding to the lease base. Finally, the Finance-Lessee shall verify the scope and the validity of the insurance policies taken out by the various participants in the construction, in particular by the project manager, consultancy bureaus, technical inspectors, co-ordinators, and contractors, pursuant to their legal obligations, and, in particular, in coverage of the presumptions of liability laid down by Articles 1.792 et seq. of the French Civil Code. 2/ EXECUTION OF THE CONSTRUCTION The project's co-ordination, including the project's design, study and preparation and the execution of the construction, must be entrusted to one or more co-ordinators in accordance with Article L. 235-3 of the Labour Code. Said person(s) must be chosen by the Finance-Lessee after verification of his/their expertise. Said person(s) must be duly insured. The Finance-Lessee shall represent the Owner at the site and must see to it that the constructions are built in accordance with the contracts, regulatory provisions, and the obligations of the building permit, and general prevention principles based on the provisions of the Labour Code and all regulatory texts applicable to the project. The parties agree, as a result of the financial nature of this agreement, on the Finance-Lessee's role in designing the work, and the choice of its location and the participants and the monitoring of the construction, that the Finance-Lessor does not intend to participate in the design and technical monitoring and safety of the constructions, or in the prevention of risks, or bear any liability in this connection. For all matters related to this aspect of the lease, the Finance-Lessee assumes vis-a-vis third parties complete technical and safety liability for the construction and undertakes to guarantee the Finance-Lessor if legal proceedings are taken against the latter in this connection. The Finance-Lessee undertakes to submit to the Finance-Lessor, at the latest one month after the project's commencement, a copy of the prior declaration stipulated in Articles L. 235.2, R. 238.1 and R. 238.2 of the Labour Code in accordance with the decree of 7 March 1995. Finally, the Finance-Lessee expressly undertakes to submit to the Finance-Lessor, in addition to the acceptance report, the aforementioned declaration of completion of the work and the certificate of conformity, and, as of the end of the project, the subsequent work dossier on the work, prepared by the safety and health co-ordinator pursuant to Article R. 238-38 of the Labour Code. CHAPTER III VOIDANCE OF PRIOR AGREEMENTS This document shall become void, if the Finance-Lessor so wishes, if the constructions stipulated have not been completed by the agreed date due to technical or legal reasons not attributable to the Finance-Lessor, such as the refusal by the delegated contracting authority to carry out its mission, recourse against the building permit, or the material impossibility to build the constructions stipulated in the delegated contracting authority contract. The same shall apply in the event that the construction work is not completed in accordance with the construction delegation contract (building not usable, serious failures to comply with the building permit, etc.). In these cases, this document could be terminated at the request of the Finance-Lessor. This termination would take effect one month after receipt of a notice to remedy sent to the Finance-Lessee, by registered mail with request for acknowledgement of receipt, containing a declaration by the Finance-Lessor of its intention to make use of this termination clause. This termination shall give rise --automatically and without any formality-- to the payment by the Finance-Lessee to the Finance-Lessor of compensation equal to the total of the amounts paid by the latter for this project, plus an amount equal to one percent (1.00%) of its amount. This compensation, the amount of which is expressly agreed between the parties, shall be considered as fixed damages to compensate the prejudice suffered by the Finance-Lessor as a result of the non-implementation of the lease and shall be payable on the date of the expiration of the aforementioned timeframe. However, and up to the effective date of termination, the Finance-Lessee may acquire from the Finance-Lessor the plot of land purchased by it, in exchange for a price equal to all of the above amounts, thereby exonerating itself from having to pay the termination compensation. The request to make use of this option to acquire offered to the Finance-Lessee shall only be valid if it is accompanied by the consignment, in person to the Finance-Lessor, of an amount sufficient to cover both the selling price calculated as indicated above, and the expenses, fees and taxes caused by the occurrence of this sale. In addition, advance rent payments, rent payments, study expenses, commitment commission or other financial charges of any kind stipulated below, payable by the Finance-Lessee, that have expired on the termination date and have actually been paid by the Finance-Lessee, shall become the permanent property of the Finance-Lessor, who shall not be bound to return any portion thereof. Those amounts that have expired on the termination date but have not yet been paid by the Finance-Lessee shall become immediately payable. Similarly, the Finance-Lessee shall be responsible for paying (but will not be entitled to demand the restitution thereof from the Finance-Lessor) all of the expenses, advances or other expenditures of any kind that it incurs, on its own behalf or on behalf of the Finance-Lessor, with a view to the implementation of the lease or the execution of the obligations for which it is responsible. PART TWO REAL PROPERTY LEASE CHAPTER I ARTICLE 1 - REAL PROPERTY LEASE The Representative of the Finance-Lessor, acting in his official capacity, Hereby leases, within the framework of the provisions of Article L. 313-7 of the Monetary and Financial Code (codification of Act No. 66-455 of 2 July 1966, modified and supplemented) on the lease, In favour of the Finance-Lessee, which is accepted by its representative, acting in his official capacity, The real properties whose description, after the completion of the work, is as follows: DESCRIPTION On the territory of the district of Betheny (Marne), in the "Les Naux" Activity Zone, A building, to be used for industrial manufacturing, with a net floor area of 14,599 m(2), Built on a plot of land registered as follows:
SECTION NUMBERS Site AREA - ------- ------- ---- ---- ZS 28 LES NAUX 01ha 43a 15ca ZS 29 LES NAUX 02ha 56a 85ca
FOR A TOTAL AREA OF 4HA 00A 00 CA ARTICLE 2 - LEASE TERM This lease is granted for a period of TWELVE (12) years, as of the date of completion of the building's construction work, as resulting from the provision of the premises between the parties, as stipulated in the aforementioned construction delegation contract. ARTICLE 3 - THE FINANCE-LESSEE'S OPTION TO TERMINATE In accordance with the provisions of Article L. 313-9 of the Monetary and Financial Code (codification of Article 1.2 of Act No. 66-455 of 2 July 1966, modified and supplemented, the provisions of Article L. 145-1 of the New Commercial Code (codification of Decree No. 53-960 of 30 September 1953) granting the lessee of premises to be used for commercial or industrial purposes the option to terminate at the end of each three-year period are not applicable to this lease agreement. However, and subject to that which is stated hereunder for cases of loss or expropriation, the Finance-Lessee shall be entitled, as of the end of the seventh year of the lease, and provided that it has indeed obtained the certificate of conformity for the building, terminate this agreement, subject to: * notice of nine months, given to the Finance-Lessor by registered mail with request for acknowledgement of receipt, sent to the Finance-Lessor's registered office, * the simultaneous payment to the Finance-Lessor of the fixed termination compensation indicated in Article 28 hereunder. Regardless of the circumstances, termination may only take place at the end of the calendar year in progress. Termination so requested must be officially noted by an official recorded instrument, which will be notarised by the notarial office referred to at the top of this document and published at the competent Mortgage Office. The expenses of this officially recorded instrument and its publication shall be borne by the Finance-Lessee. It is expressly agreed, to the extent necessary, that should the Finance-Lessee fail to sign this officially recorded instrument or to pay the resulting expenses, its request for termination shall be considered as null and void. The amount of the termination compensation mentioned above due to the Finance-Lessor shall, if appropriate, be increased by the amount of any subsidies that the Finance-Lessor is required to repay in part or in whole to the granting entities. ARTICLE 4 - INVENTORY OF THE PREMISES - PUTTING INTO COMPLIANCE WITH STANDARDS A- INVENTORY OF THE PREMISES It is expressly agreed that no inventory of the premises will be prepared at the time of the coming into use. As a result, the Finance-Lessee shall be deemed to have taken the building that is the object of the lease in perfect condition. The signing by the Finance-Lessee, as delegated contracting authority and as future lessee, of the acceptance report of the aforementioned work shall entail its automatic recognition of the building's conformity with the plans and estimates and with the finishing of the work in accordance with the provisions and stipulations of said estimates. Accordingly, the Finance-Lessee shall take the building that is the object of this lease in the condition in which it is found at the time of the coming into use and cannot make any complaint in this connection against the Finance-Lessor. It undertakes not to exercise against the Finance-Lessor any recourse for reasons of poor workmanship, or for visible or hidden defects, even if these impede the use of the building leased. The Finance-Lessor shall not be guarantor of the building's condition, including as a result of construction and other defects, whether visible or hidden, or for the condition of the soil or subsoil as a result of searches or excavations carried out under said building, or for the presence of asbestos, pyralene, jointly owned party walls, ditches, fences, etc., or for errors or omissions in the description of the building or the area of the plot of land, even if these exceed one-twentieth (1/20th), regardless of the date on which the constructions are completed. In addition, the Finance-Lessee undertakes to notify the Finance-Lessor, within one month of the noting thereof, of any defects that it identifies in the construction. The Finance-Lessee, to whom full power is given for this purpose, must immediately exercise, at its expense, any recourse against the companies, against the project manager, or against any other third party in question. The Finance-Lessee must keep the Finance-Lessor informed by sending it a copy of any useful documents. However, the Finance-Lessor shall be entitled to ask the Finance-Lessee, at any time, to relinquish the jurisdiction of its court, unconditionally and as soon as requested. Regardless of the circumstances, the resulting expenses shall be borne by the Finance-Lessee. However, the Finance-Lessee may ask the Finance-Lessor to interrupt the proceedings in order to avoid expenses, insofar as the Finance-Lessee assumes responsibility for taking back any defects and disorder noted. B- PUTTING INTO COMPLIANCE Within the framework of both its activity and of the management of the leased building, the Finance-Lessee must conform to the requirements fixed in national or European standards, in particular as regards security and health. It must ensure the compatibility of any equipment or materials located in the building with these same standards, in the case of a movable property or a landlord's fixture. The Finance-Lessee cannot demand that the Finance-Lessor make modifications or carry out work to put into compliance the building or a machine belonging to said building that is the object of this lease, even if this bringing into compliance results from legislative or regulatory requirements. Asbestos: It must comply with any regulations, in particular with the enacting clause in respect of searches, verifications, or periodic inspections or work resulting from Decree No. 96-97 of 7 February 1996, as modified by Decree No. 97-855 of 12 September 1997 and by Decree No. 2001-840 of 13 September 2001, and by Decree No. 2002-839 of 3 May 2002, stipulating the rules of protection against risks related to asbestos exposure: the Finance-Lessor transfers to the Finance-Lessee all of the obligations resulting from this regulation. Termites: The Finance-Lessee must also satisfy the provisions of Act No. 99-471 of 8 June 1999, which defines the conditions in which the prevention and combat against termites and other xylophagous insects are organised, with a view to protecting buildings, and Decree No. 2000-613 of 3 July 2000, adapted pursuant to said Act. The Finance-Lessee, as soon as it becomes aware of the presence of termites or other xylophagous insects in the building must declare the same at the City Hall, pursuant to the provisions resulting from the aforementioned Decree. In the event that the building that is the object hereof is located within the perimeter of a contaminated zone, defined by the competent authority, it is specially agreed between the parties that the Finance-Lessee must, within six (6) months, search for termites and engage in the necessary preventive and eradication work, and provide proof thereof to the Finance-Lessor by submitting an analysis of the search, issued by an authorised entity, or an attestation issued by the authorised company having carried out, if applicable, the necessary work on a preventive or eradication basis, pursuant to Article R. 133-1 of the Construction and Housing Code, in order to avoid the application of the penalties stipulated by Article R. 133-1 of the Construction and Housing Code. As caretaker of the building, the Finance-Lessee undertakes to comply with all current or future provisions concerning the regulations for combating the spread of termites and other xylophagous insects. It is further stipulated that in the case of a total or partial demolition of a building located in a contaminated zone, as referred to in texts in effect, the contaminated wood and materials shall be incinerated, or, if incineration is not possible on site, said objects shall be treated before any transport. In such a case, a declaration must be made at City Hall by the person having carried out such work, in compliance with texts in effect, in particular in the provisions resulting from Article 3 et seq. of the Decree of 3 July 2000. The Finance-Lessor cannot be subjected to inquiry or disturbed in any way whatsoever concerning compliance with all of the provisions and obligations resulting from regulations currently in effect and any subsequent text. The Finance-Lessee assumes all related responsibility. Legionellosis: It must comply with the provisions resulting from Circular No. 98-771 of 31 December 1998 and subsequent texts concerning the monitoring and prevention of legionellosis. The Finance-Lessee must assume, at its expense and without any recourse against the Finance-Lessor, the cost of any work required to satisfy any legal or regulatory provisions, all such that the Finance-Lessor can never be subjected to inquiry as a result. ARTICLE 5 - POSSIBLE LIABILITY FROM THE USE OF THE LEASED BUILDING AND ITS STRUCTURE All decisions related to the choice of the location, the nature, the configuration or the intended use of the building that is the object hereof have been taken by the Finance-Lessee. The Finance-Lessor has not participated in any way in these decisions and, at the request of the Finance-Lessee, has merely furnished, within the limit fixed above, the funding of the transactions rendered necessary by the decisions in question. Throughout this contract's term, the Finance-Lessee shall hold the right to use, manage and inspect the leased building. It is therefore considered to be the caretaker and this building is placed under its exclusive responsibility. It must assume this responsibility in its entirety, without being entitled to exercise any recourse whatsoever, for any reason whatsoever, against the Finance-Lessor. The Finance-Lessee shall assume alone and shall satisfy all obligations required of building owners by any European or national legal or regulatory text. As regards damages that may be caused, both to the Finance-Lessee and to third parties, as a result of the very structure of the building leased (and, in particular, that of the soil), which, it is important to recall here has been chosen by the latter, shall be fully borne by the latter, which cannot, as in the previous paragraph, exercise against the Finance-Lessor any recourse whatsoever, for any reason whatsoever. If an activity is carried out on the premises that could give rise to a risk of pollution, in particular of the subsoil, the parties agree, as an essential and decisive condition of the Finance-Lessor's commitment, which the Finance-Lessee expressly accepts-- to the following: * The Finance-Lessee shall assume the responsibility --in strict compliance with current and future legislation applicable to the type of activity and installation carried out-- for the disposal of waste and the recovery of materials, so as to avoid any harmful effects, and in order to ensure that the Finance-Lessor can never be subjected to inquiry as a result of damages caused to others. * The Finance-Lessee shall inform the Finance-Lessor of any formal notice by the authorities aimed at obtaining the putting in conformity of the building with national or Community legislation and regulations and international agreements (subject to their integration and applicability in French law) in respect of environmental protection and the dumping of waste in water, in the soil or in the subsoil, emissions in the air, noise, waste treatment, storage on inflammable or dangerous products, PCB's (Polychlorobiphenyls) and PCT's (Polychloroterphenyls), asbestos, and the rules concerning worker protection and safety inside the building. - - any accident or incident resulting from the building's use that could have harmful consequences on the environment or that could create a risk of environmental damage and that must be declared at the time of the inspection of classified facilities pursuant to Article 38 of Decree No. 77-1133 of 21 September 1977, adopted pursuant to the Act of 13 July 1976 and any subsequent text. - - of any legal decisions or injunctions following complaints filed by third parties or by an administrative authority, the purpose of which is to repair any damage to the environment or cause the cessation of any nuisance resulting from the activity. - - any obligation to restore all or part of the building following a temporary or permanent cessation of any activity or following the modification of any activity carried out in the building. * The Finance-Lessee shall be considered as the owner of any such waste that exists, and it waives any recourse against the Finance-Lessor in this connection. On the contrary, it undertakes to exonerate it from any disputes and to see to it that the Finance-Lessor can never be implicated, in the event of the subsequent sale of the building (if the Finance-Lessee or any beneficiary exercises the option, or in the case of a sale to a third party following the termination of this lease). * All expenses necessary to the application of any laws, any regulations, and, more broadly, for any consequences of the Finance-Lessee's activity, shall be borne by the Finance-Lessee or its beneficiaries, if they had been claimed by the Finance-Lessor. * If the lease is terminated for any reason whatsoever, and if the activity carried out by the Finance-Lessee can be considered as pollution-generating, an inspection shall be carried out to determine the condition of the soil and the subsoil, at the exclusive expense of the Finance-Lessee. * All of the expenses and fees incurred by the Finance-Lessor as a result of the above and in order to comply with the conditions contained therein, as well as any deposit to which the Finance-Lessor is subject shall be paid for by the Finance-Lessee. * At the time that an option is exercised in favour of the Finance-Lessee or any beneficiary, the above declarations shall be repeated by the acquirer to the Finance-Lessor, who becomes the seller. CHAPTER II CONDITIONS This lease is granted by the Finance-Lessor subject to the general terms and conditions stipulated in Articles 6 to 15 below, which the Finance-Lessee's representative undertakes to implement and to carry out, failing which the penalties stipulated in Chapter V below shall apply. ARTICLE 6 - OCCUPANCY CONDITIONS A- USE OF THE PREMISES The premises that are the object hereof are intended to be used as an industrial manufacturing unit. The Finance-Lessee must continue to use the premises for this purpose throughout the contract's lease's term and undertakes not to use them for any other purpose, including temporarily. B- ENJOYMENT OF THE PREMISES The Finance-Lessee must enjoy the leased premises prudently. The Finance-Lessee undertakes to comply with any current or future regulations concerning the activity exercised by it, and, more specifically, the rules of safety, including those in respect of the protection of people and of risk prevention. It expressly undertakes not to use, for the aforementioned intended purpose, the building that is the object of this lease, as long as it has not furnished proof to the Finance-Lessor of the execution of the required formalities, as well as any authorisations required, as stipulated in Article R. 123-46 of the Code of Construction and Housing concerning protection against the risks of fire and panic at entities frequented by the public. The Finance-Lessee is responsible for the safety of persons and the security of property, as a result of the premises that are the object of this lease. The Finance-Lessee must, on its own account and for that of the Finance-Lessor, take out with any authorised entity a subscription for periodic inspection visits, whenever required in order to comply with any legislation or regulations. The checks carried out in this connection must cover all of the buildings, fixtures, facilities and equipment that are subject in any way to any regulations in respect of the safety of people and the security of property. C- USAGE AUTHORISATIONS The Finance-Lessee shall assume responsibility for obtaining any administrative authorisations needed to operate its activity in the premises that are the object of this lease. D- EASEMENTS (IF ANY) The Finance-Lessee shall bear any easements of any nature whatsoever that encumber the building leased, without recourse against the Finance-Lessor to obtain a reduction of rent or other financial charges of the lease. In exchange, it shall profit from the active easements for said building, if any exist, at its exclusive expense and risk, provided that it participates, if applicable, in the restoration and maintenance of the equipment available to it. E- BUILDING ESTATE: "LES NAUX" The Finance-Lessee shall implement the provisions and stipulations resulting from the implementing documents governing the building estate called "Les Naux". It is quite familiar with said documents, as they were furnished to it prior to today. All of the above shall be carried out in such a way that the Finance-Lessor can never be disturbed or subjected to inquiry in this connection. F.- SUBSIDY ALLOCATION CONDITIONS The Finance-Lessee shall implement the conditions governing the granting and maintenance of the aforementioned subsidies referred to in Chapter V. In addition, it must bear, without recourse against the Finance-Lessor, any consequences, in particular, financial, resulting from a failure to pay the same, or as a result of the calling into question thereof. ARTICLE 7 - WORK IN PROGRESS DURING THE LEASE This article's stipulations are made subject to the express condition of compliance with the implementing documents governing the estate called "Les Naux", referred to above. A- MAINTENANCE - REPAIRS The Finance-Lessee undertakes to maintain (and to return at the end of the lease) the leased premises in good condition, in terms of maintenance and tenant or other repairs (such as, in particular, repairs and restoration of fences, doors, windows, parquet floors, ceilings, locks, equipment, toilets, etc.). The Finance-Lessee shall also be required to carry out on behalf of the Finance-Lessor, at its exclusive expense and risk, and without recourse or recovery against the Finance-Lessor, all major repairs that become necessary during the lease, in particular, those referred to in Article 606 of the Civil Code, that, as a general rule, are the responsibility of the owner and that, as they are part of the building, automatically become its property. The Finance-Lessee must pay special attention to maintaining in good condition (in terms of maintenance and functioning) the equipment and facilities necessary to the normal use of the leased premises, in particular, heating and air-conditioning facilities, lift(s), or the goods lift, and the sprinkler network, provided that the leased premises have such equipment. In this connection, it is expressly agreed that the Finance-Lessee cannot, without the Finance-Lessor's prior written consent, finance any replacement of the aforementioned equipment within the framework of the contract that confers temporary ownership thereof to the person providing the funds (in particular, within the framework of a furniture leasing contract). It shall also be required to carry out any repairs that become necessary as a result of defects or faulty workmanship in construction, whether visible or hidden, even if no external sign reveals the need to undertake such work. For the execution of the work referred to in the three preceding paragraphs, the Finance-Lessee cannot claim the benefit of the provisions of the second paragraph of Article 1724 of the Civil Code. In addition, the Finance-Lessee can never ask the Finance-Lessor, during the course of the lease, to carry out any work or to make any conversions or repairs. The above work shall be carried out by the Finance-Lessee without recourse or recovery against the Finance-Lessor, and the Finance-Lessee will not be able to engage in any compensation of the amount thereof with the amounts due to the Finance-Lessor for another reason. Moreover, any obstacles that could affect the conditions for the payment of the cost of the work by the Finance-Lessee cannot prejudice the principle of this payment. B- FITTING OUT WORK - ENLARGEMENT - EXTENSION The Finance-Lessee may carry out, at its exclusive expense and risk and without recourse or recovery against the Finance-Lessor, on the leased premises, any fitting out and installation work necessary or specific to their professional use. The Finance-Lessee may, but only with the Finance-Lessor's prior written consent, carry out in the building that is the object of this lease, and within the limit of the administrative authorisations, if any, necessary, any enlargement, extension raising that it believes is necessary or useful to its needs. It must also carry out any work required by any legal or regulatory provisions and, in particular, by those concerning the safety of people and security of property, and must, as a result, carry out any work stipulated, following their inspection visits, by the relevant entities or various authorities. The work referred to in the three previous paragraphs must be executed at the Finance-Lessee's exclusive risk, and under the supervision of an architect or a technical consultancy bureau approved by the Finance-Lessor. The Finance-Lessee shall take out all insurance policies made necessary by the nature or scope of the work. The cost of such work, including the insurance premiums, and the fees of architects or technical consultancy bureaus, shall be borne by the Finance-Lessee, without recourse or recovery against the Finance-Lessor, who shall not be required to pay the cost thereof, or to reimburse property expenditures. Any property additions resulting from the above work shall be deemed to be the property of the Finance-Lessee throughout the lease's term. However, notwithstanding the postponement of the Finance-Lessor's accession to the ownership of the work so performed, the Finance-Lessee cannot -- throughout the lease's term and without the Finance-Lessor's prior written authorisation-- remove, destroy or take away the work so performed by it. In addition, these property additions shall automatically become the property of the Finance-Lessor at the end of the lease. As a result, the Finance-Lessee must - --as soon as it vacates the premises, for any reason whatsoever, in particular if the lease expires or if it is terminated prior to its expiration date-- leave all work, embellishments, improvements or constructions involving real property, if any, that it has made in the building. However, it cannot demand for said work any compensation or any reimbursement of its expenses, nor may it engage in any compensation with amounts due by it to the Finance-Lessor. However, the Finance-Lessor may always (save for work expressly authorised by it) ask the Finance-Lessee, at the time that the latter vacates the premises, to restore the premises to their original condition, at the Finance-Lessee's expense and risk. However, the equipment, fittings and facilities not permanently fixed and that, as a result, are not considered as statutory immovables, shall remain the property of the Finance-Lessee, and must be removed by it, when it vacates the premises, and it must restore the premises after this removal. C- CHANGES OF LAYOUT Any changes of layout through demolition, drilling of walls, beams or floor, must be covered by prior written authorisation from the Finance-Lessor, and, if applicable, the obtaining of a building permit. The aforementioned work, so authorised by the Finance-Lessor, must be executed at the exclusive expense and risk of the Finance-Lessee, and under the supervision of an architect or a technical consultancy bureau approved by the Finance-Lessor. As such work constitutes conversion or improvement work, the cost thereof and the premiums of the insurance policies that the Finance-Lessee has taken out at this time, plus the fees of the architect or the technical consultancy bureau, shall be borne in full by the Finance-Lessee, without recourse or recovery against the Finance-Lessor. In this case, the Finance-Lessee may not engage in any compensation with the amounts due to the Finance-Lessor for another reason. However, in the event that such work, as a result of their scope or their nature, is undertaken by the Finance-Lessor for tax or accounting reasons, the coverage of the corresponding expenses by the Finance-Lessee shall take the form of a specific additional rent amount. D- FINANCE-LESSEE'S LIABILITY AS A RESULT OF THE WORK The Finance-Lessee, having the initiative of the aforementioned work and the responsibility for the legal qualification thereof, shall alone assume the financial or fiscal consequences that could result for the Finance-Lessor from the execution thereof, whether or not authorised by the Finance-Lessor, even if they result from a legal or regulatory obligation. As a result, the Finance-Lessee undertakes to repay the Finance-Lessor the amount of any expenses and taxes or additional tax assessments, insurance premiums, or other charges that the Finance-Lessor bears as a result of the execution of the work for which the Finance-Lessee is responsible. Similarly, the Finance-Lessee must repay the Finance-Lessor the amount of all necessary work that the Finance-Lessor carries out following a failure to perform by the Finance-Lessee. E- INSPECTION VISITS Throughout the lease's term, the Finance-Lessee must allow the Finance-Lessor's representatives to visit the leased premises at any time to check on their condition and to furnish, as soon as requested by the Finance-Lessor, any supporting documents requested of it in respect of the proper execution of the lease's conditions. ARTICLE 8 - FURNISHINGS The leased premises must be furnished, at all times, with equipment, fixtures, furniture and merchandise of sufficient quantity and value to guarantee the Finance-Lessor the payment of the rent and the implementation of this lease's conditions. ARTICLE 9 - PLEDGE - EXAMINATION OF THE FINANCE-LESSEE'S FINANCIAL POSITION A- PLEDGING The Finance-Lessee undertakes not to pledge the rights that it holds pursuant to this lease contract. In the event of a failure to comply with this clause, this lease shall be terminated, if the Finance-Lessor so wishes, pursuant to the clause stipulated in Article 25 hereunder, without to the Finance-Lessor's right to void, if it so prefers, the pledge granted in violation of this clause. B- EXAMINATION OF THE FINANCE-LESSEE'S FINANCIAL POSITION Each year, the Finance-Lessee shall be required to send the Finance-Lessor a copy of the balance sheet and profit and loss account for the year ended, as well as the text of the Management report, Board of Director's report or Supervisory Board's report to the ordinary general meeting convened to approve the accounts for said fiscal year. These documents must be produced within one month following their approval by the ordinary general meeting. ARTICLE 10 - SUBLETTING The building hereby leased may be sub-let to natural persons or legal entities for the purposes of carrying out the activity stipulated in Article 6, paragraph A above. Subletting may either be complete in favour of a single natural person or legal entity, or partial, in favour of more than one natural person or legal entity. Subletting must be approved in advance and in writing by the Finance-Lessor. Regardless of the circumstances, subletting cannot, under any circumstances, be imposed on the Finance-Lessor for any reason whatsoever. * the subtenant(s) must comply with all of the terms and conditions of the lease contract, without any exception or reservation. * under no circumstances may the sublease(s) exceed the term of the lease. It must be expressly stipulated, in the subletting contract(s), that the termination of the lease contract, for any reason whatsoever, shall automatically give rise to the termination of the sublease(s). * the Finance-Lessee must notify the Finance-Lessor, by registered mail with request for acknowledgement of receipt, the name and status of the subtenant(s), and shall have eight days, as of its signing, to furnish it an original copy of each sublet agreement. * as the leased premises form an invisible whole in the shared intentions of the parties, regardless of the circumstances, in case of a partial sublet, the sublet(s) shall not be binding on the Finance-Lessor. The Finance-Lessee undertakes to pay --to its total subtenant or its partial subtenant(s) any compensation of any nature whatsoever, in particular that due by the Finance-Lessee to its of subtenant pursuant to the provisions of Articles L. 145-1 et seq. of the New Commercial Code (codification of Decree No. 53-960 of 30 September 1953) on commercial property. The Finance-Lessee undertakes to assume responsibility for any report with its subtenant(s). The Finance-Lessee must repay the Finance-Lessor any amounts that the latter pays to any subtenant, in the event of its own failure to perform, as dispossession compensation, either at the expiration of the lease contract (if the promise to sell that supplements it has not been exercised), or at any time in the event that it is terminated for any reason whatsoever. ARTICLE 11 - ASSIGNMENT OF THE RIGHT TO THE COMMERCIAL LEASE A- ASSIGNMENT OF THE RIGHT TO THE LEASE The Finance-Lessee may only assign its right to this lease, in part or in whole, with the express written consent of the Finance-Lessor, failing which the assignment granted in violation of this clause shall be void, and this lease contract shall be terminated, if the Finance-Lessor so wishes. Any assignment of this lease shall necessarily and automatically give rise to the transfer to the assignee of the benefit of the promise to sell granted hereunder to the Finance-Lessee. If the right to the lease is assigned, the assigning Finance-Lessee shall be jointly and severally liable with its assignee for all of its obligations resulting herefrom, in particular for making each rent payment by its respective deadline and the full implementation of all of this lease's clauses. Accordingly, all successive Finance-Lessees, including those who, having assigned their right to the lease, no longer occupy the leased premises, shall be jointly and severally bound between them vis-a-vis the Finance-Lessor for the payment of the rent amounts and charges and for the implementation of all of the lease's terms and conditions, such that the Finance-Lessor is able to take action against all successive tenants or any one of them, bound jointly and severally for everything, and cannot be bound by the right of guarantors to go to bail each for their part, or a guarantor's lawful claim for a preliminary distraint upon the principal debtor. In addition, the assignment shall not release the guarantors funded obligations towards the Finance-Lessor, such that they will be jointly and severally liable with the assignor and the assignee for all obligations required of the Finance-Lessee by this lease. The above stipulations shall apply to all cases of assignments in any form whatsoever, as well as to the contribution of the right to the lease to any company of any type whatsoever, regardless of whether or not this contribution is made to a new company or to a pre-existing company. The assignment or contribution to a company's assets must be carried out in the presence of the Finance-Lessor, or be duly notified to it through a letter sent by registered mail with request for acknowledgement of receipt, to its registered office, at least fifteen days in advance thereof. The assignment or contribution shall be officially noted by officially recorded document, an execution copy of which shall be issued without expense to the Finance-Lessor, in order to serve as an enforceable document against the assignee(s). The assignment of this lease contract shall give rise to the Finance-Lessor's collection of transport expenses, the amount of which is set at the amount, excluding value added tax, of THREE THOUSAND, ONE HUNDRED EUROS (E.3,100). These expenses shall be borne by the assignee. B - RECEIVERSHIP OR LEGAL LIQUIDATION - DISSOLUTION OF THE FINANCE-LESSEE The assignment of the right to the lease within the framework of collective proceedings may only take place in conformity with the provisions of Article L. 620-1 et seq. of the New Commercial Code (codification of Act No. 85-98 of 25 January 1985) and Act No. 94-475 of 10 June 1994, and after having been duly authorised. If the lessee company is dissolved, the right to the lease may only be assigned subject to the conditions stipulated in paragraph A above and subject to the provisions of Article L. 237-5 of the New Commercial Code (formerly Article 393 of Act No. 66-537 of 24 July 1966). ARTICLE 12-FINANCE-LESSOR'S OBLIGATION IF THE BUILDING IS SOLD In accordance with the provisions of modified Article L. 313-7 of the Monetary and Financial Code (codification of Act No. 66-455 of 2 July 1966), the Finance-Lessor undertakes, in the event of a sale or assignment of the property that is the object of this lease during the lease's term, to impose on its acquirer, assignee or beneficiary, the implementation of all of the terms and conditions of this lease agreement. ARTICLE 13 - CONTRIBUTIONS - TAXES - CHARGES A- CONTRIBUTIONS The Finance-Lessee shall pay directly or shall repay the Finance-Lessor, in addition to the rent, its personal, movable property, business tax and other contributions, and shall pay all city and police charges for which tenants are customarily liable, all in such a way that the Finance-Lessor is never disturbed in this connection. It must provide the Finance-Lessor evidence of the same at the time of any requisition, in particular at the end of the lease. B- TAXES AND CHARGES In addition, the Finance-Lessee shall pay or repay the Finance-Lessor for the following, in addition to the rent: * Any taxes, fees and contributions, whether or not related to real property, of any nature, to which the leased premises or the lease itself could be subject, as well as any municipal taxes or city or State charges and any fees, assessed now or in future, on said premises. * Any taxes, charges and fees created at a later date in any form whatsoever, as a supplement to or as replacement of those stipulated above, regardless of the means of taxation, and even if these taxes take the form of taxation on the capital of the Finance-Lessor represented by the premises hereby leased. * More generally, any and all charges of any nature whatsoever that are or could become payable on the leased premises or on the lease, all such that the rent amounts fixed hereunder are collected by the Finance-Lessor net of any and all actual charges, with the sole exception of any taxes encumbering, as a result of the Finance-Lessor, the leasing revenues, which are and shall remain the Finance-Lessor's responsibility. The Finance-Lessee, the final debtor of the taxes fees and charges encumbering the leased premises or the lease, shall be entitled to contest the amount or the principle of any taxation borne directly or indirectly by it, although it may only contest said amounts with the authorities in question at its exclusive expense and risk, in the name of the Finance-Lessor, who hereby delegates it, to the extent necessary, all useful powers for this purpose. Any claims or challenges made by the Finance-Lessee with the Finance-Lessor shall be considered as inoperative. The Finance-Lessor does not intend to take responsibility itself for any challenges from authorities or entities. However, such a challenge cannot delay the payability date of these charges. Any tax refunds and any reductions obtained shall only benefit the Finance-Lessee. C- EXPENSES INCURRED FOR EXAMINATION AND VERIFICATION VISITS The various charges resulting from the inspections or checks to which the building that is the object of this lease, and its fixtures, as well as the facilities and equipment that they contain, may be subject pursuant to the various regulations that are applicable to them, in particular those concerning the safety of persons and the security of property, shall be assumed directly and in full by the Finance-Lessee, the sole party responsible for the security of the premises that are the object of this lease and their use. D - CHARGES RELATED TO THE BUILDING ESTATE The Finance-Lessee shall also bear all charges and contributions, whether general or special, ordinary or extraordinary, related to the building leased, that are due for the building estate referred to above. All of the above shall be apply in such a way as to ensure that the Finance-Lessor is never disturbed or subjected to inquiry in this connection. ARTICLE 14 - VALUE ADDED TAX It is expressly agreed between the parties that this lease shall be subject to value added tax in accordance with regulations in effect, and shall therefore be exempt from any lease registration fees. The amount of the value added tax on each rent payment, at the rate in effect on each deadline, shall be borne by the Finance-Lessee in addition to the rent and other charges stipulated hereunder. As regards the value added tax paid by the Finance-Lessor on fixed assets, and in accordance with Decree No. 72-102 of 4 February 1972, the Finance-Lessor shall carry out all formalities and all steps needed to obtain repayment as quickly as possible. For a fixed term of four months from each payment made by the Finance-Lessor for this transaction, the Finance-Lessee shall be required to pay it, in addition to the financial charges stated hereunder, and as a supplement to the rent, the interest calculated at the Average Monthly Money Market Rate, plus 90 basis points per year (i.e. 0.90% per year) on the amount of the credit on the value added tax corresponding to this disbursement. Said interest, accompanied by any value added tax applicable thereto, shall be payable at the end of each calendar month. ARTICLE 15 - EXPENSES - CHARGES - FEES All of the expenses, charges and fees of this lease contract, and those that follow it or are the result thereof, shall be borne by the Finance-Lessee, and the Finance-Lessee's representative commits the Finance-Lessee to doing so. CHAPTER III- SAFETY-INSURANCE-LOSSES ARTICLE 16 - SAFETY/SECURITY The Finance-Lessee shall be responsible for the safety of persons and the security of property having regard to the building that is the object of this lease and its use. In the event that the leased building constitutes an "entity frequented by the public" pursuant to Articles R.123-2 and R. 123-18 to 20 of the Construction and Housing Code, the Finance-Lessee undertakes to scrupulously comply with and to have all persons working for it scrupulously comply with the regulations concerning the type and category of this entity. To this end, it undertakes to: * have maintained and checked at its expense, throughout the lease's term, all of the equipment and facilities on the leased premises, at the times and in the manner indicated in the texts referred to above. * not to modify these premises in any way that violates the provisions of these texts, * to open and to keep up-to-date (or to have others open and keep up-to-date) a safety record. * to have others carry out periodic checks during the lease, as stipulated in Article R. 123-43 of the Construction and Housing Code, by the entity of its choice approved in the conditions stipulated in said Article. In the event that any sort of legal proceedings are initiated against the Finance-Lessor following a failure to comply with the above obligations, the Finance-Lessee must repay the Finance-Lessor the amount of any legal decision rendered against it, as well as the expenses and fees that it should have incurred for the defence. ARTICLE 17 - INSURANCE 1- CONSTRUCTION INSURANCE As stipulated in the lease's preliminary provisions, an All Risks policy will be taken out. Moreover, in order to satisfy the obligations of Act No. 78-12 of 4 January 1978 in respect of construction liability and insurance, a Works Damages and a Ten-Year "Constructeurs Non Realisateurs" [translator's note: Builder Not Designer???] Liability policy will be taken out. Under no circumstances will the taking out of these insurance policies release the delegated contracting authority, including partially, from the obligation to produce the result that it has contracted vis-a-vis the Owner, or from any other obligations contracted as Finance-Lessee in this document. II - INSURANCE DURING THE TERM OF THE COMMERCIAL LEASE A) Content of the guarantees that must be taken out 1) Insurance of the building. The premises that are the object of the lease and all of the real property fixtures and facilities on it shall be insured, for an indexed amount that is sufficient, at any time, to permit their identical reconstruction or replacement against all damages caused by fire, lightning, explosions, storms, hurricanes, snow on roofs, breaking of the sound barrier, hail, falling aeroplanes, collisions between land vehicles, electricity or fluids, including damages resulting from acts of terrorism or sabotage, strikes, riots or uprisings. This coverage will be supplemented by an "Indirect Losses" guarantee of at least 10%. The following shall also be guaranteed: experts' fees, demolition and clearance expenses following a loss, as well as the amount of the premiums of the "Works Damages" insurance policy, to be taken out at the time of the reconstruction or restoration of the buildings. 2) Insurance of movable objects, equipment and merchandise. The Finance-Lessee shall also have insurance taken out on the movable objects, equipment and merchandise in the buildings leased with the Finance-Lessor. The policy taken out must contain a waiver by the insurers of any recourse against the Finance-Lessor. 3) Loss of Rent - Deprivation of enjoyment insurance. Such a guarantee, covering at least two years of financial lease charges, must also be taken out. Any compensation collected by the Finance-Lessor from the insurer in this connection shall be repaid by it to the Finance-Lessee if the charges stipulated in the lease contract have actually been paid by the latter, in accordance with said lease contract. 4) Civil liability insurance concerning the building. The civil liability of the Finance-Lessor, and that of the Finance-Lessee against any third parties, including, if applicable, subtenants, shall be guaranteed against: * The pecuniary consequences of the civil liability incurred by the Finance-Lessor, owner of the premises and/or the Finance-Lessee, related to the building that is the object of the lease (Article 1382, 1383, 1384, paragraph 1, and Article 1386 of the Civil Code), for at least E.4.5 million for bodily injury and E.4.5 million for material and immaterial damages, including E.1.5 million per loss for immaterial damages, whether or not consequential. * The pecuniary consequences of the civil liability, if any, incurred by the Finance-Lessor, owner of the premises, and or the Finance-Lessee, related to the building that is the object of the lease contract, as a result of fire, explosions or fluids (Article 1384, paragraph 2 of the Civil Code- "Recourse of Neighbours and Third parties"), for at least E.4.5 million for bodily injury and E.3.3 million for other damages. B) Condition for the implementation of the guarantees * All of the aforementioned guarantees, excluding movable property and merchandise, must be taken out by the Finance-Lessee, on its own behalf and on behalf of the Finance-Lessor, owner of the premises. * The various insurance guarantees indicated above shall be taken out by the Finance-Lessee under its sole responsibility, with one or more insurers of known solvency. It must see to it that said policy/policies remain valid throughout the term of the leasing contract. It must pay on a regular basis the premiums of these insurance policies, plus any related charges and taxes. * The insurers with which the various aforementioned guarantees are taken out must expressly commit themselves in each of the policies taken out: - - to notify the Finance-Lessor in writing, one month prior to any cancellation or reduction of the guarantees requested by the tenant, without the latter having simultaneously furnished the Finance-Lessor's express consent. - - notify the Finance-Lessor of any delay in paying premiums and only suspend the guarantees granted one month after receipt of this notice by the Finance-Lessor; notify the Finance-Lessor at least one month in advance of any termination of the policy at its initiative; - - pay the Finance-Lessor alone, unless expressly authorised by the latter, any compensation related to the rent and to real property damages; - - not to cite against the Finance-Lessor any omission, insufficient declaration or false declaration by the Finance-Lessee and, as a result, not to enforce against the Finance-Lessor any nullity, average clause, or forfeiture if the insured fails to satisfy its obligations subsequent to the loss. However, the insurer shall continue to enjoy all of its types of recourse against the Finance-Lessee, the policyholder; - - to waive any recourse against the Finance-Lessor in the event of an incident causing damage to movable objects, equipment and merchandise contained in the building - - not to cite any clause limiting compensation to the cost of the materials if the building is built on land owned by another party/ies * In order to enable the Finance-Lessor to verify the existence of the insurance policies taken out by the Finance-Lessee, the latter undertakes to have its insurers produce the certificate shown in "Appendix M" in the letter of commitment. THIS CERTIFICATE MUST BE SUBMITTED TO THE FINANCE-LESSOR AT THE LATEST 15 DAYS PRIOR TO ACCEPTANCE OF THE WORK WITH THE COMPANIES. It expressly authorises the Finance-Lessor: - - to be sent directly by the Finance-Lessee's insurers the policies that it has taken out pursuant hereto. Should the Finance-Lessor make use of this option, this fact shall not be considered as interference by it in the taking out of said policies - - to send the Finance-Lessee's insurers a copy of the commitment letter's insurance appendix * Should the Finance-Lessee fail to satisfy these insurance obligations and, in particular, should its insurers refuse to formalise the "Appendix M" certificate, to reduce or terminate guarantees, the Finance-Lessee may be given notice, by registered mail with acknowledgement of receipt, to produce, within eight days, a certificate that conforms to the model furnished by the Finance-Lessor. It shall be informed that should it fail to do so, the insurance shall be implemented by the Finance-Lessor, pursuant to the lease's stipulations. * After this eight-day period, the building shall be insured by the Finance-Lessor within the framework of its contract, in which case Gras Savoye will furnish the guarantees. IN THIS CASE, THE INSURANCE PREMIUMS WILL BE RE-INVOICED TO THE FINANCE-LESSEE IN ADDITION TO ITS RENT PAYMENTS. C) Finance-Lessee's responsibility in taking out the insurance Given that the Finance-Lessor cannot-- based on the actual characteristics specific to each of the buildings that it leases-- determine itself the amount of the capital that should serve as the basis for each of the policies to be taken out in order to ensure that the aforementioned guarantees are obtained, it is expressly agreed that the guaranteed amounts will be determined between the insurer and the Finance-Lessee, under the latter's sole responsibility. Said amount cannot be less than the replacement value amount, including expenses and fees. The Finance-Lessee shall assume vis-a-vis the Finance-Lessor all of the consequences that could result, in particular if there is no insurance coverage or insufficient insurance coverage, as well as in the case of an error, omission or intentional failure to disclose in the declarations made to the insurers. As a result, if the amount of the compensation paid by the insurers following any loss is insufficient to cover the complete pecuniary reparation of the damages caused by this loss, in particular: - because the risk whose occurrence caused the damage is not insured by the Finance-Lessee for any reason whatsoever, - or because the amount of the capital guaranteed by the policies taken out is less than the amount that should have been taken out in order for this compensation to provide said complete reparation, - or because this amount is insufficient, the insurers, for any reason whatsoever, only pay compensation that is less than the compensation to which the beneficiary is entitled from said insurance, - or because the excesses are charged by the insurer(s) to the beneficiaries of the compensation. the tenant shall be liable vis-a-vis the Finance-Lessor for the difference between the amount of the complete pecuniary reparation of the damages caused by said loss and that of the compensation paid by the insurers. III - FINANCE-LESSEE'S OBLIGATION IN THE EVENT OF A LOSS * The Finance-Lessee must notify the Finance-Lessor in writing, within forty-eight hours of its occurrence, of any loss suffered or caused by the premises that are the object of the lease. The Finance-Lessee must also, in the conditions and within the time frames stipulated by each insurance policy, make any necessary declarations to the insurers: the Finance-Lessor, to the extent necessary, hereby authorises it to make these declarations. THE FINANCE-LESSEE UNDERTAKES NOT TO INITIATE ANY PROCEEDINGS OR ACTIONS AGAINST THE FINANCE-LESSOR IN RESPECT OF THE LOSS. * It must also due whatever is necessary in order to obtain from the insurers the rapid payment of compensation, either on its own behalf, or on behalf of the Finance-Lessor, which hereby gives it all necessary authorisations for this purpose, to carry out any steps and any formalities, to request any expert's reports, and to attend any expert's inspections. Should any related problems occur, it may initiate any legal proceedings or exercise any coercive measures and steps. * However, in the case of legal proceedings, the Finance-Lessor must FREE be notified by the Finance-Lessee of any action undertaken, whether as plaintiff or as defendant. In this case, the Finance-Lessor shall have a casting vote with respect to the choice of the attorney, who may not be designated by the Finance-Lessee without the Finance-Lessor's consent. Any and all fees, expenses and charges, including attorney's fees and the fees of an architect or a consultancy bureau approved by the Finance-Lessor to monitor the legal expert's work, that are due as a result of the fulfilment of the aforementioned obligations shall be paid directly by the Finance-Lessee. * The Finance-Lessee shall exonerate the Finance-Lessor of any court rulings against the latter if said policies do not offer a guarantee or do not offer a sufficient guarantee, and, more generally, in the case of a refusal of a total or partial guarantee on the part of the insurer. In addition, it shall pay the fees and expenses, if any, that the Finance-Lessor has incurred for its defence. * In the event of a loss that sets in motion the application of the construction insurance policies (Contractor's All Risks policy or Damages to Works policy), the Finance-Lessee also undertakes to reconstitute the guarantee, at its exclusive expense, such that the amount of the guarantee is at least equivalent to what it was prior to the occurrence of the incident and provided, in any case, that it is sufficient to allow for a complete reconstitution of the premises that are the object of the lease, and to furnish proof thereof to the Finance-Lessor as soon as requested by the latter. * REGARDLESS OF THE CIRCUMSTANCES, the compensation paid following any loss shall first be collected by the Finance-Lessor, which shall then be responsible for repaying said compensation to the Finance-Lessee, subject to the provision of proof of the complete performance of the work and presentation of the invoices paid. The Finance-Lessee must also pay the Finance-Lessor the loss's management expenses, which shall be ONE percent (1%) of the amount of the loss, but cannot exceed THREE THOUSAND, EIGHT HUNDRED EUROS (E.3,800), excluding value added tax. ARTICLE 18 - LOSSES - RECONSTRUCTION This Article's stipulations are made subject to the express reservation of the application of the implementing documents governing the building estate mentioned above. A- PARTIAL LOSS By derogation to the provisions of Article 1722 of the Civil Code, partial obstruction, including by act of God or force majeure, of the leased building, shall not entitle the Finance-Lessee to request the termination of the lease or the payment of any compensation. The Finance-Lessee shall be required to restore the damaged premises, at its exclusive expense and risk, after having obtained the necessary administrative authorisations. The Finance-Lessor shall repay the Finance-Lessee, based on proof of the work carried out, any compensation that it collects on the insurers or any entity whatsoever, less, however, any taxes and charges on said compensation. If the restoration work is not carried out as a result of a failure to obtain the necessary administrative authorisations, the Finance-Lessee may: * request the lease's termination, without waiting for the expiration of the minimum period referred to in Article 3 above, and subject to the payment to the Finance-Lessor of compensation equal to the entire price, stipulated below in Article 32, of the building's sale's referred to in Article 31, determined on the date of termination, * or exercise the promise to sell granted to it, in the conditions stipulated in Article 31, and in exchange for the price stipulated in Article 32,including prior to the expiration of the minimum period stipulated hereunder, * or continue this lease on the usable part of the building. In this case, the Finance-Lessee must pay the Finance-Lessor compensation representing the building's depreciation, determined on the date of the incident by joint agreement between the parties or, in the absence of such an agreement, the opinion of the expert designated by either party. The rent amount shall be reduced in proportion to the amount of this compensation (net of any applicable charges and taxes) in relation to the price stipulated in Article 32 below of the sale of the building promised to the Finance-Lessee, determined on the date of the payment of said compensation. The selling price stipulated in Article 32 shall itself be reduced by the amount of compensation received (net of any applicable charges and taxes). These reductions shall take effect as of the date of the payment of the compensation by the Finance-Lessee, rather than as of the date of the loss. In the three aforementioned cases (termination of the lease, early exercise of the promise to sell, or continuation of the lease on the remainder of the building), if the Finance-Lessor collects compensation from the insurers or from any entity, it shall repay said compensation to the Finance-Lessee, less any applicable charges and taxes on said compensation. B.- TOTAL LOSS In the event of an incident giving rise to the complete destruction of the building, this lease shall be automatically terminated, but only as of the expiration of the periods stipulated below in favour of the Finance-Lessee, to exercise its option, if any, unless the Finance-Lessee expressly waives this option in writing. However, it is expressly agreed between the parties and by derogation to Article 1722 of the Civil Code, that such termination shall give rise to the obligation for the Finance-Lessee to pay the Finance-Lessor compensation equal to the building's selling price, as stipulated in Article 32, determined on the date of the termination, plus any applicable expenses for the restoration of the plot of land after the incident (in particular, destruction and removal of remains). In exchange, the Finance-Lessor shall pay the Finance-Lessee the amount of all compensation collected from the insurers or from any entity whatsoever, less any applicable charges and taxes on said compensation. Nevertheless, and notwithstanding the above provisions, the Finance-Lessee shall be entitled: * to implement the promise to sell in the conditions indicated in paragraph A above. * or (by express derogation to the provisions of Article 1722 of the Civil Code), to continue this lease while reconstructing the premises at its exclusive expense and risk, after having obtained the necessary administrative authorisations. The Finance-Lessee must communicate its decision within six months of the date of the incident, via a letter sent by registered mail with request for acknowledgement of receipt. In the event that the Finance-Lessee chooses to continue the lease, the necessary administrative authorisations should be obtained by the Finance-Lessee within one year of the date of the notification of its decision. Otherwise, the lease shall be automatically terminated in the conditions stated above, unless the Finance-Lessee prefers, within said one year, to implement the promise to sell. Regardless of the Finance-Lessee's decision, the Finance-Lessor shall pay it the amount of the compensation collected from the insurers or any other entities, less any charges and taxes applicable to said compensation. The payment to the Finance-Lessee of any compensation due to it pursuant to the provisions of this Article 18 shall only take place after the Finance-Lessee has actually paid all amounts that it owes to the Finance-Lessor pursuant to this contract. However, the Finance-Lessor reserves the right to automatically engage in compensation between these amounts. C- RECONSTRUCTION AUTHORISATION In all of the scenarios referred to in paragraphs A and B above, the Finance-Lessee is required to obtain any necessary administrative authorisations. The Finance-Lessee shall also be required to obtain, if applicable, the authorisations resulting from the rules of co-ownership and/or the documents governing the zone in which the lease building is located. D -RECONSTRUCTION - REPAIR In all of the scenarios referred to in this Article, the reconstruction of the completely destroyed building or the repair of the partially damaged building shall be carried out by the Finance-Lessee: * on the basis of an estimate of work and plans prepared by the Finance-Lessee, at its expense and under its responsibility, * and under the supervision and monitoring of an architect or a technical consultancy bureau approved by the Finance-Lessor, the fees of which shall be included in the reconstruction or repair expenses. E - PROVISIONS CONCERNING RENT In all situations of loss in which the Finance-Lessee has decided to repair or reconstruct the leased building (and, in so doing, has decided to continue the lease), the Finance-Lessee shall continue to bear, during the period from the date of the incident until the actual reconstruction, all of the rent amounts, charges and ancillary amounts stipulated in this document. In exchange, any compensation received by the Finance-Lessor from the insurers pursuant to the "Loss of Rent" guarantee or the "Deprivation of Enjoyment" guarantee (or of any other equivalent guarantee), if these guarantees have been taken out by the Finance-Lessee in the conditions stipulated in Article 17 above, shall be repaid by the Finance-Lessor to the Finance-Lessee. CONTRACTING AUTHORITY DELEGATION AGREEMENT The Undersigned, S.F.E.A. 6, rue de la Potiere- 51450 BETHENY (France) Hereinafter named THE DELEGATED CONTRACTING AUTHORITY or THE COMPANY On the one hand, SOGEFIMUR Company, a French Limited Liability company with a capital of E.55 854 600 and Head Office in PARIS (9th district), 29 boulevard Haussmann, registered in the PARIS Trade Register under number B 339 993 214, represented by M. Bruno SBALCHIERO or Mr Claude MAINBOURG and Mr Claude VERGELY or Ms Solange de CHATEAUVIEUX, acting in virtue of the authorization they were specifically granted by Mr Herve POUGIN, Assistant General Manager On the other hand, Prior to the agreement hereby conclude, wish to state what follows : RECITALS In order to have the use of professional or business premises, THE COMPANY requested SOGEFIMUR, which said company agreed, to provide it lease financing for the building of such premises. The description of these premises and the respective commitments of the relevant parties have been laid down in writing in the lease contract made this day in the THIBIERGE notarial office cabinet and to which the present agreement is attached. THE COMPANY has had all prior technical studies carried out as well as the descriptive and estimate plans and quotations of the planned premises. Once having examined these plans and quotations, SOGEFIMUR agreed to finance the building of such premises. THE COMPANY having taken the initiative to construct the said building and also having defined its features, it appeared logical and necessary, in order to ensure the unity of designing and fulfilment, to entrust THE COMPANY with the construction of the premises acting as DELEGATED CONTRACTING AUTHORITY. The fact that THE COMPANY may be acting as DELEGATED CONTRACTING AUTHORITY for the present agreement does in no manner imply any particular professional skill on its behalf in the building trade, but defines the function that it agrees to assume on a contractual basis for the construction of these buildings and the responsibilities that it agrees to take on contractually. This function and these responsibilities are made explicit in the articles which follow. This having been explained, the following is agreed (all clauses being deemed rigorous, impulsive and determining): ARTICLE 1- OBJECT The present agreement has for object the construction of a building the features of which are laid down in the Particular Technical Specifications attached to the present agreement. ARTICLE 2- MISSION- CONTRACTUAL DOCUMENTS Subject to termination clauses stipulated in article 15, SOGEFIMUR hereby entrusts the DELEGATED CONTRACTING AUTHORITY with the mission of having constructed, on account of SOGEFIMUR but in its own name, the building mentioned above. It is clearly understood that this mission does not imply ANY REPRESENTATION of SOGEFIMUR as regards third parties, in such a way that the DELEGATED CONTRACTING AUTHORITY shall act in its own name but for the account of SOGEFIMUR. The DELEGATED CONTRACTING AUTHORITY accepts this mission and undertakes as concerns SOGEFIMUR to carry out, under its own responsibility and complying with standard practices, all the works and achievements technically described in the documents produced by the Architect chosen by the DELEGATED CONTRACTING AUTHORITY and which are briefly described in the Particular Technical Specifications attached to the present agreement. Consequently, the transactions already signed by the DELEGATED CONTRACTING AUTHORITY in its own name and for its own account, prior to the agreement with SOGEFIMUR, shall remain in its own name and shall not be in any way "recovered" in the name of SOGEFIMUR for the account of which they shall be pursued without any form of substitution. The agreements to be signed in the future shall in the same way be made in the name of the DELEGATED CONTRACTING AUTHORITY with no reference to the DELEGATING CONTRACTING AUTHORITY. The present agreement is signed to serve the interests of both parties considering the DELEGATED CONTRACTING AUTHORITY itself has a benefit in having this building constructed which it will be entitled to purchase at the end of the commercial lease contract. The DELEGATED CONTRACTING AUTHORITY therefore irrevocably accepts this mission for which there will be no financial consideration. Shall be considered as legally binding for the parties the stipulations included in the following articles as well as those included in the following listed documents, which the parties acknowledge having fully taken note of and accepted with no restrictions. However, should any inconsistency appear between these various stipulations, those of the present agreement shall override those of the said documents without there being any need for explicit exceptions to be expressed. The DELEGATED CONTRACTING AUTHORITY declares that the whole set of the said documents is sufficient to enable the full and complete carrying out of the works leading to their total fulfilment according to professional standards. A/- Particular Technical Specifications attached to the agreement These Specifications give the expected or definite factors of the construction operation. They MUST be signed by the Delegated Contracting Authority and by SOGEFIMUR. Should the Delegated Contracting Authority not have knowledge of the final assessed figures the day the present agreement is signed, it shall be compelled to pass them on to SOGEFIMUR as soon as they are known to it. It is expressly agreed that : - the Particular Technical Specifications shall become integral part of the present agreement as from the date they are signed by SOGEFIMUR. - whatever the circumstances, the date the Real Estate Commercial lease contract is signed shall be the time the present Delegated Contracting Authority Agreement comes into force. B/- Particular documents agreed to by the parties 1. All the graphic documents concerning the list of designs fully describing the building to be constructed (architect's blueprints). 2. The building trade rough estimate. The present estimate, as well as those mentioned in the previous chapter, have been worked out for each type of works by the Architect hired by the DELEGATED CONTRACTING AUTHORITY. 3. The rough estimate worked out by the contractors under the responsibility of the DELEGATED CONTRACTING AUTHORITY. All these specific documents, produced at the initiative of the DELEGATED CONTRACTING AUTHORITY and accepted by SOGEFIMUR shall be stamped and signed by the architect and/or the leading contractor chosen by the DELEGATED CONTRACTING AUTHORITY for each type of works. C/- General type documents 1. The general bill of materials applicable to private tenders for building- AFNOR documents, French P 03 001 standard dated 20 September, 1991. 2. The bills of materials and the calculation rules or other specifications withheld by the Technical Texts Coordination Group as the "Unified Technical Documents-U.T.D." as published when the present was produced and, for new articles, the CSTB technical notes. 3. The full set of French AFNOR technical standards and particularly those included in the "Recueil des Ensembles et Elements Fabriques" (Manufactured Sets and Parts Handbook) updated the month prior to being submitted. D/- Building permit file The DELEGATED CONTRACTING AUTHORITY has given in (or shall give in) to SOGEFIMUR the copy of the documents mentioned in the Particular Technical Specifications. The DELEGATED CONTRACTING AUTHORITY shall give in to SOGEFIMUR a copy of all extra documents and/or modifying documents with whichever registered building permit requests it may put in along with a deposit receipt. Furthermore, the DELEGATED CONTRACTING AUTHORITY undertakes to inform SOGEFIMUR, as soon as advised, of any legal action brought against the building permit and declares that none of such is known of at this present day. Should such legal action be taken before official time limits expire, SOGEFIMUR in its sole appreciation of the circumstances, is entitled to suspend the effects of the present agreement and to stop all expenditure until the validity of the building permit(s) is finally recognized and without the DELEGATED CONTRACTING AUTHORITY being entitled to any compensation from SOGEFIMUR. ARTICLE 3- ADMINISTRATIVE AUTHORIZATIONS The DELEGATED CONTRACTING AUTHORITY shall undertake in its own name all declarations and actions and fill in all formalities in order to obtain the necessary administrative authorizations for the building of these premises and in particular, the building permit. It shall make sure that that these authorizations have been given out in compliance with prevailing rules and regulations concerning urban layouts, buildings and the security of persons and property, all in such a manner that SOGEFIMUR shall in no way be subject to pursuits for this matter. The DELEGATED CONTRACTING AUTHORITY shall grant SOGEFIMUR full security for any adverse sentence for this reason or generally speaking for any sum which might be charged them in any way, the said sum being possibly accrued of compensatory interest at the legal rate at the time of the expenses incurred by SOGEFIMUR. The DELEGATED CONTRACTING AUTHORITY shall hand over to SOGEFIMUR a copy of all the administrative authorizations as soon as they are delivered, including all attached parts. Furthermore, the DELEGATED CONTRACTING AUTHORITY shall respect all imposed conditions, clauses and expenses such as may be stipulated by the plot rules, the Industrial Zone regulations, etc... and particularly urbanism rules mentioned in these deeds. Finally, the DELEGATED CONTRACTING AUTHORITY shall negotiate and agree to, in the name of and for the account of SOGEFIMUR who will give it any necessary authorizations in that sense, all the necessary urbanism conventions needed for the constructing of the building (grant or taking of easements, co-ownership agreements, setting-up of a common yard, etc...). Should these formalities not be accomplished or the above-mentioned authorizations not be obtained, the DELEGATED CONTRACTING AUTHORITY shall indemnify SOGEFIMUR for whatever loss the latter may sustain. It shall refund this company all the sums it may be obliged to pay by court decision, and these sums may be accrued by compensatory interest worked out at the legal rate as from the date of spending, without prejudice to what is stipulated in article 15 hereinafter. ARTICLE 4- CHOICE OF THE BUILDERS The DELEGATED CONTRACTING AUTHORITY shall alone select the Architects and/or Design and Engineering Offices and the security/health coordinator as well as the contractors he may consider as being the most suitable for undertaking in the best conditions the planned buildings, and once having verified their professional qualification and insurance shall alone sign in his own name all the necessary contracts, discussing himself and under his single responsibility all the terms and conditions of these contracts, as well as if necessary the acceptation of the sub-contractors, whose insurance and qualification he shall also verify, even when sub-contracting is handed down. Should the DELEGATED CONTRACTING AUTHORITY disclose to any third party with whom it has dealt (or to any other third party) the fact that it is the DELEGATED CONTRACTING AUTHORITY, it shall be compelled to specify that this qualification, which is justified by the particular features of the construction and the financing of the building, includes no representation whatsoever of SOGEFIMUR as regards third parties which shall have to directly contact the DELEGATED CONTRACTING AUTHORITY for all matters related notably to the advancement of their tasks or their settlement. A copy certified by the DELEGATED CONTRACTING AUTHORITY of all these contracts (even sub-contracts) shall be handed over to SOGEFIMUR once they are signed. If the firms dealt with resort to sub-contracting, the DELEGATED SUBCONTRACTING AUTHORITY shall be entrusted with ensuring, under its own responsibility, that the provisions of Law n degrees 75 1334 of 31 December, 1975, on sub-contracting are respected by notably making sure that all the sub-contractors on the site have the guarantee meant for them, in such a way that the Delegating Contracting Authority shall not be liable for legal pursuits in this sense. SOGEFIMUR shall be guaranteed by the DELEGATED CONTRACTING AUTHORITY for any breach of this law on sub-contracting. ARTICLE 5- WORKS ACCOMPLISHMENT The DELEGATED CONTRACTING AUTHORITY shall have done, under its supervision and entire responsibility, all the works related to the construction of the building described in article 1 and shall ensure they comply in all ways with the plans and descriptions referred to in the Particular Technical Specifications. The Architect(s) and/or Design Office(s) chosen according to article 4 shall necessarily have the mission of designing the building as well as works monitoring and accounts verification until the building is fully completed. The coordinator's mission, prior to any survey of the project, shall necessarily comply with the provisions of Law n degrees 93-1418 dated December 31st, 1993, and its statutory instruments (n degrees 94-1159 of 26 December, 1994, and n degrees 95-543 of 4 May, 1995) and with any other later law or regulation concerning this obligation. It shall also namely refer to the decree n degrees 65-48 of 8 January, 1965, concerning particular protection and health measures applying to firms undertaking public works and all other works concerning buildings. The DELEGATED CONTRACTING AUTHORITY shall also ensure that the works done are fully in compliance with the laws, decrees, administrative and police regulations possibly concerning the type of building meant by this agreement and, more especially, with the town-planning regulations for this particular area, the rules concerning hygiene, safety of persons and property, with the particular regulations concerning the business of the COMPANY, as well as with the expenses, conditions and obligations included in the Bill of materials for the purchase of the plot of land in the relevant Industrial zone or apportionment. The DELEGATED CONTRACTING AUTHORITY, as defined in article 9 hereafter, shall be responsible as regards SOGEFIMUR for the obligations incumbent to persons they may have dealt with, it shall notably be answerable for the obligations and expenses resulting from the stipulations of articles 1792, 1792-1, 2, 3 and 4, 1792-6 and 2270 of the French Civil Code. It shall then be kept responsible, as regards SOGEFIMUR, for the design of the building and the carrying-out of the works. It shall if necessary initiate in its own name and in that of SOGEFIMUR the indemnifying proceedings related to the Insurance policy for Material Damage stipulated in Article 10 hereinafter. In the event of legal proceedings involving SOGEFIMUR, the DELEGATED CONTRACTING AUTHORITY shall alone bear the full cost of legal expenses incurred by representing SOGEFIMUR, as well as any other legal expenses related to the proceedings. ARTICLE 6- WORKS AND STEPS TAKEN PRIOR TO THE PRESENT It is specified that in the expectation of the signature of the present agreement, the main clauses of which had already been decided by the relevant parties, SOGEFIMUR has given a spoken agreement of principle to the DELEGATED CONTRACTING AUTHORITY allowing the latter to request the administrative authorizations mentioned in article 3 and to sign contracts and deals, and to have the works done according to the previously stipulated conditions. It is therefore expressly agreed that the requested authorizations, the deals and contracts signed and the works undertaken by the DELEGATED CONTRACTING AUTHORITY, prior to this date, in order to construct the building identified by the present agreement, shall be deemed as having been requested, signed and undertaken under this contract and shall be subject to all of its stipulations. ARTICLE 7- EASEMENTS The DELEGATED CONTRACTING AUTHORITY having made his choice of the location of the building, having implemented the prior technical studies and having seen to the practical carrying-out of the works, shall alone face all the negative consequences resulting notably from ground or underground imperfections, as from property restrictions (passive, apparent or underlying, continuous or discontinuous or possibly restricting the use of the land in any manner), as well as from any prejudicial situation resulting directly or indirectly from the opening and/or the continuation of the worksite. For this reason, the DELEGATED CONTRACTING AUTHORITY shall refund SOGEFIMUR all sums the latter may be obliged to pay any third parties as constraint, damages or immaterial prejudice (even if they are not the result of material or bodily damages) which these third parties may incur as a result of the building project. These repayments shall be accrued by the compensatory interest worked out at the legal rate for the expenses incurred by SOGEFIMUR. ARTICLE 8- ACCESS, KEEPING AND RISKS It is expressly agreed between the parties, such being an essential condition of the present without which they would not have come to any agreement, that: 1. In application of the provisions of article 553 of the French Civil Code, SOGEFIMUR, the proprietor of the plot of land (or the land lessee), shall purchase all the buildings as they are set up. 2. Notwithstanding these purchases, the risks and the keeping of these constructions shall be entrusted to the DELEGATED CONTRACTING AUTHORITY until the premises have been made available to SOGEFIMUR by the said DELEGATED CONTRACTING AUTHORITY according to the provisions of article 13 hereinafter. Consequently, the DELEGATED CONTRACTING AUTHORITY shall be personally responsible towards SOGEFIMUR for all bodily, material and/or material damage which might be caused, until reception and waiver of all reserves, to any physical or legal person owing to the constructions or their erection. The DELEGATED CONTRACTING AUTHORITY shall assume all the risks related to the lawfulness of the operations and of the acts already done while having the buildings erected and of those which shall have to be accomplished to fulfil this contract. ARTICLE 9- RESPONSIBILITIES The DELEGATED CONTRACTING AUTHORITY shall organize the building operation so that the works are carried out continuously with all necessary means and that they are fully accomplished according to the specifications, plans and quotations defined in article 2, at the very latest at the date planned in the "Worksite flow" paragraph included in the Particular Technical Specifications attached to the present agreement. It is as such specified that the DELEGATED CONTRACTING AUTHORITY acting as the "builder" according to the meaning of article 1792-1 of the French Civil Code and entrusted with such authority : 1. Has an absolute obligation towards SOGEFIMUR, and shall guarantee the latter, without any restrictions or reserves, full completion of the contracts made with the contractors. Consequently, should one or several of these contractors fail to accomplish their task, the DELEGATED CONTRACTING AUTHORITY shall cancel the contracts signed and shall, as quickly as possible but at his own risk, take on new contracts with other contractors chosen in the manner specified in article 4, so that the completion of the buildings is not delayed. The signing of these new contracts shall not cause any increase in the overall price stipulated in article 11. Should this not be the case and except if SOGEFIMUR expressly agrees so, the price increase shall be incurred solely by the DELEGATED CONTRACTING AUTHORITY. The DELEGATED CONTRACTING AUTHORITY shall take out, if it is considered necessary and at its own risks, for the account of SOGEFIMUR but in its own name, any kind of legal liability action against the defaulting contractors. 2. Assumes towards SOGEFIMUR builder responsibilities as defined by articles 1792, 1792-2, 1792-4 and 2270 of the French Civil Code. It is also obliged to ensure proper functioning and perfect completion as defined by articles 1792-3 and 6 of this same code. ARTICLE 10- INSURANCES Considering the fact that the CONTRACTING AUTHORITY is sole owner of the constructions as their completion goes along, the DELEGATED CONTRACTING AUTHORITY has taken note of the following points : 1. The construction of the building shall be covered by the risk policy taken out by the SOCIETE GENERALE with AXA Corporate Solutions through GRAS SAVOYE : A DAMAGE TO BUILDINGS POLICY AND A BUILDER SUPERVISOR POLICY N DEGREES 37503 51511112 H, it being agreed that the Builder Supervisor policy is underwritten for the CONTRACTING AUTHORITY and for the DELEGATED CONTRACTING AUTHORITY. The DELEGATED CONTRACTING AUTHORITY is sole responsible for the effective setting-up of the policies mentioned above in order to cover this building operation. The DELEGATED CONTRACTING AUTHORITY has undertaken to promptly set up these guarantees and notably to : - fill in under its own responsibility the "Construction Insurance" questionnaire - provide GRAS SAVOYE under its own responsibility all useful information about the technical conditions of the operation (consistency and value of the existing and surrounding buildings, risk increases), prior to the beginning of the works and during the works. - follow-up and be provided the insurance certificates by GRAS SAVOYE - send on to GRAS SAVOYE , within due time, the whole set of documents needed to set up the policies : - the technical description and the rough estimate of the cost of the works - the names of all the participants in the construction - the decennial builder capitalization insurance certificates in force et the time of the beginning of the works from the architect, contracting authority, design office, contractors for building shells, foundations, roofs, watertightness. FAILURE TO PRODUCE THESE CERTIFICATES, TWO MONTHS AFTER RECEPTION AT THE LATEST, BEING AN INCREASED RISK FOR THE INSURER, WILL OBLIGE THE CLIENT TO PAY AN EXTRA PREMIUM OF 100 % OF THE CHARGE, IN ORDER TO COMPENSATE THE INCREASE IN RISK (THE AMOUNT OF THIS EXTRA PREMIUM SHALL BE INCLUDED IN THAT OF THE FINAL PREMIUM). - the reception statements and, if necessary, the suppression of any reserves - the estimate of the overall cost - the final account statement after acceptance of the work done, OTHERWISE GRAS SAVOYE SHALL BE ENTITLED TO CALCULATE THE PREMIUM BASIS WITH A 20 % INCREASE AS COMPARED TO THE KNOWN PREMIUM BASIS. The amount of the premiums and of any increases of these shall be settled by the CONTRACTING AUTHORITY to AXA C. S. and become part of the basis for the calculation of the lease payments (or re-invoiced on top of the payments). Considering there is no insurance policy on the market offering coverage for all risks related to building, the underwriting of these policies shall by no means free the DELEGATED CONTRACTING AUTHORITY even partly from his absolute obligation towards the CONTRACTING AUTHORITY, nor from any other obligations taken on as LESSEE in this deed. The DELEGATED CONTRACTING AUTHORITY shall, in case of loss, deal with any difference between the full reconstruction cost of the buildings and the amount paid by the insurers. 2 - FURTHERMORE, THE DELEGATED CONTRACTING AUTHORITY HAS PROMISED TO TAKE OUT FOR ITSELF AND FOR THE CONTRACTING AUTHORITY : * A COMPREHENSIVE WORKSITE POLICY, covering the works for repairs of any kind that the building may need. The guarantee shall specifically not be dependant upon the responsibility of the participants being implicated, and they shall all be considered as insureds. The coverage shall be granted for the duration of the works and until their acceptance or the handing-over and then for a one-year maintenance period. The amount insured shall be sufficient to allow the restoring of the buildings at any time. The deductible shall not exceed E.7 600 per loss. The coverage shall also be extended to the material damage caused to existing buildings if the works are done on an already existing building. THE DELEGATED CONTRACTING AUTHORITY ACKNOWLEDGES HIS ATTENTION HAS BEEN ESPECIALLY CALLED UPON THE NEED TO PROVIDE A COVERAGE FOR THE FINANCIAL EXPENSES INCURRED BY ANY LOSS COVERED BY THE COMPREHENSIVE WORKSITE POLICY, AND INCLUDING: 1 - Either the amount of extra interest named "pre-rental expenses" until the commercial lease contract is implemented, cashed by the Contracting Authority LESSOR, by way of the sums already spent on account of the Delegated Contracting Authority at the date of the loss, or that it shall be compelled to spend on the evidence of reports or invoices produced prior to the loss. 2 - Either the financial loss incurred by the Delegated Contracting Authority, the future tenant, once having paid fees and expenses out of its own cash (before the commercial lease contract is implemented). 3 - Either the combination of the final costs mentioned in the two above chapters if the pre-financing is done jointly by the Contracting Authority and the delegated Contracting Authority, and which would result from a delayed handing-over of the building to the Contracting Authority, thus deferring the implementing of the commercial lease contract. * A CIVIL LIABILITY POLICY FOR "WORKS/FOLLOW-UP" offering coverage for the consequences of the liability that the contracting party and/or the CONTRACTING AUTHORITY might incur towards other parties, related to the worksite, for the time legal responsibility lasts. * THE DELEGATED CONTRACTING AUTHORITY HAS ALSO UNDERTAKEN TO : - pass on to the CONTRACTING AUTHORITY the certificates for the above-mentioned policies (Comprehensive Civil Liability and Civil Liability for Works and their follow-up) PRIOR TO ANY PAYMENT BY THE CONTRACTING AUTHORITY. - Accomplish all formalities with the Insurers in order to take out the insurance policies described in the paragraphs above, according to the warrant given the DELEGATED CONTRACTING AUTHORITY by the CONTRACTING AUTHORITY. - provide, under its own responsibility, all necessary information to the insurers. - make all declarations to the companies as provided so in the policies, regarding works being carried out and their acceptance. - directly pay the Insurers the premiums and premium adjustments resulting from the final total cost of the construction as well as all related expenses and taxes, including extra premiums, costs and duties. The taking out by the contracting party of the insurances mentioned in the chapters above shall by no means exempt it, even partly, of the absolute obligation it has towards the CONTRACTING AUTHORITY. - make its personal affair in case of loss of any difference between the cost of total reconstruction of the buildings and the payments made by the insurance company. - Should it finally appear that the insurer approached by the DELEGATED CONTRACTING AUTHORITY refuses or is not in a position to guarantee the building in the above-specified conditions, and to produce the relevant certificate, the CONTRACTING AUTHORITY is immediately authorized to set up the necessary insurances, by resorting to the Comprehensive Worksite group policy n degrees 37503 5151110 F, taken out by SOCIETE GENERALE and to include the amount of the corresponding premiums in the basis of the commercial lease. ARTICLE 10b- QUALIFICATION OF THE FIRMS The DELEGATED CONTRACTING AUTHORITY shall ensure that all the persons with whom it shall deal in order to construct the building, including the technical controller, the designers and contracting authorities and the security/health coordinator: - are qualified for the work they are to carry out, - have taken out a decennial Liability insurance, in compliance with their obligations resulting from Law n degrees 78.12 of 4 January, 1978, - have taken out an insurance covering their civil contractual, professional liability as well as for offences and technical offences, owing to bodily, material or immaterial damages sustained by contracting and third parties, in the course of their professional activity, during and after the works for as long as their legal responsibility lasts, - produce prior to the opening-up of the site all necessary certificates giving evidence of the signing of the above-mentioned policies and of the payment of the relevant premiums. The DELEGATED CONTRACTING AUTHORITY shall demand any sub-contractor to produce the same documents, even if the sub-contracting is further handed down. The DELEGATED CONTRACTING AUTHORITY also undertakes to pass on to the insurance companies the declarations specified in these policies during the works, at the time of their acceptance and after acceptance. ARTICLE 10c- CONTROL Should a technical control become necessary owing to the type or the size of the works, notably in reason of the provisions of article R 111.38 of the French Construction Code, the DELEGATED CONTRACTING AUTHORITY shall accomplish, under its own responsibility, the necessary formalities with the verification organism of its choice. The technical control shall also be done if the cost of the works and the fees exceeds the sum of E.1.5 million (tax exclusive). ARTICLE 11- COST OF THE WORKS The parties settle upon the total cost of the building as defined in the commercial lease contract to which the present agreement and appendixes refer and as it appears in the technical descriptions and the rough estimate listed in the Particular Technical Specifications, which shall be a maximum amount thereby specified in article II 2-a). This maximum amount shall include all the construction works as mentioned in the above documents, all the connecting expenses and duties, all the fees (surveyor, architect, control office, design office, coordinator...), various duties, the costs of any price changes and, generally speaking, accessories of any kind. It is the responsibility of the DELEGATED CONTRACTING AUTHORITY to make sure that all the contracts and deals signed in its name but on account of SOGEFIMUR in order to have the constructions done remain within the limits of the maximum amount. ARTICLE 12- PAYMENT OF THE COST The construction works, actually done and invoiced by the contractors to the DELEGATED CONTRACTING AUTHORITY, shall be settled by the latter, according to what is agreed in the contracts. Contractor settlement guarantee : the DELEGATED CONTRACTING AUTHORITY shall make a personal affair of the relationships with the contractors it deals with, and shall satisfy the obligations resulting from the provisions of article 1799.1 of the French Code Civil, so that SOGEFIMUR has no pursuits to fear. The works already existing at the time the present agreement is signed and already invoiced to THE COMPANY by the contractors shall be re-invoiced with VAT to SOGEFIMUR by the DELEGATED CONTRACTING AUTHORITY. A copy of the situations or reports of verified and completed works in the same conditions as specified in the following paragraphs shall be attached to this re-invoicing. The DELEGATED CONTRACTING AUTHORITY, acting as opaque middle-man in the sense of article 256 V of the French General Tax Code, shall pass on to SOGEFIMUR according to the planning included in the appendix to the present agreement, a "report with invoice value" summarizing the total tax-exclusive cost of the works it has already settled the contractors plus VAT. o This report shall be sent to SOGEFIMUR, along with a copy of the situations or the papers for the works and delivered by the contractors, verified and signed for agreement by the architect or the Contracting Authority. o The copies of the situations, papers or invoices shall necessarily be completed by evidence of purchases for the spent sums: - either a formal written original agreement on the invoices, situations or fee notes by the relevant supplier, being dated, signed and stamped by the contractor, - either a copy of the check or the money transfer order and of the bank statement giving evidence of the payment, - either certification for SOGEFIMUR on paper with the supplier's heading that the payment has been made and releasing SOGEFIMUR from any obligation as regards this invoice, situation or fee note (according to the model provided by SOGEFIMUR). Furthermore, a Banker's Identity Card shall be enclosed by the DELEGATED CONTRACTING AUTHORITY with the first invoice or note. The settlement of the note shall be done by SOGEFIMUR within 15 days of receipt of the above-mentioned documents. No supply of material or equipment, or of labour services alone shall be paid for. The final report shall be sent at the latest 3 months after the Handing Over defined in article 13 following. If this report is not provided, the final setting up shall take place in function of the amounts actually paid at that time. In no case shall the DELEGATED CONTRACTING AUTHORITY be entitled to request SOGEFIMUR to settle the difference between the final tax-exclusive cost of the works done and the tax-exclusive maximum cost mentioned in the Particular Technical Specifications, should the cost of the works actually done be lesser than this maximum cost. The settlement made at the time of the final report will include the contract holdback agreed to with the contractors. It shall be the responsibility of the DELEGATED CONTRACTING AUTHORITY to pay this contract holdback when lifting the reserves. Up until this settlement, the DELEGATED CONTRACTING AUTHORITY shall report for the sums thus received. This last settlement may be reduced by the amount of the extra premiums owing to the insurances and mentioned in article 10- Insurances. The DELEGATED CONTRACTING AUTHORITY shall communicate to SOGEFIMUR, as the works go ahead, all the site notes and the various reports concerning the conception and the realization of the works. SOGEFIMUR shall be entitled at any time and in all respects to verify the works done under the guidance of the DELEGATED CONTRACTING AUTHORITY. The latter undertakes to facilitate the mission of SOGEFIMUR representatives, notably by granting them free access to the site and by allowing them to consult any documents related to the building operation; they shall also be entitled to have copies of these documents at the expense of the DELEGATED CONTRACTING AUTHORITY. The verification done by SOGEFIMUR shall by no means lighten the absolute obligation of the DELEGATED CONTRACTING AUTHORITY and shall in no case create any particular responsibility for SOGEFIMUR or its representatives. ARTICLE 13- WORKS ACCEPTANCE AND HANDING-OVER OF PREMISES Once the construction work is completed, the DELEGATED CONTRACTING AUTHORITY, with the help of its architect or contracting authority, shall proceed to the works acceptance from the contracting firms involved. SOGEFIMUR shall be advised by registered mail sent to its office by the DELEGATED CONTRACTING AUTHORITY at least 10 days in advance prior to the acceptance and shall be entitled, if that is deemed necessary, to be present as an observer and to receive all reports. This works acceptance shall be put down in writing as many times as shall appear necessary and shall stand for transfer of keeping of the site from the contractors to the DELEGATED CONTRACTING AUTHORITY. The day of the works acceptance and if SOGEFIMUR is present, or at any later date agreed upon between the DELEGATED CONTRACTING AUTHORITY and SOGEFIMUR, the building shall be visited in order to verify the compliance between the completed building and the specifications agreed to in the present contract. The noting of the good performance of the works specified by the contracting authority delegation contract shall be materialized by a certified written statement signed by SOGEFIMUR and which shall be worthy of the handing-over of the premises. If the opening date to the public (for premises open to the public) or the starting-up date of the building precedes the handing-over date but is later than the acceptance date, SOGEFIMUR reserves the right to set the departure of the rental at this handing-over or acceptance date. The fact that THE COMPANY does not dispute this statement by registered mail shall be legal evidence, as a future tenant, of the full completion of this building for the use it is intended for. This statement can only be made if the following conditions are fulfilled: 1. The building permit with any amendments has been obtained and can be considered as definite. 2. The building is fully completed according to the plans accepted by the contracting parties and to this definite building permit (or its amendments). 3. The building appears to comply with the contractual commitments undertaken according to the lend-lease contract, the present agreement or the CSTP, according to the statement made the representative of SOGEFIMUR. 4. The premiums related to the various insurance policies defined in article 10, taken out by the contractors as well as by the DELEGATED CONTRACTING AUTHORITY have been paid in full and the relevant certificates provided to SOGEFIMUR. 5. Evidence has also been given to SOGEFIMUR of the taking out by the DELEGATED CONTRACTING AUTHORITY of property and civil liability insurances stipulated in the appendix to the letter of commitment referred to in the summary. 6. If the building is meant to be open to the public, SOGEFIMUR shall have been given a copy of the report of the visit of the safety commission and of the authorization to open signed by the Mayor of the town (or of the declaration of opening for buildings subject to such a declaration). During the year following the works acceptance date, the DELEGATED CONTRACTING AUTHORITY shall undertake to have all disorders noted in the reception report put into order. ARTICLE 14- COMPLIANCE Within 8 days following the acceptance defined in article 13 above, the DELEGATED CONTRACTING AUTHORITY shall deposit unto the relevant administrative body the legal works completion statement officially stamped by the architect in charge of the operation. He shall pass on to SOGEFIMUR a copy of this document and of the deposit receipt. The DELEGATED CONTRACTING AUTHORITY shall immediately inform SOGEFIMUR the compliance certificate has been issued and shall send SOGEFIMUR this document with no delay. Should the certificate be refused for any particular reason, the mission entrusted to the DELEGATED CONTRACTING AUTHORITY by the present agreement shall be considered as having not been fulfilled. The DELEGATED CONTRACTING AUTHORITY shall then be in the obligation to have done immediately, under its own responsibility and at its own risks and perils, all the necessary works to have the buildings in compliance with the provisions of the final building permit (or of any other document replacing the latter). He shall also refund SOGEFIMUR, on its first request, any expenses incurred as penalty, constraint or otherwise, notably owing to the revision of the fiscal status of the land purchase, and the said repayments shall be accrued by compensatory interest worked out at the legal rate as from the date of the expense. As soon as the buildings have been set up to the final building permit standards and the compliance certificate delivered, another visit with the DELEGATED CONTRACTING AUTHORITY and SOGEFIMUR will be organized and a new report according to the stipulations of article 13 above shall be produced. These formalities shall have no effect on the lease contract which will have commenced as from the date of handing-over of the building as provided by article 13. ARTICLE 15- DEFEASANCE CLAUSE The present agreement shall be cancelled ex officio should SOGEFIMUR decide so : 1. In the case where -except for force majeure- the construction work is not completed by the deadline specified in article 9, i.e. at the date specified in the "Worksite Progress" paragraph, included in the Particular Technical Specifications attached to the present agreement. 2. In the case of even partial non-accomplishment by the DELEGATED CONTRACTING AUTHORITY of any one of his obligations specified in the present agreement. Such a cancellation shall take place without any legal formalities 15 days after the DELEGATED CONTRACTING AUTHORITY has received formal notice followed by no or only partial effects, the said notice including a declaration by SOGEFIMUR that it wishes to resort to the benefit of the present clause, it being understood that any offer to undertake made by the DELEGATED CONTRACTING AUTHORITY once the 15-day period has expired shall be of no effect. In such a case, the cancellation of the present agreement according to the above conditions, shall cause the ex officio payment to SOGEFIMUR by the DELEGATED CONTRACTING AUTHORITY of a compensation sum equal to the total of the following items: a- Eventually the purchase cost of the land by SOGEFIMUR as agreed in the commercial lease contract mentioned in the summary. This cost shall be increased by the expenses, duties and fees burdening the purchase cost and by all the charges, whatever they may be, incurred by SOGEFIMUR as regards this piece of land. b- The amount of the sums paid by SOGEFIMUR for work expenses, works or constructions, completed or not, carried out on the land at the time of the cancellation of the present agreement. c- A commission for initial expenses equal to 1 % of all tax-exclusive expenses carried out by SOGEFIMUR. d- The rents due in advance specified in the memorandum of agreement, owing and not yet paid by THE COMPANY. The anticipated rents already paid by THE COMPANY shall be considered as definitely the property of SOGEFIMUR. This compensation, expressly agreed upon outside the rules of article 1 231 of the French Civil Code, shall be considered as standard damages meant to make good for the prejudice sustained by SOGEFIMUR owing to the non-completion of the operation and shall therefore not be reduced for any reason whatsoever. Once having settled the amount of this compensation, the DELEGATED CONTRACTING AUTHORITY shall, for a period of 2 months beginning at the cancellation date, be entitled to eventually purchase the piece of land bought by SOGEFIMUR, as well as the buildings thereon, whether completed or not, for a price equal to the total of the sums specified in paragraphs a/, b/, c/, and d/ above. Should the DELEGATED CONTRACTING AUTHORITY make use of this purchasing faculty, the amount of the compensation it has paid, as stipulated above, shall be applied to the sales price, but all the associated extra charges shall be paid by the DELEGATED CONTRACTING AUTHORITY. ARTICLE 16- COMING INTO FORCE According to the provisions of article 2 A above, the present agreement shall come into force at the time of the signature of the Real Estate Commercial Lease contract and shall come to an end at the time of delivery by THE COMPANY of the compliance certificate issued by legal authorities to SOGEFIMUR at its above-mentioned Head Office. ARTICLE 17- ADDRESS FOR NOTIFICATION PURPOSES For the execution of the present, for which all related expenses will be charged the DELEGATED CONTRACTING AUTHORITY, residence is elected by the latter and by SOGEFIMUR at their respective Head Offices mentioned above. Done in three copies in Paris, On 21 October of 2002. THE DELEGATING CONTRACTING AUTHORITY THE DELEGATED CONTRACTING AUTHORITY SOGEFIMUR SOGEBAIL / SOGEFIMUR PARTICULAR TECHNICAL SPECIFICATIONS Attached to Contracting Delegation Agreement dated : File n(degrees) 800175 Client name: SFEA SA Address: 6, rue de la Potiere 51450 BETHENY (France) Type of operation Industrial premises X Warehouses Offices Shops Hostelry Clinics Old people's home Teaching Other
Location/site Address: ZAC LES NAUX 51450 BETHENY (France) Land surface: 40 000 sq. meters Real Estate Register references: Section Zs, 28 and 29.
Type of occupation right: Purchase X Building lease Joint ownership Plot(s): Public/Private Industrial zone Housing estate Plot(s):
Buildings
Administrative authorizations Document references Deposit date Delivery date - ----------------------------- ------------------- ------------ ------------- Demolition permit Building permit PC 5105501J1027 18/07/01 31/12/01 Amendment/transfer Under way, decision project came in 09/07/01 Classified premises beginning of September 2002
Surface areas: Gross out of alignment surface: 14 671 sq. meters Net out of alignment surface: 14 599 sq. meters WORKS Participants Contractors: List attached Architect (design): Architect or contracting authority (works follow-up): GNAT -see attached list for address Control office: CEP Veritas- see attached list for address Prevention/ Safety/ Health Coordinator: Other (design Office): soil surveys + surveyor + permit = address= see attached list Building insurances: SG Group contract X Company: see attached description SG extra contract X Company: see attached description Overall tax-exclusive costs in euros Comments: see attached description City planning taxes (local equipment tax, CAUE, connections) 143 651 Road maintenance 778 378 Construction 4 988 486 Technical fees 461 870 Building insurances 88 460 Miscellaneous --------- TOTAL TAX-EXCLUSIVE COST 6 460 845 --------- Maximum tax-exclusive cost: 6 298 956
WORKS COST ACCEPTED WITHIN THE CONTRACTING DELEGATION AGREEMENT Worksite progress:
Beginning of the works Planned end of the works ---------------------- ------------------------ 10 January of 2002 31 November of 2002
Remarks/ Attached documents - Specification sheet - List of participants The Lend-Lease Company The Delegating Contracting Authority Done in 3 copies in PARIS On 21 October of 2002 The Client Delegated Contracting Authority PARTICIPANTS IN THE CONSTRUCTION (amounts in euros) a) architect and Contracting Authority
Name and address Mission ---------------- ------- GNAT plan design 369 580 Pole technologique Farman works monitoring 10, rue Clement Ader- BP 1018 permit request 14 483 51685 REIMS CEDEX
b) design, engineering consultants and soil survey offices
Name and address Type of study ---------------- ------------- CEBTP Soil surveys 7 013 Centre d'Etudeset d'Essais de Reims 10, rue Saint Hilaire 51100 REIMS
c) Technical Control, CSPS and miscellaneous
Name and address Type of study ---------------- ------------- CEP VERITAS L + STI controls 27 308 Cente Administratif France 41, Chemin des Peupliers BP 100 69573 DARDILLY CEDEX
Name and address Type of study ---------------- ------------- SCP Barnier Land surveyor 335 M. MOREELS investigation officer 465 safety coordination 42 686 TOTAL TECHNICAL FEES 461 870
d/ Contractors- Allocated plots
Name and address Type of study ---------------- ------------- SCREG Reims agency earthwork 778 378 Rue Modeste Goulet- BP 120 road maintenance 51054 REIMS CEDEX SPIE THOURAUD BP 2759 main building work 1 606 124 136, rue Leon Faucher 51065 REIMS CEDEX DISTRILAB HATRY supply of fluids 75 921 Rue du Colonel Charbonneaux 51100 REIMS HAAS WEISROCK timber framework 496 858 7, rue Jean Jaures 88580 SAULCY SUR MEURTHE GIBEAUX metal framework 99 092 Vavray le Grand BP 226 51300 VITRY LE FRANCOIS SOPREMA waterproof barding 886 226 19, rue Gabriel Voisin BP 338 roofing 51688 REIMS CEDEX 2 TEMA TECVER internal separations 414 232 Rue Anne-Marie Terriere BP 443 locksmithing 51012 CHALONS EN CHAMPAGNE CEDEX MANUREGION 142, rue Leon Faucher sectional doors 45 170 (illisible) KONECRANE 27, rue de la Burette rolling bridges 43 000 45800 SAINT JEAN DE BRAYE SEEI 50, rue du Commerce electrical fittings 638 000 51350 CORMONTREUIL FORGEL 16, rue Pierre Salmon BEZANNES BP 130 heating 260 490 51434 TINQUEUX CEDEX GAYET ZI du Moulin de l'Ecaille BP 62 plumbing 86 750 51432 TINQUEUX CEDEX SOFFI plasterwork 154 000 1, rue des Dames de France BP 11 51390 GUEUX TECHNIQUES REVETEMENTS 60, rue Emile Nivelet BP 915 earthenware tiling 88 000 08004 CHARLEVILLE MEZIERES CEDEX
APE 60, rue Emile Nivelet BP 915 paintwork 29 500 08004 CHARLEVILLE MEZIERES CEDEX ALCATEL 6, rue Leon Patoux BP 1045 telephony 31 000 51688 REIMS CEDEX Euro Quartz access control 29 124 Supplier unknown to this day signalling 5 000 WORKS TOTAL 5 766 865
E/ miscellaneous expenses
Name and address Type of study ---------------- ------------- Tresor Public (Tax Office) Taxe Locale d'Equipement 112 412 Rue Modeste Goulet BP 120 51054 REIMS CEDEX CCAR Water supply 4 079 Sewage connection 7 768 Rain water connection 9 197 Electricite de France Electrical main connection 8 007 Gaz de France Gas main connection 2 188 CGU Worksite and contactor's insurance. Master SFEA SA insurance policy 15 285 AXA Insurance for material damage 73 175 Insurance TOTAL MISCELLANEOUS EXPENSES 232 111 SUM TOTAL 6 460 846
CHAPTER V TERMINATION OF THE COMMERCIAL LEASE Article 25- Termination by the FINANCE-LESSOR Should any one of the obligations of the FINANCE-LESSEE resulting from the present contract not be fulfilled, the commercial lease shall terminate ex officio and without resorting to any legal formalities if the FINANCE-LESSOR so wishes, two months after the FINANCE-LESSOR has been delivered notice to pay or a summons, remaining fully or partly without effect, and including the declared intention of the FINANCE-LESSEE to resort to the present clause, it being understood that any offer to pay or to comply made once the two-month period has expired shall remain without any effect. In such a case, the FINANCE-LESSEE or his assignees may be evicted by an urgent proceedings order given by the President of the Regional Court, immediately enforceable notwithstanding any application to set aside or appeal proceedings. The FINANCE-LESSEE shall then immediately return the rented premises to the FINANCE-LESSOR, in a proper state of repair and maintenance, and provide evidence of having settled all taxes, duties and expenses and insurance premiums. He shall also pay the FINANCE-LESSOR, as well as any unpaid rent, the compensation for termination stipulated in article 28 hereinafter. Article 26 -Receivership or legal liquidation- Dissolution of the Finance-Lessee In the case of collective proceedings brought against the Finance-Lessee, and providing the stipulations of articles L 620-1 and following of the New French Commercial Code (codified pursuant to Law n degrees 85-98 of 25 January, 1985) and Law n degrees 94-475 of 10 June, 1994 prevail, the present commercial lease may be terminated at the request of the FINANCE-LESSOR. In the case of dissolution of the Finance-Lessee company, the present commercial lease shall be terminated only if the FINANCE-LESSOR requires that should be. In any one of these cases, this termination shall lead to the ex officio payment by the FINANCE-LESSEE of the compensation for termination stipulated in article 28 hereinafter. Article 27- Failure to obtain the certificate of conformity The FINANCE-LESSEE undertakes to show proper diligence in order to obtain the certificate of conformity required by building permit regulations within two years as from the completion of the construction works, as mentioned in the contracting authority delegation agreement. If the Administrative Authorities suspend the delivery of this certificate to the realization of modifying or of extra works, the FINANCE-LESSEE shall undertake them at its own expense, so that the certificate of conformity may be obtained within the above-mentioned two-year period. Once this two-year period has expired, the FINANCE-LESSEE shall be liable towards the FINANCE-LESSEE of a compensation amounting to a set cost of one per cent of the prevailing yearly rent per month overdue. The failure to deliver the certificate of conformity shall not be put forth, either by the FINANCE-LESSEE or the FINANCE-LESSOR, as a reason for termination. However, should the termination of the commercial lease be decided for any other reason on the request of either party, and especially for the failure of the FINANCE-LESSEE to settle the fixed compensation stipulated above, the cost of compensation for termination shall be increased according to the provisions of article 28 hereinafter. In all cases, the FINANCE-LESSEE shall be liable for any fiscal adjustments the FINANCE-LESSOR might be charged should it be considered that he has not fulfilled his commitment to build in the conditions and within the time-limit stipulated by article 691 of the French General Tax Code. Article 28- Compensation if the commercial lease is terminated The termination for any reason whatsoever of the present commercial lease before the agreed term, and especially pertaining to the clause included in article 25 above or for any other reason mentioned or not in the present agreement, including termination at the request of the FINANCE-LESSEE, shall oblige the FINANCE-LESSEE to pay, ex officio and without any kind of legal formality, a compensation sum according to the selling price, which shall be mentioned in article 32 hereinafter, and due at the date of the actual termination. Being a fundamental condition of the present agreements, such a compensation which is related to the particular features of a commercial lease, shall be considered as basic damages meant to make good for the prejudice sustained by the FINANCE-LESSOR owing to the early termination of the commercial lease. However, the FINANCE-LESSEE shall not be entitled to any compensation if the termination of the commercial lease is the result of the conclusion of the promise to sell hereinafter agreed to by the FINANCE-LESSOR. Likewise, no compensation shall be due by the FINANCE-LESSEE in the case of total expropriation. The amount of compensation shall be equal to half the selling price in all cases of termination. It shall be raised to three quarters of this selling price if at the time of the termination of the commercial lease, the certificate of conformity of the building has not yet been delivered. It is to be noted that the provisions included in the present article shall not replace those stipulated in article 18 above in the case of any loss related to the building, in which case the stipulations of article 18 shall expressly remain in force. All the expenses, duties and taxes and especially value-added tax due on this compensation, which is stipulated tax-exclusive, shall be charged to the FINANCE-LESSEE. The value of the above-mentioned compensation for termination due to the FINANCE-LESSOR shall, if necessary, be increased by the amount of the subsidies that the FINANCE-LESSOR may have to repay, partly or in total, to the dispensing public bodies. CHAPITRE VI EXPROPRIATION-REQUISITION Article 29- Expropriation of the building A- Total expropriation In the case of total expropriation, the commercial lease shall be terminated ex officio. However, as from the date of the court order giving service of property transfer and until the date of actual takeover of the building by the evicting Authority, the FINANCE-LESSEE shall be due to pay the FINANCE-LESSOR an occupancy allowance equal to the rents due for that period. Should the compensation for expropriation the FINANCE-LESSEE is awarded be greater than the selling price defined in article 32 hereinafter, as defined at the date of payment and after all taxes and duties have been deducted, the FINANCE-LESSOR shall refund the FINANCE-LESSEE the difference between these two sums. In the opposite case, the FINANCE-LESSEE shall owe this difference to the FINANCE-LESSOR. B- Partial expropriation In the case of partial expropriation of the leased building, the commercial lease shall continue to have its full effects on the part of the building remaining available. The rent shall be reduced in due proportion to the amount of the expropriation compensation, net of all taxes and duties attached to it, with the selling price defined in article 32 hereinafter, determined at the date of payment of the said compensation. This reduction shall begin to have effect only as from the cashing of the expropriation compensation by the FINANCE-LESSOR. The same selling price defined in article 32 hereinafter shall also be reduced by the amount of the compensation allotted (net of all taxes and duties attached to it). C- Dispute concerning the expropriation compensation The assessment of the amount of the compensation due in case of total or partial expropriation of the building actually being leased shall only be accepted by the FINANCE-LESSOR in the presence of the FINANCE-LESSEE, or if the latter has been duly called to appear. The FINANCE-LESSEE shall make clear its stand on this issue no later than eight days after the period granted the FINANCE-LESSOR to accept or to refuse the expropriation compensation expires, and in any case no later than one month after having specified his intention to accept the offers made, by registered mail with confirmation of receipt. This notice by the FINANCE-LESSEE shall be given to the FINANCE-LESSOR by registered mail with confirmation of receipt. The FINANCE-LESSEE may refuse the offers accepted by the FINANCE-LESSOR only by conforming to the instructions hereinafter. Should a dispute arise concerning the amount of compensation, the FINANCE-LESSEE which shall receive full powers to this effect, shall undertake any necessary legal proceedings and keep the FINANCE-LESSOR informed of the proceedings by passing on a copy of all the documents produced. In the case of total expropriation, the FINANCE-LESSEE shall only be entitled to reject the offers accepted by the FINANCE-LESSOR if it has paid the FINANCE-LESSOR within one month's time as specified in the second paragraph above, a sum equal to the residual value defined in article 32 hereinafter, determined the last calendar day of the term during which the payment was made. In such a case and for the period the deposit lasts, no rent or compensation shall be due to the FINANCE-LESSOR. The sum deposited shall be pledged for the sums which might be due pursuant to the present agreement. The pledged sum shall not yield any interest ; it shall be considered remunerated by the FINANCE-LESSOR relinquishing all rents or compensation amounts. For partial expropriations, any questioning of the amount of the compensation offered shall always be reserved to the FINANCE-LESSEE under the conditions stipulated above, without any obligation to deposit money or otherwise, but it remains understood that the rent reduction mentioned in the present article, paragraph B, shall only be effective once the FINANCE-LESSOR has in fact cashed the amount of the expropriation compensation. Article 30- Requisition of the building In the case of requisition or of total or partial occupancy of the building presently leased by any competent authority or organism during the period of the present commercial lease, the latter shall continue to have all its effects. The agreed rents shall continue to be due without any reduction. The requisition or occupancy compensation that is paid shall be entirely due to the FINANCE-LESSEE. PART THREE UNILATERAL PROMISE TO SELL Article 31- Promise to sell According to the provisions of article L 313-7 1 degrees of the French Monetary and Financial Code which relates to commercial lease operations, the present agreements must allow the FINANCE-LESSEE, should he decide so, to become the owner of the premises presently leased. To this effect, the representative of the FINANCE-LESSOR promises the FINANCE-LESSEE to sell him the presently leased building ; this is accepted by the representative of the FINANCE-LESSEE, but only as a promise. The present promise to sell is granted for a period beginning at the end of the seventh calendar year following the commencement of the commercial lease and finishing at its agreed lapse. The application shall have to be made before the commercial lease expires or during the commercial lease for the end of a calendar year, by means of a registered letter with confirmation of receipt sent to the Head Office of the FINANCE-LESSOR at least six (6) months in advance ; in order to be valid, this application must be followed within three (3) months time by the deposit in the custody of the FINANCE-LESSOR of a sum sufficient to cover the selling price and the expenses and duties related to the sale. This promise to sell shall lapse, if the FINANCE-LESSOR so decides, should the beneficiary fail to fulfil any one of the clauses and stipulations included in the commercial lease, with no exception whatsoever. The sale shall be granted for a price determined the day the legal deed is signed, according to the provisions of article 32 hereinafter. The price shall be paid cash when the deed is signed. If accomplished, the sale shall be confirmed by means of a legal deed. The property transfer shall be subject to the payment of the total selling price and of any sum remaining due for any reason by the FINANCE-LESSEE to the FINANCE-LESSOR. The enjoyment shall take place by the real and effective takeover of the property. The sale shall be done at the usual legal and customary conditions prevailing in such matters. However, in application of the provisions of article 1627 of the French Civil Code, the FINANCE-LESSOR shall provide no guarantees, even for latent defects, as an express exception to the provisions of article 1641 of the French Civil Code. The expenses, duties and fees related to the sale shall be borne by the purchaser. Article 32- Selling price A- Determination of the selling price The price of the sale promised above shall be equal to ONE EURO (E.1) at the agreed termination date of the commercial lease. For the previous years, the selling price shall be worked out as follows : For the fixed rent element (TEC 10 or TME) * The selling price shall be equal to the updated value the day the sale is valid of all the sums due until the agreement expires, that is to say the residual value. This amount shall not be any less than the amount of the outstanding debts increased by 1%. The maturity rate of return shall be equal to the rate stipulated in the agreement for this rent element, minus 2%. For the variable element rate (EURIBOR 3 months term) o The selling price shall be equal to the debts outstanding on this rent element, increased by 3%. These values shall be calculated according to the commencement of the agreement in such a manner that, assuming the basic yearly rents are collected when due, the sales price estimated at the end of each calendar year ensures an annual rate equivalent to the yield to maturity of the operation. It is expressly agreed that the selling price worked out as mentioned, and the contractual rents paid when due, make up in the minds of the parties one single set of financial conditions applying to the present agreement. Therefore, if for any particular reason the FINANCE-LESSOR should be compelled to grant a reduction of the agreed rent over one or several terms or payment extensions, the sales price would be recalculated by taking into account the sums really paid in and when they were paid on the one hand, and on the other hand the rent payments the FINANCE-LESSOR would have been paid when due had there been no rent reductions or payment extensions, all this in order to ensure the FINANCE-LESSOR is thus paid what he would have obtained through the strict enforcement of the provisions of the present agreement. The sales price mentioned above shall if necessary be increased by the amount of the subsidies that the FINANCE-LESSOR would be compelled to repay totally or partly to the dispensing organisms. According to the provisions of Decree 95-617 of 6 May 1995, signed in application of article 57 of Law 95-115 of 4 February 1995, the FINANCE-LESSOR shall produce a descriptive account notably including the agreed purchasing price of the building at the term of the agreement or the information enabling the determination of this price, as well as a break-up chart showing in particular for each term of rent the fraction taken into account in order to fix the selling price above as planned according to the provisions of article 22 of the present agreement. B- Increase of the selling price (if applicable) The selling price, determined as specified in paragraph A above, shall if necessary be increased by the amount of any sums the FINANCE-LESSOR may have to repay Tax Authorities in virtue of the adjustment of value-added tax previously applicable to the amount of the investment, according to the provisions of article 210, paragraph 2 of Annex II of the French General Tax Code as modified and completed in particular by Decree 79-1163 of 29 December 1979 and Decree 95-1328 of 28 December 1995. In return for this increase, the FINANCE-LESSOR shall provide the purchaser with the certificate described at the end of paragraph 1 of article 210 mentioned above and which will allow the purchaser to deduct the amount of the value-added tax indicated on the certificate under the conditions meant for purchases of asset investments. This possible price increase shall apply in all the cases of sale of the building concerned by the present commercial lease as provided by the present agreement, whether as the fulfilment of the sales promise above or of any one of the other stipulations of the contract, especially those pertaining to losses. Furthermore and by express agreement between the parties, it is stipulated that: 1) in the case of a partial loss causing a reduction of the rent and of the sales price, the FINANCE-LESSEE shall pay the FINANCE-LESSOR in addition to the compensation for the depreciation of the building, the amount of which shall be used to calculate the reduction of the rent and of the sales price, the amounts the FINANCE-LESSOR may be obliged to repay Tax Authorities according to the stipulations of article 210 of Annex II of the French General Tax Code amended as mentioned above. 2) in the case of total expropriation, the amount of all the sums that the FINANCE-LESSOR may be obliged to repay Tax Authorities for adjustment of the value-added tax previously applied to the investment shall be deducted from the expropriation compensation paid to the FINANCE-LESSOR; only what is left of the expropriation compensation after this deduction shall be taken into consideration in order to determine the difference with the sales price defined according to the conditions of paragraph A of the present article, this difference standing for the gain or the loss of the FINANCE-LESSEE. 3) In the case of partial expropriation, the amount of the expropriation compensation used for determining the reduction of the rent and the sales price shall be taken into consideration only after deduction of the amount of value-added tax the FINANCE-LESSOR may be obliged to repay Tax Authorities according to the stipulations of article 210 of Annex II of the amended French General Tax Code. In these three last situations, the FINANCE-LESSOR shall provide the FINANCE-LESSEE with a certificate allowing it, according to article 210 above, to deduct the amount of the tax repaid by the FINANCE-LESSOR under the conditions pertaining to the purchase of asset investments. It is expressly stipulated, as regards all the provisions included in the present paragraph B, that they may also apply to the FINANCE-LESSEE itself as well as to its future successors and beneficiaries in whatever capacity, even if the FINANCE-LESSEE, its successors, beneficiaries or assignees are not able to use the certificate provided by the FINANCE-LESSOR to have the benefit of the deduction of the tax paid, and whatever the cause may be, even if it is not ascribable to the FINANCE-LESSEE, its successors, beneficiaries or assignees. PART FOUR GUARANTEES Article 33- Pledging of the commercial lease contract In order to guarantee the payment of the rent and of all the sums charged the FINANCE-LESSEE according to the present, and in a more general sense of all the obligations incumbent to the FINANCE-LESSEE, the latter shall deposit and pledge in favour of the FINANCE-LESSOR, which agrees, the intangible elements benefiting the FINANCE-LESSEE according to the present commercial lease, including the benefit of the lease right and the promise to sell, with no exception or restriction. This will allow the FINANCE-LESSOR to maintain and exercise all rights, legal actions and preferential rights granted by law to pledged creditors over the various elements of the present commercial lease. In accordance with article 2 076 of the French Civil Code, the effectiveness of the preferential rights resulting from this pledge shall be ensured as follows : - The relevant parties require the Associated Notary to only deliver one certified copy of the present deed, such a legal deed bearing the following mention "Certified Genuine, Unique and Particular Copy as legal property certificate subject to Pledge", and shall be delivered to the FINANCE-LESSOR. - The FINANCE-LESSEE undertakes to apply for no other certified copy of the present deed. Such a stipulation shall not however prevent the executive copy being given to the FINANCE-LESSOR. Article 34- Letter of intent from BRINK INTERNATIONAL BV Once having been mentioned, the following documents remain attached : - A copy of the letter of intent issued by BRINK INTERNATIONAL BV with its certified translation by Ms Marie-Claude BERTRAND, official translator for the REIMS Court of Appeal, - A copy of the mail dated 15 July 2002 specifying the letter of intent had been sent to SOGEFIMUR, - A copy of the Articles of Association of the said BRINK INTERNATIONAL BV company dated 11 December 1996 with its certified translation by Mr SCHOLMAN, official translator for the REIMS Court of Appeal, - A registration extract of the said BRINK INTERNATIONAL BV company with its translation done by the said Mr SCHOLMAN, - A certificate of foreign law provided by LOYENS & LOEFF, lawyers. PART FIVE SUNDRY PROVISIONS Article 35- Publication Nil Article 36- Powers- Effect as between the parties The parties acting in their common interest confer all necessary powers to any Head Clerk or Assistant Head Clerk belonging to the Notary's Office named at the beginning of the present in order to duly write and sign all complementary, amending or correcting acts to the present, thus enabling them to be consistent with all mortgage, cadastral and civil status documents and to make all complementary fiscal declarations (in order to have them given public notice). It is hereby specified that the FINANCE-LESSOR is the owner of the land on which the leased building is constructed as that so appears in a deed registered by Maitre THIENOT, notary in REIMS, on 21 October 2002, a copy of which shall be published at the local Mortgage Registry (prior to or no later than the same time as the present). Article 37- Valuations For the calculation of expenses only, the parties declare : * that the amount of the investment made by the FINANCE-LESSOR for the present commercial lease operation is estimated for a tax-exclusive value of SIX MILLION EIGHT HUNDRED AND SIXTY THOUSAND EUROS (E.6 860 000) and for a VAT-inclusive value of EIGHT MILLION TWO HUNDRED AND FOUR THOUSAND, FIVE HUNDRED AND SIXTY EUROS (E.8 204 560). Article 38- Management powers The representative of AUXICOMI Company hereby empowers SOGEFIMUR Company, for the time the commercial lease operation shall last, to settle all guarantees hereby mentioned and to accomplish all administrative and management operations pertaining to the commercial lease and in particular : - - to cash any sums due for confirmation commissions, rents paid in advance, normal rents, ordinary or extraordinary expenses, cancellation or termination compensation, sales price, contributions and taxes, etc... - - divide the sums cashed and the expenses due between the members of the pool according to the proportions specified above, - - exercise and carry out all the functions reserved to the FINANCE-LESSOR and generally do all that is considered necessary or useful for the proper accomplishment of the operation coming under the present contract, - - manage the whole of the VAT on a common account basis. SOGEFIMUR Company as leader shall however obtain the prior consent of the pool members before taking any common decision that goes beyond normal management considerations provided by the contract, especially in the following cases : - extension endorsement, - transfer of the commercial lease contract, - eventual legal proceedings against the FINANCE-LESSEE, - loss settlements preventing the normal continuation of business in the premises financed by the commercial lease, - expropriation, - anticipated termination, etc... SOGEFIMUR Company shall also inform AUXICOMI Company of any request for interest rate consolidation coming from the FINANCE-LESSOR within (10) ten days upon receipt of such a request. Article 38- Statements The representatives of the FINANCE-LESSOR and FINANCE-LESSEE companies declare : - that the companies they represent are French by law and have their head offices in France, - that they are presently subject to no action intended to declare void or possibly lead to dissolution, - that they are not presently and never have been in a state of cessation of payments and have never come under the provisions of Law 67-563 of 13 July 1967 concerning receivership, liquidation and bankruptcy, - that they have never come under any of the measures provided by articles L 620-1 and following of the New French Commercial Code and by Decree 85-1387 of 27 December 1985 on receivership and bankruptcy of firms. Article 39- Assignation of jurisdiction It is expressly agreed that any disputes that may arise concerning the fulfilment of the present commercial lease agreements shall come before the relevant Commercial Courts in PARIS, to which exclusive assignation of jurisdiction is granted for all necessary purposes. Article 40- Law on data processing and privacy and professional secrecy The nominative information gathered within the scope of the present contract and later on are to be passed on to the FINANCE-LESSOR which is expressly authorized by the parties to keep it in computer memory, to use it and to communicate it for the same purposes to the companies of its group, to its brokers and insurers, and even to third parties or to sub-contractors for management purposes. The right of access and the right to amend may be exercised with the FINANCE-LESSOR. The FINANCE-LESSEE allows: - - The FINANCE-LESSOR to be communicated any confidential information concerning it and held by the member companies of the SOCIETE GENERALE Group and/or brokers which are therefore expressly authorized to provide the said information. - - The FINANCE-LESSOR to communicate any confidential information concerning it to these same persons. All measures shall of course be taken to protect the confidentiality of the information passed on to the FINANCE-LESSOR. Article 41- Choice of address for notification purposes For the execution of the present, the persons appearing ex officio choose their respective head offices for notification purposes. CERTIFIED Written out on sixty pages In REIMS (Marne), 23 rue Libergier In the office of the substituting notary The substituting notary has read the present to the parties, collected their signatures and signed the present deed. The present deed shall be put in the registers of the substituting and substituted notaries and shall be kept in the records of the office of the substituted notary. The signatures follow. CHAPTER IV FINANCIAL EXPENSES The present commercial lease is respectively granted and accepted in return for the payment of the financial expenses (setting-up costs, advance rent payments, rents and other fees) hereinafter specified. Article 19- Origination fees-Management costs- Advance rent payments 1) Origination fees A lump sum, exclusive of VAT, of TEN THOUSAND SEVEN HUNDRED EUROS (E.10 700), divided into FIVE THOUSAND SEVEN HUNDRED AND FIVE EUROS (E.5 705) excluding taxes for SOGEFIMUR and FOUR THOUSAND NINE HUNDRED AND NINETY FIVE EUROS (E.4 995) excluding taxes for AUXICOMI, which works out to TWELVE THOUSAND SEVEN HUNDRED AND NINETY SEVEN EUROS AND TWENTY CENTS (E.12 797.20) including all taxes has been paid by the FINANCE-LESSEE to the FINANCE-LESSOR prior to this day. 2) Management costs The FINANCE-LESSOR shall be paid the following tax-exclusive costs by the FINANCE-LESSEE, if need be, during the whole length of the commercial lease, in case of : - - Rent costs for other than Societe Generale direct payment E.55 per rent - - Transfer of commercial lease contract (E.3 100 charged the assignee) - - Management of a dispute related to the construction or to a loss E.2 300 - - Contract amendment requested by the FINANCE-LESSEE leading to the drawing up of an endorsement E.1 550 - - Anticipated exercise of option E.1 550 - - Assessment of anticipated exercise of option E.300 - - Land tax recovery expenses E.115 per year
3) Subsidy management commission Subsidies shall lead to the payment of a TWO THOUSAND EURO (E.2 000) management commission. 4) Lessee's loan The FINANCE-LESSEE grants SOGEFIMUR company on account of AUXICOMI company, which its above-mentioned representative accepts, a loan of an amount of EIGHT HUNDRED AND SEVENTY SIX THOUSAND EUROS (E.876 000), including a sum of ONE HUNDRED AND NINETY THOUSAND EUROS (E.190 000) paid owing to the missing as to this day of the written agreement concerning the above-mentioned subsidies according to the terms of the letter of commitment signed by the FINANCE-LESSEE, and which shall be pledged by the FINANCE-LESSOR for AUXICOMI for the total length of the commercial lease as from this day. The collection and the refunding of this loan shall be carried out as follows : - - the FINANCE-LESSEE paid this day, unrelated to the undersigned notary's accounts, to SOGEFIMUR company, on account of AUXICOMI company, the amount of the loan, i.e. EIGHT HUNDRED AND SEVENTY SIX THOUSAND EUROS (E.876 000), - - the FINANCE-LESSOR shall open a special account in its books in the name of the FINANCE-LESSEE pertaining to the granted and accepted loan and meant to enable the follow-up of the relationship between the FINANCE-LESSOR and the FINANCE-LESSEE relating to this loan, - - this loan shall yield interest at the reference rate for the AUXICOMI company rent share as specified in article 21 hereinafter, that is to say as from the moment the rent is due: * Rate = EURIBOR 3 months term + 0.85 % X exact number of days of period/360 - - the repayment of the loan shall take place by clearing with the VAT-exclusive rents due to AUXICOMI company by the FINANCE-LESSEE concerning the present commercial lease contract, - - it shall be done over the same period of TWELVE (12) years and at identical due dates, which means 48 quarterly payments, - - the repayment of this loan can also be done, if necessary, by clearing with any other sums due to by the FINANCE-LESSEE to AUXICOMI for any other reason, which shall then be deducted from the rent payments as they become due, - - the FINANCE-LESSEE acknowledges AUXICOMI the right to amend the repayment terms of the loan defined above, in the case of default, of receivership or liquidation at the one and only condition that it be informed, - - AUXICOMI shall be considered as having fulfilled its obligations as a borrower by the mere fact that the loan is fully repaid at the latest at the time of the contractual lapse, if necessary by means of a single payment, - - the FINANCE-LESSEE relinquishes in advance to demand the repayment of the loan before the contractual lapse of the commercial lease and to put forward for any reason whatsoever the provisions of article 1944 of the French Civil Code, - - in case of termination of the present commercial lease contract or of realization of the promise to sell prior to the contractual lapse of the commercial lease, the part of the loan outstanding shall be repaid in advance by AUXICOMI. - - Pledge of the positive account balance In order to warrant any sums in capital, interests and incidental expenses that the FINANCE-LESSEE might owe AUXICOMI in virtue of the present commercial lease, and for any particular reason, the FINANCE-LESSEE especially pledges in favour of AUXICOMI the positive balance of the above-mentioned account according to the provisions of article 2 075 of the French Civil Code, which guarantee is accepted by the representative of AUXICOMI. AUXICOMI shall exercise all legal rights provided for pledges over these sums. Furthermore, and as an exception to the provisions of article 2 078 of the French Civil Code (considering it concerns sums owing), and for set-off purposes, AUXICOMI shall always be entitled to withdraw directly from the sums owed by the FINANCE-LESSEE for any reason whatsoever and resulting from the present commercial lease. The pledge shall continue to have effect even once the present commercial lease has lapsed, until all accounts concerning the present commercial lease have been settled between the parties. The representative of AUXICOMI declares the above-mentioned pledge has been accepted and regularly notified. 5) Advance rent payments Advance rent payments worked out on the hereinafter basis are due for the period running from the first payment of any sum by the FINANCE-LESSOR for the present operation until the day the present commercial lease comes into force. The amount of these advance rent payments shall be calculated at the money market rate increased by 85 basic points per annum (0.85 % per annum) on the sums spent by the FINANCE-LESSOR in undertaking the present commercial lease operation, as much for the purchase of the land as for the construction works of the building, in capital and incidental costs as well as any fees, expenses or other sums paid related to the present commercial lease operation. This said amount, increased by the VAT applied, shall be directly paid by the FINANCE-LESSEE at the end of each month through its account at the SOCIETE GENERALE as that will be explained further on. Article 20- Base for calculating the rent (investment) The rent stipulated further shall be calculated in function of the following elements, representing the sums invested by the FINANCE-LESSOR in the present commercial lease operation, and which shall hereinafter be termed as the "investment": * the purchase price, tax-exclusive on VAT, of the land plot paid by the FINANCE-LESSOR, of an amount of FIVE HUNDRED AND FIFTY SEVEN THOUSAND, FIVE HUNDRED AND SIX EUROS AND SIX CENTS (E.557 506.06), * the amount of the expenses, duties and fees, tax-exclusive on VAT, incurred by the FINANCE-LESSOR for this purchase, estimated at THREE THOUSAND, FIVE HUNDRED AND THIRTY SEVEN EUROS (E.3 537), * the cost, tax-exclusive on TVA, of the construction of the building, as set out in the contracting authority delegation agreement above, for an amount of SIX MILLION TWO HUNDRED AND NINETY EIGHT THOUSAND, NINE HUNDRED AND FIFTY SIX EUROS AND NINETY FOUR CENTS (E.6 298 956.94), * the building insurance premiums (Damage and non-realizing Builder) directly paid by the FINANCE-LESSOR. The cost of this investment shall in no circumstances exceed a tax-exclusive sum over VAT of SIX MILLION EIGHT HUNDRED AND SIXTY THOUSAND EUROS (E.6 860 000). The FINANCE-LESSOR shall not be required to spend more than the maximum sum specified above, even if the said sum should for any reason prove to be insufficient to carry out the present operation. Article 21- Commercial lease rent A- Determination of the rent The rent of the present commercial lease shall be due by the FINANCE-LESSEE to the FINANCE-LESSOR as from the day the premises are handed over between the parties as planned in the contracting authority delegation agreement analysed further on. It is expressly stipulated in that respect that the term "rent", used in the present for convenience of speech, shall in fact mean a financial consideration covering the amortization and the remuneration at the agreed rate of the funds invested by the FINANCE-LESSOR in order to achieve the present operation. Therefore, and except for any particular legal decision pertaining to real estate commercial leases, the rents agreed to hereinafter shall not be changed or revised for any reason whatsoever, whether that reason is caused by a fact depending upon the FINANCE-LESSEE or by legal provisions ruling, temporarily or otherwise, the amounts or the rates of commercial or industrial premises, nor finally any revision based upon the provisions of article L 145-1 and following of the New French Commercial Code and which govern the relationships between lessors and lessees of commercial premises. The rent shall be the result of the addition of the two following rent shares : I. SOGEFIMUR SHARE This rent share shall be the result of the addition of the following items : * financial amortization enabling the investment percentage to be fully paid off over the length of the contract. * interest calculated on the debts remaining outstanding after the amortization of that particular period at the following R nominal rate: R = TEC 10 + 0.90%. In this formula, TEC 10 is the actualised return rate of an imaginary Treasury bond, the duration of which would at each moment be equal to ten years. The TEC 10 value referred to shall be that of the third day before the commercial lease contract comes into force. II. AUXICOMI SHARE This rent share shall be the result of the addition of a financial amortization over TWELVE (12) years and of interest. The interest is calculated by applying the following nominal rate to the debts remaining outstanding after the amortization of that particular period : R = EURIBOR 3 months term + 0.85% x (number of days of the period)/360 Rate consolidation option: the FINANCE-LESSEE shall have the possibility to opt for a definite consolidation of the interest rate of the operation, during a period of five (5) years running from the end of the first year of rent payments. The fixed rate used for the conversion shall be that of the most recent TME (Taux Moyen des Emprunts d'Etat = Average Rate of French Treasury Bonds) + 1.05%. The conversion request must reach SOGEFIMUR by registered mail with confirmation of receipt one month at the latest before the term of a quarterly rent period. It will become effective as from the first payment following the request. * Accounting principles for the subsidies received by the FINANCE-LESSOR As has been mentioned earlier, various subsidies have been solicited. In concrete terms, the management of these subsidies shall be ensured as follows by the FINANCE-LESSOR. At the time of coming into force of the present real estate commercial lease, as defined by article 2 above, a schedule shall be worked out on the gross value of the investment producing the estimation of rents invoiced with VAT included. On receipt of the said subsidies by the FINANCE-LESSOR, a schedule shall be worked out on the amount of these subsidies and for the length of the contract remaining, thus enabling to define tax-exclusive credits on capital gains, to be deducted from the rents. These credits shall be calculated according to the same principles and the same rate as for each of the rent shares. In the case where the FINANCE-LESSOR should be compelled, for any reason whatsoever, to repay all or part of these subsidies, the relevant credits would no longer be posted as from the date of repayment and would no longer be deducted from the invoiced rent. Furthermore, the FINANCE-LESSEE would have to repay the FINANCE-LESSOR the previously amortized fraction of the subsidies at that time. C- Elimination of the rents used If for any particular reason the rate(s) previously used were no longer available, they would be officially replaced by other rates. Should these rates not be officially replaced, the parties shall come to an agreement on rates with similar features. ARTICLE 22- PAYABILITY OF THE RENT- FINAL FINANCIAL SUMMARY- SUMMARY STATEMENT AND TABLE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF DECREE 95-617 OF 6 MAY 1995 The rent is payable quarterly and in advance on the 1st of January, April, July and October of each year. However, the first rent payment due when the present commercial lease contract comes into force has been calculated on a pro rata basis. In the same way, the very last rent payment shall also be calculated on a pro rata basis. When the commercial lease comes into force, and as soon as the FINANCE-LESSOR has received the necessary certificates to settle the total investment, the FINANCE-LESSOR shall produce a schedule giving the date of payment and the amount of each rental term. Should however and for any reason, the certificates pertaining to the settlement of the FINANCE-LESSOR's investment not have been received by the latter within three month's time as from the coming into force of the commercial lease contract, the FINANCE-LESSOR shall be entitled to restrict the investment cost to the sums actually paid at that time (once having sent the FINANCE-LESSEE a registered mail with confirmation of receipt) and shall advise it that any payments remaining outstanding would be at its expense. Furthermore, according to the provisions of Decree 95-617 of 6 May 1995 signed following article 57 of Law 95-115 of 4 February 1995, the FINANCE-LESSOR shall produce et the time of coming into force of the present contract : 1) A summary including in particular : * the date of conclusion and the length of the contract, * the agreed price for the purchase of the building at the term of the contract or the necessary information to determine it, * the cost of the non-amortizable items and of the amortizable items on the asset side of the balance sheet of the FINANCE-LESSOR as well as the acquisition costs of the building, * the location, 2) A breakdown chart giving for each rent the share related to the capital amortization taken into account to fix the selling price as well as its allotment to the respective payment of : acquisition costs, amortizable and non-amortizable items. The FINANCE-LESSOR shall send the FINANCE-LESSEE an endorsement letter to the commercial lease with the summary, the breakdown chart and the final schedule attached : the FINANCE-LESSEE shall return this letter to the FINANCE-LESSOR once having approved it, within ten days of its receipt, failing that the endorsement letter shall be deemed to have been approved. The above-mentioned endorsement letter to the commercial lease, to which shall be attached the above-mentioned summaries, charts and schedules planned by Decree 95-617 of 6 May 1995, shall be deposited in the register of the Notary's Office mentioned in the heading of the present, the FINANCE-LESSOR and the FINANCE-LESSEE granting as from now full powers for that purpose to any Head Clerk or Assistant Head Clerk of the undersigned Notary. Should the economy of the present contract be changed after the coming into effect of the commercial lease contract, owing to changes in the situation of the FINANCE-LESSEE or in the leased property, an amended summary shall be produced by the FINANCE-LESSOR. Article 23- Payment of the value-added tax and charges and other taxes The FINANCE-LESSEE shall pay the FINANCE-LESSOR at each rent payment term the amount of the VAT pertaining to this particular rent payment at the rate in force at that time. The FINANCE-LESSEE shall directly pay the Insurance Companies the premiums for all the insurances underwritten for the let premises as that is mentioned above, including those due for the policies taken out on account of the FINANCE-LESSOR. The FINANCE-LESSEE shall produce evidence of all these payments on first request of the FINANCE-LESSOR. Furthermore, the FINANCE-LESSEE shall refund the FINANCE-LESSOR the cost of any taxes, rights charges or other expenses as well as, should it be, the expenses that may be due involving a Zone, a Housing Estate or Co-ownership rules concerning the leased property and that the FINANCE-LESSOR may have paid, pertaining to the let premises or to the rental eventually increased by the VAT on such repayments. All the payments, the VAT and generally speaking, all the sums due by the FINANCE-LESSEE to the FINANCE-LESSOR in virtue of the present contract shall be recovered by the FINANCE-LESSOR by direct debit on the account of the FINANCE-LESSEE: SOCIETE GENERALE REIMS agency Account number: 30003/01690/00020308570 CLE 03 Article 24- Penalty interest After the expiry of a fifteen-day period as from the time the rent bills and all other invoices are sent by the FINANCE-LESSOR, the failure to pay will cause the FINANCE-LESSEE to owe the FINANCE-LESSOR penalty interest calculated on a pro rata basis at the Money Market Rate increased by 5 points per annum, and never any less than 9 %, from the date the sums are due until they are paid, as well as the VAT at the prevailing rate, without any prejudice to the right of the FINANCE-LESSOR to continue any termination proceedings of the commercial lease. Furthermore, the failure to pay the rent when due will entitle the FINANCE-LESSOR to be paid a fixed sum of EIGHTY EUROS (E.80), tax-exclusive over VAT, for unpaid bill management costs. EX-10.28 4 k74279exv10w28.txt OPERATIONAL LEASE BET. AMSTEL LEASE AND SFEA EXHIBIT 10.28 Amstel Lease Utrecht May 28, 2002 Ref : OPLEASE / 345792.00 By : J.P. van de Bunt / K. De Peyper / al Tel nr. : 030 - 2906 508 Subject: operational lease Dear Mr. Rengelink, It is our pleasure to inform you that we are willing, under the circumstances and regulations of the general agreement dated May 3, 2002, to buy the following objects on behalf of you. Description Metal working machine, welding robots and installation on behalf of coating, date of building: 2002. Fiscal purchase price E.2.000.000,00 (V.A.T. excluded) Fixed lease period 60 months Lease period amount E.34.832,00 (V.A.T. excluded) per month by payment in advance. Buy option During the fixed period of leasing you can buy the object for a by us determined purchase amount; after the fixed period of leasing you can buy the object for E.280.000,00 (V.A.T. excluded) Validity This quotation is, with regard to the period of leasing, valid till June 5, 2002. If the commencing date of the lease agreement is after the mentioned date we will stand on our rights to adjust the period of leasing. With regard to the other parts this quotation is valid till December 31, 2002 unless there is talk of an unchanged positive development within your company. Special circumstances 1. Contrary to the mentioned in article 5 of our general agreement you have the right to rent the object to SFEA SA. For the rest the conditions of article 5 stay unaltered. 2. The rights of the with SFEA SA made rental agreement should be pledged to us. For this purpose you should send us a to us convenient rental agreement. 3. On the leasing agreement article 5 sub. d of the general agreement operational lease is irrelevant. 4. The guarantee property like written down will be a minimum of 30% of the balance total. There is equity property and security property. The balance total will be raised with the off balance duties for the determination of the mentioned percentage. 5. For executing the lease agreement we would like to receive the following: o an invoice from SFEA SA on behalf of Amstel Lease Maatschappij N.V. with mentioned the amount of investment to be raised with V.A.T. o a copy of an invoice or invoices from the supplier on behalf of SFEA SA mentioned with the capital expenditure to be raised with V.A.T. o a receipt or receipts of the before mentioned copy invoices or your request to Amstel Lease Maatschappij N.V. to pay on behalf of the original supplier so we can pay your invoice. 6. The minimum quantity of a call down needs to be E.500.000,00. 7. SFEA SA will invoice Amstel Lease Maatschappij N.V. Per invoice Amstel Lease Maatschappij N.V. will charge an amount of E.1.250,00 of handling cost for the calculated V.A.T. The interest difference Amstel Lease Maatschappij N.V. will suffer caused by the calculated V.A.T. will be charged to Brink B.V. 8. We receive a copy of valid identification papers of the entitled signers of this agreement. Procedure If you want to use this quotation we would like to ask you to send us a signed general agreement together with the quotation. One part legally signed and returned to us. The invoices of the objects need to be on our name. If these invoices are found correct by you we will draw up the contracts. By signing this agreement the agreement dated on March 3, 2002 is no longer valid. We hope to have informed you sufficiently in this. GENERAL TERMS AND CONDITIONS (OPERATIONAL LEASE) Note: the Dutch text of the Master Agreement and the General Terms and Conditions (Operational Lease) is binding, the English text is solely provided for translation purposes. Unless agreed otherwise in writing, the following General Terms and Conditions will apply to the lease agreement 1. LEASE AGREEMENT; EQUIPMENT; OWNERSHIP 1. Amstel Lease Maatschappij N.V., hereinafter referred to as Amstel Lease, and client have concluded a lease agreement under which Amstel Lease shall make the equipment specified in the lease agreement, hereinafter referred to as the equipment, available for use by client, and client shall use the equipment during the agreed period and against the agreed periodic instalments. 2. Both the equipment and the supplier of the equipment have been chosen by client personally. Amstel Lease shall pay the supplier the purchase price. Following transfer of title to the equipment by the supplier to Amstel Lease, Amstel Lease shall provide the equipment to client for use. Amstel Lease will remain the owner of the equipment. Client shall keep the equipment in its possession for Amstel Lease. All fiscal rights relating to the equipment will also accrue to Amstel Lease. The client shall refrain from making any claim with respect to the fiscal rights. The client shall therefore not recognise any depreciation in respect of the equipment. The equipment shall be for the account and risk of client during the term of the lease agreement. 3. If the equipment is a registered vehicle, client shall ensure that the copy of part III of the vehicle's registration certificate is in the possession of Amstel Lease. 2. DELIVERY AND INSTALLATION 1. All expenses incurred for the transport, delivery and installation of the equipment shall be for the account and risk of client. Client may not hold Amstel Lease liable for any delay in delivery. 2. Following delivery by the supplier, it shall be assumed that client received the equipment in good condition, found no faults and established that the equipment agreed with the specification of the equipment included in the lease agreement. 3. Client shall take all necessary measures for the supplier(s) to deliver and install the equipment ready for use. Amstel Lease is not liable in the event of: non-delivery of any part, delayed delivery; nor for any damage caused during delivery and/or installation of the equipment. If client is of the opinion during delivery that the equipment delivered does not agree with the specification or if a hidden or alleged hidden defect in the equipment is detected at a later date, Amstel Lease shall on the request and for the account and risk of client assert any rights against the supplier. 3. PLACING OF THE EQUIPMENT; RIGHT OF ACCESS 1. Client shall place the equipment and use it solely in or at the building or site used by client for the conduct of its business. This shall not apply to equipment which, owing to its specific nature, is not intended for use in a fixed location. Client shall ensure that the equipment cannot in any way be connected to any movable or immovable property such that: accession, confusion or specification may occur, or that the equipment can become a part of any other good. If the equipment can be made immovable in a legal sense through accession, confusion or otherwise, client guarantees Amstel Lease that the possible rights of client or third parties shall not affect the equipment. 2. If requested, client shall immediately inform Amstel Lease of the place in which the equipment is located. Client is not authorised to move the equipment outside the Netherlands without the prior written permission of Amstel Lease unless the equipment is not generally intended to be used at a fixed location. 3. Client shall at all times allow Amstel Lease or its authorised representative to inspect the equipment and to enter its business premises if necessary to do so, and allow it to inspect all documents relating to the equipment. In the event of an incident occurring as referred to in article 12, paragraph 1, of these General Terms and Conditions, Amstel Lease shall be entitled to take possession of the equipment. In such event, client shall grant Amstel Lease or the persons designated by it access to the place or the building in which the equipment is located. 4. USE AND MAINTENANCE 1. Client shall use the equipment expertly and in agreement with applicable laws, regulations, etc. for the purpose for which it was designed and installed and solely in the course of its business or profession. Client shall keep the equipment in a good state of repair and maintenance and if necessary have it repaired, all for its own account. Client is responsible for the equipment always being operated, maintained and repaired by expert personnel. If client does not properly maintain or have maintained the equipment, Amstel Lease shall be entitled to have such done at client's expense by a third party or parties designated by Amstel Lease. In such cases, Amstel Lease shall consult client in advance where possible. Client shall have components replaced when necessary. Once fitted, replacement components shall also be the property of Amstel Lease, without prejudice to Amstel Lease's right to demand that the equipment be restored to its original condition at the client's expense when returned. Client shall also ensure that the equipment is effectively protected against fire, theft and damage. Client is not entitled to make changes in or to the equipment without the prior written consent of Amstel Lease. 2. If client cannot use the equipment on account of malfunctions or any other cause, client shall not be entitled to suspend or terminate its payments to Amstel Lease, have the lease agreement dissolved or demand any other form of compensation from Amstel Lease. Failure by the supplier or the party with whom client has concluded a maintenance contract to fulfil any warranty and/or maintenance commitment shall be for the account and risk of client. 5. BAR ON RENTING OUT THE EQUIPMENT Client is not entitled to pledge or otherwise encumber the equipment. Nor may client rent out the equipment or in any other way allow third parties to use it without the prior written consent of Amstel Lease. 6. ATTACHMENT AND THIRD-PARTY MEASURES If third parties wish to enforce rights or take measures in respect of the equipment, client shall without delay inform Amstel Lease thereof and immediately provide such third parties with proof of Amstel Lease's ownership. If third-party measures remove the equipment from client's power, client shall inform Amstel Lease thereof within 24 hours and take counter-measures itself if necessary. To protect its rights, Amstel Lease shall take all measures it deems necessary, if needs be in the name of client. The cost of such measures shall be for the account of client and shall be settled on Amstel Lease's first demand. 7. INSURANCE, LOSS AND DAMAGE 1. Client shall insure the equipment against all insurable risks at its own expense. These risks shall be kept insured throughout the duration of the lease agreement on terms and conditions and with insurers acceptable to Amstel Lease. Client shall provide Amstel Lease with written confirmation by the insurer(s) that the insurance has been effected. Upon request, client shall without delay provide Amstel Lease with receipts or other documents evidencing payment of premiums to the insurer(s). Upon request, client shall allow Amstel Lease to inspect the insurance policies. Client shall have Amstel Lease included in the policy as a co-insured party without Amstel Lease becoming liable for payment of premiums and without insurers having the right to claim costs from Amstel Lease. The following clauses shall be included in the policy: - 'Any amounts paid as a result of a claim for damage shall be paid to Amstel Lease Maatschappij N.V. unless this party gives written authorisation for payment to be made directly to the other co-insured party'. - 'Any statutory liability of Amstel Lease Maatschappij N.V. in respect of the insured equipment is covered'. - 'The cover in respect of Amstel Lease Maatschappij N.V. may not be restricted or terminated without notice of the intention to do so being provided to Amstel Lease Maatschappij N.V.'. Client shall strictly observe all provisions of the insurance policy. Client shall become liable to Amstel Lease in the event of any negligence in this respect. 2. In the event of loss of or damage to the equipment to such an extent that the equipment is, in the opinion of the expert appointed by the insurer, no longer able to be repaired, the lease agreement shall terminate. Client shall then be liable to Amstel Lease for the full amount of the remaining lease instalments that would have been due had the agreement expired in the normal way plus the amount of the purchase option. This amount shall, however, be reduced by the amount payable to Amstel Lease by the insurer, after deduction of any costs incurred by Amstel Lease. In the event of the amount received by Amstel Lease being in excess of the total amount owed by client, including any costs incurred by Amstel Lease, the excess shall be refunded by Amstel Lease to client. 3. Should client and Amstel Lease have agreed in the lease agreement, contrary to the above provisions, that Amstel Lease shall be responsible for insuring the equipment, the following shall apply: Amstel Lease shall arrange comprehensive insurance with an insurer of its choice. The excess per claim is for client's account, as are any risks not covered by the insurance. Client shall strictly observe all provisions of the insurance policy. The terms and conditions of the policy shall be available for inspection at the offices of Amstel Lease. During the period of the agreement, Amstel Lease shall be entitled to pass on to client any increases in insurance premiums or other costs relating to the insurance. If, as a result of a claim or claims or for any reason whatsoever, the insurer increases the premium or the amount of the excess, such shall be for client's account with effect from the date of the increase. If the insurer decides to cancel or terminate the insurance for any reason whatsoever, all risks insurable in respect of the equipment shall be for client's account with effect from the moment of cancellation or termination. 4. Unless its exposure inevitably entails some degree of loss, Amstel Lease accepts no responsibility whatsoever for any damage and/or costs incurred by client as a result of any defect and/or damage to the equipment and/or third parties. Client indemnifies Amstel Lease against any claims brought by third parties in respect of damage caused by the installation, transport, use, maintenance, etc. of the equipment and against all losses and consequential losses due to any defect and/or damage to the equipment suffered by client and/or third parties, such to include client's operative and other personnel. 5. Amstel Lease is not obliged to indemnify any loss or damage to client with regard to: poor performance, tort, error, fraud, deception, abuse of circumstances, foreclosure or otherwise. Nor shall Amstel Lease provide any guarantee of the state, suitability for any purpose or quality of the equipment. Client guarantees Amstel Lease that the equipment agrees with or shall remain in accordance with the specifications of the purchase agreement. Client shall immediately inform Amstel Lease whenever one of the circumstances referred to above occurs. 8. WARRANTY In all cases in which the supplier does not fulfil its warranty or other commitments, client shall immediately inform Amstel Lease. In such cases, Amstel Lease shall on client's first request endeavour to have the supplier fulfil its commitments, unless Amstel Lease prefers to transfer its rights in such cases to client. 9. SETTLEMENT Client shall settle the amounts owed by it to Amstel Lease under the lease agreement promptly and without discount or set-off. An extract signed by Amstel Lease from its accounts shall serve as prima facie evidence of the amount owed to Amstel Lease by client, unless there is evidence to the contrary. Client may never suspend fulfilment of the commitments agreed in the lease agreement, even where the amount owed is disputed. 10. WAIVER OF RIGHT TO DISSOLUTION Client explicitly waives its right to demand dissolution of the lease agreement, unless the purchase agreement concluded for the equipment between Amstel Lease and the supplier is dissolved by Amstel Lease due to any of the circumstances referred to in article 7, paragraph 5, and Amstel Lease is completely reimbursed by the supplier or client. 11. RETURN DELIVERY ON EXPIRY OF THE LEASE AGREEMENT; PURCHASE OPTION 1. On expiry of the lease agreement, client shall immediately return the equipment at is own expense and in a good state of repair -- barring normal wear and tear -- to an address to be specified by Amstel Lease. Notwithstanding the other provisions of the lease agreement, client shall remain liable to pay the lease instalments at least until the date of return. 2. If the lease contract contains an option to renew, the client shall, in the event that it wishes to avail itself of this option, notify Amstel Lease accordingly by registered letter no later than two months prior to expiry of the lease contract. During the renewal period, the client shall be able to cancel the lease contract at any time by giving two months' notice. Cancellation shall be made by registered letter. If the client avails itself of the renewal option, the provisions of clause 1 of this article shall not apply until the end of the renewal period. 3. If the lease contract contains an option to purchase, the client shall have the right, on condition that it has met all its liabilities under the lease contract, to acquire ownership of the equipment on expiry of the lease contract for payment of the purchase option price agreed between Amstel Lease and the client. In the event that the client wishes to avail itself of this purchase option, it shall notify Amstel Lease accordingly by registered letter no later than two months prior to expiry of the lease contract. In that event, the client shall be liable to pay the amount of the purchase option on the expiry date of the lease contract. If the client avails itself of the purchase option, the obligations referred to above in Article 11, clause 1, shall cease to apply. 12. IMMEDIATE TERMINATION 1. Amstel Lease shall be entitled to terminate the lease agreement immediately and without judicial intervention, without prejudice to its right to demand proper fulfilment by client: a. if client, after being served notice of default, fails to settle any amount owed by it to Amstel Lease; b. if client, despite being notified by Amstel Lease, fails to fulfil any other provision of the lease agreement in full, on time or adequately or acts in contravention thereof; c. if circumstances arise on client's side which in the opinion of Amstel Lease entail a considerable increase in its risk and/or could hinder the normal settlement of the lease agreement; d. if client, compulsorily or otherwise, decides to liquidate, terminate in full or in part, relocate outside the Netherlands or dispose of its business or, if client is a natural person, on the death of client or his being sentenced to be detained or imprisoned; e. if client makes any scheme of arrangement with creditors, fails to pay any amount payable to third parties or if application is made by client or on client's behalf for a suspension of payments or an insolvency order; f. if all or part of client's assets or property rights are seized, whether or not the equipment referred to in this agreement is seized, or claimed by public authorities; g. if client loses control of all or part of its assets or if a licence or registration necessary for the conduct of its profession or business is revoked; h. if the security provided by client or third parties is, in the opinion of Amstel Lease, no longer adequate and client fails to provide within one month of request other personal or collateral security to the satisfaction of Amstel Lease; i. if before or on entering into the lease agreement client provided or had provided incorrect or incomplete statements or information, insofar as the inaccuracy, incompleteness or concealment was of such a nature that Amstel Lease would not have concluded the lease agreement or would not have concluded it on the same conditions if it had known the true state of affairs; j. if any damage is occasioned to the equipment that is not reimbursed by the insurers. In the event of termination in one or more of the circumstances listed above under a. to j. inclusive, client shall pay Amstel Lease compensation payable on demand and not open to mitigation equal to the total of the lease instalments due but not settled and the lease instalments for the remaining number of months that the lease agreement would have been in force until normal expiry, plus expenses, interest and damages. Amstel Lease shall be entitled to recover multiple damages from client. 2. If a circumstance arises as referred to in paragraph 1 of this article, client shall no longer be entitled to use the equipment. In such event, Amstel Lease shall be entitled to take possession of the equipment at client's expense. 3. Client may derive no rights from the provisions of article 14 below in the circumstances referred to in paragraph 1 of this article. 13. INTEREST ON OVERDUE PAYMENTS Without prejudice to the provisions of article 12, if client fails to pay promptly any amount due under the lease agreement, it shall be liable to pay interest on the amount owing at the rate of 1.5% per month until the date on which settlement is received, whereby a part of a month shall be regarded as a whole month. 14. PREMATURE TERMINATION In the event of negotiations between the client and Amstel Lease at any time during the period of the lease contract concerning premature cancellation or amendment of the lease contract, the starting position of such negotiations shall be that the client will be liable to pay to Amstel Lease the lease instalments for the remaining part of the lease period together with the amount of the previously agreed purchase option or, where no purchase option has been agreed, the residual value of the equipment as at the end of the lease period concerned as determined by Amstel Lease. 15. REPLACEMENT EQUIPMENT If, in connection with repair, inspection or some other connection, replacement equipment is made available to the client, such equipment shall be treated as equal to the original equipment for the purposes of applying the provisions of the lease contract. 16. LEGAL COSTS, TAXES 1. All costs incurred by Amstel Lease for the exercise and retention of its rights under the lease agreement, including the cost at law or otherwise of debt collection, shall be paid by client to Amstel Lease on Amstel Lease's first demand. The extra-judicial cost of collecting monetary claims shall be fixed at 15% of the amount payable, with a minimum of NLG 250 excluding VAT. 2. The client shall also pay taxes, charges and/or registration fees and any charges made by the bank for payment transactions and the transfer of funds in respect of the lease agreement, the equipment or the use of the equipment. 17. CHANGE OF ADDRESS Client shall immediately inform Amstel Lease in writing of any change in its address. Amstel Lease shall be entitled to consider the address given by client on or before entering into the lease agreement to be client's correct address until written notice of a new address is sent to Amstel Lease by registered mail. 18. APPLICABLE LAW AND COMPETENT COURT The lease agreement shall be governed exclusively by Netherlands law. Any legal disputes shall be brought exclusively before the competent court at Utrecht, without prejudice to the right of Amstel Lease to bring a dispute before the court in the district where the client is domiciled. 19. WORKING ENVIRONMENT Client and Amstel Lease declare that these General Terms and Conditions will be applicable to them to the exclusion of any others with respect to the elaboration and performance of this lease contract. Any agreements departing from the lease contract or from these terms and conditions shall not be binding unless they have been expressly confirmed in writing by Amstel Lease. If client is understood to mean more than one natural person and/or legal entity, waiver of the amount owed by one of these debtors having a joint and several liability or discharge of that debtors its liability will not in any way release the remaining debtors from their liabilities vis-a-vis Amstel Lease. EX-12.1 5 k74279exv12w1.txt STATEMENT REGARDING STATEMENT OF RATIOS EXHIBIT 12.1 ADVANCED ACCESSORY SYSTEMS, LLC EXHIBIT 12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS - FIXED CHARGE COVERAGE RATIO FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2002 2001 2000 -------- -------- -------- Pre-tax income from continuing operations......................... $ 21,837 $ 2,996 $ 7,515 -------- -------- -------- Fixed Charges: Interest expense and amortization of debt discount and premium on all indebtedness................................. 15,907 17,684 17,950 Rentals(1)...................................... 2,933 2,713 2,711 -------- -------- -------- Total fixed charges............................. 18,840 20,397 20,661 -------- -------- -------- Earnings before income taxes and fixed charges............................. $ 40,677 $ 23,393 $ 28,176 ======== ======== ======== Ratio of earnings to fixed charges.............. 2.16x 1.15x 1.36x ======== ======== ========
- ---------- (1) Amount included in fixed charges for rentals is considered by management to be a reasonable approximation of the interest factor. EX-24.1 6 k74279exv24w1.txt POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY We, the undersigned Members of the Board of Managers of Advanced Accessory Systems, LLC (the "Registrant"), hereby severally constitute and appoint Terence C. Seikel, with full powers of substitution and resubstitution, our true and lawful attorney, with full powers to sign for us, in our names and in the capacities indicated below, (a) the annual report of the Registrant for the fiscal year ending December 31, 2002 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 counterparts. IN WITNESS WHEREOF, the undersigned have executed this instrument this 25th day of March, 2003. /s/ F. Alan Smith ----------------------------------------- F. Alan Smith /s/ Barry Banducci ----------------------------------------- Barry Banducci /s/ Richard E. Borhgi ----------------------------------------- Richard E. Borghi /s/ Gerard Jacobus Brink ----------------------------------------- Gerard Jacobus Brink /s/ Gerrit de Graaf ----------------------------------------- Gerrit de Graaf /s/ Donald J. Hofmann ----------------------------------------- Donald J. Hofmann /s/ Roger T. Morgan ----------------------------------------- Roger T. Morgan /s/ Terence C. Seikel ----------------------------------------- Terence C. Seikel EX-99.1 7 k74279exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Advanced Accessory Systems, LLC (the "Company") on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Terence C. Seikel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Terence C. Seikel - --------------------------- Terence C. Seikel Chief Executive Officer March 25, 2003 EX-99.2 8 k74279exv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Advanced Accessory Systems, LLC (the "Company") on Form 10-K for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Barry G. Steele, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Barry G. Steele - --------------------------- Barry G. Steele Chief Financial Officer March 25, 2003 -----END PRIVACY-ENHANCED MESSAGE-----