SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
THIS DOCUMENT IS A COPY OF THE 10-K FILED ON APRIL 1, 1997 PURSUANT TO A RULE
201 TEMPORARY HARDSHIP EXEMPTION.
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-4743
Standard Motor Products, Inc.
(Exact name of Registrant as specified in its charter)
New York 11-1362020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 Northern Blvd., Long Island City, N.Y. 11101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 392-0200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
Common stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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. [ ]
The aggregate market value of the Common voting stock based on a closing
price on the New York Stock Exchange on February 28, 1997, of $13.875 per share
held by nonaffiliates of the Registrant was $108,815,492. For purposes of the
foregoing calculation, all directors and officers have been deemed to be
affiliates, but the Registrant disclaims that any of such are affiliates.
As of the close of business on February 28, 1997, there were 13,130,560
shares outstanding of the Registrant's Common Stock.
- Continued -
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Registrant manufactures and distributes replacement parts and automotive
related items for the automotive industry. Product groups include automotive
ignition systems, wires and cables, fuel system parts, climate control systems
service line and brake parts.
In February 1996, the Company acquired substantially all of the assets
and certain liabilities of Federal Parts Corporation for approximately
$13,400,000, plus contingent payments based on performance. Located in Dallas,
Texas, Federal Parts assembles and distributes ignition wire sets and battery
cables. The acquisition increased consolidated net sales by approximately
$9,100,000 in 1996 and had an immaterial effect on consolidated net earnings
for the same period.
In April 1996, the Company formed a 50-50 joint venture with ATS
Automated Tooling Systems, Inc., for the purpose of further development and
commercialization of a heat battery. The heat battery is a vehicle engine
coolant thermal energy management system with improved heater/defroster and
emission reduction benefits. The product is being tested by original equipment
car manufacturers in the United States and Europe. The venture is accounted
for under the equity method and at December 31, 1996, the consolidated
financial statements reflected an investment of $1,854,000 in "Other Assets."
The Company also holds exclusive licenses for two other new technologies
under development; Exhaust Heat Recovery system and Dual Energy Ignition
system.
All of the technologies noted are currently under varying levels of
development. Most of them are currently under tests at various vehicle OEM's
in both Europe and North America; as well as EPA, and with the USCAR consortium
to develop the next generation of ultra-low fuel consumption vehicles.
In July 1996, the Company acquired a 73.4% equity interest in Intermotor
Holdings Limited for approximately $14,050,000 with the option to acquire a
100% interest in the future. Located in Nottingham, England, Intermotor
manufactures and distributes a broad line of engine management products
primarily to customers in Europe. The acquisition increased consolidated net
sales by approximately $9,900,000 in 1996 and had an immaterial effect on
consolidated net earnings for the same period.
Also in July 1996, the Company acquired the assets and assumed certain
liabilities of Fibro Friction, Inc. for approximately $14,000,000, plus
contingent payments based on performance. Fibro Friction, located in Anjou,
Quebec, Canada is a leading formulator of friction materials and a major
supplier of integrally molded brake pads. The acquisition increased
consolidated net sales by approximately $4,500,000 in 1996, and had an
immaterial effect on consolidated net earnings for the same period.
In December 1996, the Company completed its acquisition of substantially
all of the assets and certain liabilities of the Hayden Division of the Equion
Corporation for approximately $5,200,000. Located in Corona, California,
Hayden assembles and distributes fan clutches and other cooling products to the
automotive and heavy duty aftermarkets. The acquisition increased consolidated
net sales by approximately $6,300,000 in 1996 and had an immaterial effect on
consolidated net earnings for the same period.
- 1 -
In January 1997, the Company acquired the assets of the Filko Automotive
Division of F & B Manufacturing Company for approximately $7,900,000. Filko
Automotive, located in Des Plaines, Illinois, assembles and distributes
ignition, emission and wire products to the automotive aftermarket.
Replacement Parts Market The size of the replacement parts market
depends, in part, upon the average age and number of cars on the road and the
number of miles driven per year. According to the Motor Vehicle Manufacturers
Association and United States government sources, all three of the above
factors increased from 1990 through 1996 and this trend is projected to
continue during the balance of the 1990's.
(b) Financial Information about Industry Segments
Distribution of Sales The table below shows the Registrant's sales by
product groups.
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands)
1996 1995 1994
% of % of % of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Ignition Parts $261,957 36.20% $231,431 34.90% $228,031 35.60%
Wires and Cables 61,226 8.50% 47,402 7.10% 51,419 8.00%
Fuel System Parts 33,185 4.60% 40,369 6.10% 43,841 6.80%
Climate Control Syste 157,039 21.80% 133,051 20.00% 110,961 17.30%
Service Line 42,598 5.90% 43,678 6.60% 41,127 6.40%
Brake Parts 165,800 23.00% 167,554 25.30% 165,431 25.90%
TOTAL $721,805 100.00% $663,485 100.00% $640,810 100.00%
</TABLE>
The business of the Registrant is not dependent on any single customer. In the
year ended December 31, 1996, the Registrant's five largest customers accounted
for approximately 36.8% of sales, or approximately $266,000,000.
Ignition Parts - Replacement parts for automotive ignition and emission
control systems account for about 36% of the Registrant's revenues. These
parts include distributor caps and rotors, electronic ignition control modules,
voltage regulators, coils, switches and sensors. The Registrant is a basic
manufacturer of many of the ignition parts it markets. These products cover a
wide range of applications, from 30-year old vehicles to current models, both
domestic and import, including passenger car, truck, farm, off-road and marine
applications.
- 2 -
Like most automotive aftermarket suppliers, the Registrant began by
offering ignition parts which were equal in quality to O.E. (original equipment
parts installed on new vehicles). Soon afterward, the Registrant pioneered
the concept of offering alternate parts with higher levels of quality then O.E.
These parts were priced higher. This has now evolved to a "good-better-best"
concept, and a lower priced line has been made available under the Registrant's
Tru-Tech brand.
All new vehicles are factory-equipped with computer-controlled engine
management systems to control ignition, emission control and fuel injection.
The on-board computer monitors inputs from many types of sensors located
throughout the vehicle, and controls a myriad of valves, switches and motors.
The Registrant is a leader in the manufacture and sale of these engine
management component parts, including remanufactured automotive computers.
Electronic control modules and electronic voltage regulators comprise a
significant and growing portion of Registrant's total ignition sales. The
Registrant is one of the few aftermarket companies that manufactures these
parts, and the first independent aftermarket supplier to manufacture the
complex electronic control modules for distributorless ignition systems. The
Registrant's electronic production is divided between highly automated
operations, which are performed in Orlando, Florida, and assembly operations,
which are performed in assembly plants in Hong Kong and Puerto Rico. The joint
venture formed in 1995 in China plans to produce electronic ignition modules
for use in Chinese original equipment applications.
The Registrant's sales of such parts as sensors, valves and solenoids
have increased steadily as auto manufacturers equip their cars with more
complex engine management systems. New government emission laws including the
1990 Federal Clean Air Act are increasing automotive inspection activity that
could create an increase in parts sales. Although there is much controversy
over how quickly these new procedures will be implemented, it is likely they
will have a positive impact on sales of the Registrant's products. The
Registrant is a basic manufacturer of throttle position sensors, air pump check
valves, coolant temperature sensors, air charge temperature sensors, EGR
valves, idle air control valves and MAP sensors, many of which require
replacement if a vehicle fails an emission inspection.
In 1992, a joint venture with Blue Streak Electronics, Inc. was formed to
rebuild engine management computers and MAF sensors, and has positioned the
Registrant as a key supplier in the fast growing remanufactured electronics
market. In 1994, the Registrant vastly increased its offering of
remanufactured computers, and instituted a program to offer slower-moving items
by overnight shipment from its factory. This has enabled the Registrant's
customers to expand their coverage without increasing inventory investment. In
1995, Blue Streak Electronics, Inc. opened a research and development center in
Haifa, Israel. In 1996, a joint venture between Blue Streak Electronics and
Intermotor Limited, was formed to supply rebuilt engine computers for Europe.
The Registrant has begun the manufacture of MAP/Barometric Pressure
sensors - electronic devices that measure air pressure and convert it to
computer inputs. Using an integrated electronic pressure module developed by
Motorola, the Standard design offers advantages in reduced component count,
higher yield and greater reliability. The joint Standard/Motorola effort
reduced the design-to-market cycle by many months, while raising quality and
lowering costs.
In July 1996, the Company acquired a 73.4% equity interest in Intermotor
Holdings Limited, an English company that manufactures and distributes a broad
line of engine management products, primarily to European customers.
Intermotor was an important addition since it provides a solid base to increase
sales in Europe, a market that is forecasted to grow at a rate more than double
the U.S.
- 3 -
Brake System Products - On August 31, 1986, the Registrant acquired the
EIS Brake Parts Division from Parker-Hannifin Corporation. In the aftermarket,
brake parts represent the single largest product group in a warehouse
distributor's inventory.
The division manufactures a full line of brake replacement parts and also
markets many special tools and fluids used by mechanics who perform brake
service. EIS has a long-established reputation in the industry for quality
products and engineering excellence.
EIS brake products account for approximately 23% of the Registrant's
revenues, making it the second largest revenue source for the Registrant. We
anticipate that EIS's growth will be enhanced in 1997 and the future as a
result of the increased wear on friction products resulting from front wheel
drive and other vehicle design dynamics. The Company's growth should also be
enhanced by the continued vertical integration of its manufacturing
capabilities, emphasis on new market channels such as Undercar, and continued
expansion of product line offerings.
In 1994, a joint venture with Autoline Industries was formed to
manufacture loaded calipers (disc brake calipers pre-assembled with disc pads
and hardware). This plant, located in Ontario, California, is in full
operation and sales are growing. In 1995, the Company established a factory in
Mississauga, Canada, to manufacture brake friction materials.
In 1995 and 1996, the manufacture of wheel cylinders, master cylinders
and brake hoses at the Berlin, Connecticut, plant was converted to CNC
machining centers, with quick-change tooling. These parts can now be made
economically in smaller batches, with improved turnaround time and lower costs,
with consequent reductions of inventories. Just-in-time manufacturing cells
have been implemented in the manufacture of clutch master and slave cylinders,
and will aid in reducing in-process inventories and improving turnaround time.
In 1996, the Company acquired Fibro Friction, a Canadian company that
formulates brake friction material that it uses in the manufacturing of
integrally molded disc pads. Fibro Friction was an important addition since
integrally molded disc pads is one of the fastest growing segments in the brake
systems market.
Wires and Cables - Wire and cable parts account for about 9% of the
Registrant's revenues. These products include ignition (spark plug) wires,
battery cables and a wide range of electrical wire, terminals, connectors and
tools for servicing an automobile's electrical system.
A major part of this product line is the sale of ignition wire sets. The
Registrant has historically offered a premium brand of ignition wires and
battery cables, which capitalize on the market's awareness of the importance of
quality. With the growing customer interest in lower-priced products, the
Registrant introduced a second line of wire and cable products in 1989. This
line has steadily expanded to include import coverage, and in 1995 was offered
under the Registrant's Tru-Tech brand name.
In 1996, the Company acquired Federal Parts Corporation the leading
supplier of economy wire sets in the industry, that will further expand the
Registrant's presence in the ignition wire business. The recent acquisition of
Filko Automotive (January 1997) will further expand wire sales.
- 4 -
Fuel System Parts - Fuel system parts account for about 5% of the
Registrant's revenues. The Registrant manufactures and markets over 2,000
parts for the maintenance and repair of automotive fuel systems. These include
parts for carburetors, mechanical and electric fuel pumps, and fuel injection
systems.
For several decades, the Registrant's most important fuel system product
was the carburetor rebuilding kit. Sales of these kits have been declining in
recent years, since nearly all new cars come equipped with electronic fuel
injection systems. However, the Registrant's sales of fuel injection parts
have steadily increased, and this segment of the business is expected to
continue to grow.
In 1988 the Registrant began manufacturing mechanical fuel pumps, and
added the manufacture of electric fuel pumps in 1994. Electric pumps are
replacing the traditional mechanical units at O.E. levels, since they are more
easily integrated into an electronic fuel injection system. Electric pumps are
expected to become the dominant technology, and the fuel pump is now seen as an
integral part of the engine management system.
Climate Control Systems - The Registrant manufactures, remanufactures, and
markets a complete line of replacement parts for automotive climate control
systems (air conditioning and heating) under the brand names Four Seasons,
Factory Air, Trumark, API/ADI and Hayden. Four Seasons also offers private
label packaging to its larger accounts. Revenues from the Four Seasons
Division account for approximately 22% of the Registrant's total sales.
In 1996, Four Seasons continued its double digit annual sales growth
(18%) and is now one of the industry's largest aftermarket suppliers of
automotive climate control products. Excluding acquisitions made during the
year annual sales growth was 11%. To further strengthen its position as an
industry leader, Four Seasons continued a plan begun in 1995 to become a
profitable basic manufacturer of the major product groups it sells.
Following the 1995 acquisition of API/ADI in Cumming, Georgia, a
manufacturer of steel filter dryers and accumulators, and the start up of
Unimotor in St. Thomas, Ontario, a manufacturer of electric motors for radiator
fans and blowers, the acquisition of Hayden was completed in late 1996. Hayden
located in Corona, California, is a basic manufacturer of fan clutches,
transmission oil coolers and heat exchangers. The addition of transmission oil
coolers adds the dimension of powertrain cooling to Four Seasons interior
climate control products. Four Seasons Heat Exchange facility, a start up
operation located in Dallas, Texas, began producing aluminum evaporators and
related parts in 1996, and plans to add production of hose assemblies to its
line in 1997.
During 1996, Four Seasons strengthened its core business by becoming the
first aftermarket company ever to manufacture completely new air conditioning
compressors. In 1997, Four Seasons will offer more than ten models of new
compressors manufactured in its Grapevine, Texas facility. Additionally, Four
Seasons strengthened its presence in the international market by opening a new
European distribution center in Strasbourg, France. Four Seasons Europe (FSE)
will assure the rapid availability of Four Seasons climate control products
throughout Europe, Africa, and the Middle East.
- 5 -
Service Line Products - In 1996, the Service Line accounted for
approximately 6% of the Registrant's total sales. The division markets over
9,000 different automotive-related items, ranging from mirrors, window cranks
and antennas to cleaning and polishing materials, specialty tools and
maintenance supplies.
The Registrant purchases products from a wide range of manufacturers and
packages them under the Champ and Big A private brand label, enabling its
customers to conveniently order items in many separate product groups from a
single source. Champ's marketing program offers its customers ordering
efficiency, marketing support and effective shipping that are considered key
benefits by the Registrant's customers.
In 1995, the Company acquired the assets and certain liabilities of
Pik-A-Nut Corporation, a reseller of a complete line of general fasteners,
brass fittings, expansion plugs and clamps primarily to the automotive
aftermarket in both retail and bulk packagings. This acquisition expanded the
capability of Champ to supply a full line of service products to the automotive
aftermarket.
(c) Narrative Description of Business
Sales and Distribution - The Registrant sells its products primarily
throughout the United States and Canada under its proprietary brand names and
private labels to approximately 1,500 warehouse distributors and major
retailers, who distribute to many jobber outlets and retail stores. The
jobbers sell the Registrant's products primarily to professional mechanics and
secondarily to consumers who perform their own automobile repairs. The
Registrant has a direct field sales force of approximately 425 persons.
The Registrant generates demand for its products by directing the major
portion of its sales effort to its customers' customers (i.e., jobbers and
professional mechanics). In 1996 the Registrant conducted approximately 4,300
instructional clinics, which teach mechanics how to diagnose and repair complex
new electronic ignition systems, automotive brake systems and climate control
systems. The Registrant also publishes and sells service manuals and video
cassettes and provides a free technical information bulletin service to
registered mechanics. In addition, our Standard Plus Club, a professional
service dealer network comprising approximately 12,000 members, offers
technical and business development support and has a technical service
telephone hotline.
The Company continued expansion into the retail market by selling its
products to large retail chains such as Autozone, Pep Boys, Advance and many
others. The Registrant expects continued growth in the retail market in future
years.
Production and Engineering - The Registrant engineers, tools and
manufactures many of the components for its products, except for certain
commonly available small parts in climate control, brake and fuel system
products, all of the Champ Service Line and certain very low volume products in
all product lines. The Company also performs its own plastic and rubber
molding operations, extensive screw machining and stamping operations,
automated electronics assembly and a wide variety of other processes.
The Registrant has engineering departments staffed by 150 persons,
approximately 50% of whom are graduate engineers. The departments perform
product research and development and quality control and, wherever practical,
design machinery for automation of the Registrant's factories.
As new models of automobiles, trucks, tractors, buses and other equipment
are introduced, the Registrant engineers and manufactures replacement parts for
them. The Registrant employs and trains tool and die makers needed in its
manufacturing operations.
- 6 -
Competition - Although the Registrant is a leading independent
manufacturer of automotive replacement parts and supplies, it faces substantial
competition in all markets that it serves. A number of major manufacturers of
replacement parts and supplies are divisions of companies having greater
financial resources than those of the Registrant. In addition, automobile
manufacturers supply virtually every replacement part sold by the Registrant.
The competitive factors affecting the Registrant's products are primarily
product quality, customer service and price. The Registrant's business
requires that it maintain sufficient inventory levels for the rapid delivery
requirements of customers. Management believes that it is able to compete
effectively and that its trademarks and trade names are well known and command
respect in the industry and the marketplace.
Backlog - Backlog is maintained at minimal levels by the Registrant. The
Registrant primarily fills orders, as received, from inventory and manufactures
to maintain inventory levels.
Supplies - The principal raw materials purchased by the Registrant consist
of brass, electronic components, fabricated copper (primarily in the form of
magnet wire and insulated cable), ignition wire, stainless steel coils and
rods, aluminum coils and rods, lead, rubber molding compound, thermo-set and
thermo plastic molding powders, cast iron castings and friction lining
materials. All of these materials are purchased in the open market and are
available from a number of prime suppliers.
Insurance - The Registrant maintains basic liability coverage (general,
product and automobile) of $1 million and umbrella liability coverage of $50
million. Historically, the Registrant has not experienced casualty losses in
any year in excess of its coverage. Management has no reason to expect this
experience to change, but can offer no assurances that liability losses in the
future will not exceed the Registrant's coverage.
Employees - The Registrant has approximately 4,200 employees in the United
States, Canada, Puerto Rico, Europe, Israel and Hong Kong. Of these,
approximately 2,200 are production employees. Long Island City, New York
production employees are covered by a collective bargaining agreement with the
United Auto Workers, which expires on October 1, 1998. Edwardsville, Kansas
production employees are covered by a United Auto Workers contract that expires
April 2, 1997. Berlin, Connecticut employees were covered by a collective
bargaining agreement with the United Auto Workers, which expired on June 1,
1995. These employees have been working since June 1, 1995, without a
collective bargaining agreement. The Registrant believes that its facilities
are in favorable labor markets with ready access to adequate numbers of skilled
and unskilled workers. There have been no significant strikes or work
stoppages in the last five years.
- 7 -
(d) Financial Information About Export and Foreign Sales
The Registrant sells its products primarily through Canada, Latin
America, Europe and the Middle East. The table below shows the Registrant's
export and foreign sales for the last three years:
(U.S. Dollars in thousands)
Years Ended December 31, 1996 1995 1994
- -----------------------------------------------
Canada $38,341 $38,876 $38,109
Europe 9,875 -- --
All Others 12,243 11,768 12,341
- -----------------------------------------------
Total $60,459 $50,644 $50,450
- -----------------------------------------------
- 8 -
ITEM 2. PROPERTIES
The Registrant maintains its executive offices and a manufacturing plant
at 37-18 Northern Boulevard, Long Island City, New York.
The table below describes the Registrant's principal physical properties.
(For information with respect to rentals, see note 16 of Notes to Consolidated
Financial Statements on page F13).
Location State Principal Business Activity Square Owned or
or Country Feet Leased
Exp.
Date
- --------------------------------------------------------------------------------
Manila Arkansas Manufacturing and Distribution 369,300 Owned
(Brakes)
Corona California Manufacturing and Distribution 65,400 1998
(Climate Control)
Ontario California Manufacturing (Brakes) and 250,200 2003
Distribution (Various)
Berlin Connecticut Administration, Manufacturing an 250,000 Owned
Distribution (Brakes)
Orlando Florida Manufacturing (Ignition) 50,600 2006
Cumming Georgia Manufacturing (Climate Control) 32,000 2000
Cumming Georgia Distribution (Climate Control) 30,000 2000
Huntington Indiana Distribution (Service Line) 63,000 2000
Edwardsville Kansas Administration, Manufacturing 355,000 Owned
Wire) and Distribution (Wire
and Service Line)
Reno Nevada Distribution (Ignition) 67,000 Owned
Long Island City New York Administration and 318,000 Owned
Manufacturing (Ignition)
Coppell Texas Administration and Distribution 168,000 Owned
(Climate Control)
Coppell Texas Distribution (Climate Control) 119,800 1999
Dallas Texas Manufacturing (Climate Control) 28,400 1998
Dallas Texas Manufacturing and Distribution ( 57,300 1997
Grapevine Texas Manufacturing (Climate Control) 180,000 Owned
Disputanta Virginia Distribution (Ignition and Servi 411,000 Owned
Line)
Fajardo Puerto Rico Manufacturing (Ignition) 114,000 1997
Fajardo Puerto Rico Manufacturing (Ignition) 24,100 2004
Mississauga Canada Administration and Distribution 128,400 2006
(Ignition)
Calgary Canada Distribution (Various) 46,200 1998
Anjou Canada Administration and Manufacturing 64,000 2002
(Brakes)
St. Thomas Canada Manufacturing (Climate Control) 40,000 Owned
Mississauga Canada Manufacturing (Brakes) 94,600 2004
Hong Kong Hong Kong Manufacturing (Ignition) 22,500 1997
Herzliya (1) Israel Engineering (Ignition) 1,800 1997
Nottingham England Administration and Distribution 29,000 Owned
(Ignition and Wire)
Nottingham England Manufacturing (Ignition and Wire 29,400 Owned
Nottingham England Manufacturing (Ignition and Wire 15,700 Owned
NOTES TO PROPERTY SCHEDULE:
(1) This facility is engaged in research and development activities.
- 9 -
ITEM 3. LEGAL PROCEEDINGS
Currently, there are no legal proceedings which management deems would
have a material economic impact on the Company.
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 STOCKHOLDER
MATTERS
The Company's stock is listed on the New York Stock Exchange. The
number of Shareholders of record of Common Stock on February 28, 1997, was
approximately 870 including brokers who hold approximately 7,404,717 shares in
street name. The quarterly market price and dividend information is presented
in the following chart.
Price Range of Common Stock and Dividends
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol SMP. The following table shows the high and low sale prices on the
composite tape of, and the dividend paid per share on, the Common Stock during
the periods indicated.
1996 Quarter High Low Dividend 1995 Quarter High Low Dividend
1st $16.13 $13.38 $0.08 1st $20.50 $18.75 $0.08
2nd $18.25 $16.00 $0.08 2nd $20.63 $18.88 $0.08
3rd $17.88 $13.63 $0.08 3rd $20.63 $18.75 $0.08
4th $14.50 $13.50 $0.08 4th $19.13 $14.50 $0.08
The Board of Directors will consider the payment of future dividends on the
basis of earnings, capital requirements and the financial condition of the
Company. The Company's loan agreements limit dividends and distributions by
the Company. As of December 31, 1996, approximately $37,683,000 of retained
earnings was available under those agreements for payment of cash dividends and
purchase of capital stock.
- 10 -
PART II (Continued)
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except
per share data) Years Ended December 31,
1996 1995 1994 1993 1992
--------------------------------------------
Net Sales $721,805 $663,485 $640,810 $582,851 $535,553
Earnings before cumulative
effect of changes in
accounting principles 14,658 16,132 23,665 18,598 8,878
Net earnings 14,658 16,132 23,665 17,508 8,878
Earnings per share before
cumulative effect of
changes in accounting prin. 1.12 1.23 1.80 1.41 0.68
Net earnings per share 1.12 1.23 1.80 1.32 0.68
Working capital 211,726 232,173 189,207 188,220 180,143
Total assets 624,806 521,230 469,387 433,354 384,616
Long-term debt (excluding
current portion) 172,387 148,665 109,927 130,514 136,111
Stockholders equity 223,340 210,400 195,089 178,183 161,128
Stockholders equity
per share 17.01 16.03 14.82 13.47 12.28
Cash dividends per common
share 0.32 0.32 0.32 0.32 0.32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources - In 1996, net cash used in operations
amounted to $21,153,000. This compares unfavorably to 1995 and 1994
when net cash was provided by operations in the amount of $801,000 and
$21,104,000 respectively. Net earnings of $14,658,000 in 1996 were
offset by increases in accounts receivable of $26,025,000 and
inventories of $13,303,000. Cash used in investing activities in 1996
was $60,360,000, primarily due to payments for 1996 acquisitions of
$45,060,000 and capital expenditures. For each of the past three years,
capital expenditures totaled $21,389,000, $16,651,000 and $12,509,000,
respectively. Cash provided by financing activities in 1996 of
$75,447,000 was primarily due to $59 million from borrowings from bank
lines and $35 million in new long-term financing, primarily offset by
repayment of debt and dividend payments. In each of the years in the
three year period ended December 31, 1996, dividends paid were
approximately $4,200,000.
In 1997, required long-term debt payments will be approximately
$17,492,000. Overall, during 1996 stockholders' equity increased
$12,940,000 to $223,340,000.
Total debt (current and non-current) increased $91,320,000. This
was mainly due to payments for acquisitions and increases in accounts
receivable and inventories. The Company is aggressively pursuing ways
to reduce inventories. Significant efforts are focusing on pack-to-
order systems and improved inventory management systems. Pack-to-order
systems retain parts in a bulk state with a part being packaged when an
order is received for a specific brand of product.
- 11 -
PART II (Continued)
The Company expects capital expenditures for 1997, excluding
acquisitions, to be approximately $22,000,000, primarily for new
machinery and equipment. At December 31, 1996, the Company had unused
lines of credit aggregating approximately $50,000,000 that will be used
as a source of funding working capital requirements, capital
expenditures and new acquisitions. To provide for future growth the
Company is expanding its bank lines, with a target completion by early
in the second quarter of 1997.
As part of an ongoing operating strategy, the Company is
reviewing potential acquisition candidates in related automotive
component businesses. If such acquisitions are made, additional sources
of capital could be required. In January 1997, the Filko Automotive
Division of F & B Manufacturing Company was acquired for approximately
$7,900,000 in cash, funded by available bank lines of credit.
Comparison of 1996 to 1995
Net sales increased $58,320,000 or 8.8% from the comparable
period in 1995 primarily due to sales increases at the Climate Control
Systems and Engine Management Divisions and sales resulting from 1996
acquisitions. Excluding revenues from acquisitions that were not
present for full year 1995 results, sales in 1996 increased by 4.3%.
Cost of goods sold increased $42,909,000 from $444,061,000 to
$486,970,000. Gross margins, as a percentage of net sales, decreased
from 33.1% to 32.5%. The decrease reflects an increase in customer
overstock and defective product returns and the Company's continued
expansion into lower margin business.
Selling, general and administrative expenses increased by 5.9% or
$11,062,000, but as a percentage of net sales, decreased from 28.2% in
1995 to 27.4% in 1996. The decrease in selling, general and
administrative expense as a percentage of sales was primarily the result
of lower bad debt expense, reduced sales force costs, reduced profit
sharing payments and effective integration of the new acquisitions.
These favorable impacts were partially offset by general economic
increases in wages, an increase in the costs to gain new customers and
goodwill amortization related to new acquisitions.
Other income (expense), net decreased $618,000 primarily due to
lower income from investments and joint ventures.
Interest expense increased by $4,177,000 due to higher average
borrowings.
Taxes based on earnings increased $941,000. The effective
tax rate in 1996 increased to 25.7% from 20.5% in 1995. The higher
effective tax rate reflected our inability to fully utilize, for tax
purposes, a loss in Canada this year. The benefit of the loss
carryforward should be utilized in 1997 and 1998 and should reduce the
effective tax rate from that expensed in 1996.
Comparison of 1995 to 1994
Net sales increased $22,675,000 or 3.5% from the comparable
period in 1994 primarily due to the significant sales increase at the
Climate Control Division and sales resulting from 1995 acquisitions.
Cost of goods sold increased $28,374,000 from $415,687,000 to
$444,061,000. Gross margins, as a percentage of net
- 12 -
Part II (Continued)
sales, decreased from 35.1% in 1994 to 33.1% in 1995. The decrease
reflects the Company's continued expansion into lower margin business
and an increase in customer returns and rebates.
Selling, general and administrative expenses increased by 4.6% or
$8,270,000, and as a percentage of net sales, increased from 27.9% in
1994 to 28.2% in 1995. The increases were primarily a result of costs
related to a reorganization of the company's sales force, costs to
acquire new customers, costs to support new acquisitions and higher
distribution expenses due to increased sales, partially offset by lower
bad debt expenses.
Other income (expense), net increased $1,193,000 primarily due to
an increase in income from Blue Streak Electronics, Inc. and a higher
rate of return on investments in 1995, partially offset by an increase
in the loss on sale of accounts receivable.
Interest expense increased by $2,330,000 due to higher average
borrowings.
Taxes based on earnings decreased $7,573,000 due to both lower
earnings and a lower effective tax rate. The 1995 rate of 20.5%
compared to 33.1% in 1994. The lower effective tax rate in 1995 was
primarily due to the higher relative earnings of the Company's Puerto
Rican and Hong Kong subsidiaries, which have lower tax rates than the
U.S. statutory rate.
Impact of Inflation - Although inflation is not a significant
issue, the Company's management believes it will be able to continue to
minimize any adverse effect of inflation on earnings. This will be
achieved principally by cost reduction programs and, where competitive
situations permit, selling price increases.
Future Results of Operations - The Company is continuing to face
competitive pressures. In order to sell at competitive prices while
maintaining profit margins, the Company is continuing to focus on
overhead and cost reduction. This is being done through internal
initiatives, acquisitions and the start-up of vertical integration
programs. In 1997, the Company has identified inventory reduction as
one of its primary goals in addition to effectively integrating the past
year's acquisitions and achieving the identified synergy's from these
acquisitions.
The Company is continuing to aggressively pursue cost reductions
and expects to complete in 1997 several initiatives to reduce
distribution expense, manufacturing cost and the cost of products
purchased for resale. The Company is continuing to review vertical
integration actions, which reduce product cost and have a short payback.
- 13 -
Part II (Continued)
Recently Issued Accounting Standards - The Company adopted the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, on January 1, 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. Adoption of
this Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
Prior to January 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting Principles
Board ("APB") Option No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123.
The Company will be adopting Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS 125). SFAS125 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The
adoption of this accounting standard will have no material effect on the
Company's consolidated financial statements.
- 14 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
We have audited the consolidated balance sheets of Standard Motor
Products, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Standard Motor Products, Inc. and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 4, 1997
- F1 -
Standard Motor Products, Inc. and Subsidiaries
Consolidated Statements of Earnings
(Dollars in thousands, except per share amounts)
Years Ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------
Net sales $721,805 $663,485 $640,810
Cost of sales 486,970 444,061 415,687
Gross profit 234,835 219,424 225,123
Selling, general and administrative expenses 198,006 186,944 178,674
Operating income 36,829 32,480 46,449
Other income (expense), net (Note 13) 1,811 2,429 1,236
38,640 34,909 47,685
Interest expense 18,795 14,618 12,288
Earnings before taxes and minority interest 19,845 20,291 35,397
Minority interest (87)
Taxes based on earnings (Note 14)
Current:
Federal (principally U.S.) 4,102 5,037 10,294
State and local 561 791 2,851
4,663 5,828 13,145
Deferred 437 (1,669) (1,413)
5,100 4,159 11,732
Net earnings $14,658 $16,132 $23,665
Net earnings per common share $ 1.12 $ 1.23 $ 1.80
Average number of common shares 13,130,849 13,125,892 13,165,567
See accompanying notes to consolidated financial statements.
- F2 -
Standard Motor Products, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1996 1995
- --------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 4,664 $ 10,856
Marketable securities 2 6,672
Accounts receivable, less allowances for discounts and
doubtful accounts of $5,499 (1995 $5,907) (Note 3) 156,795 121,516
Inventories (Note 4) 229,210 206,279
Deferred income taxes (Note 14) 20,668 22,647
Prepaid expenses and other current assets 7,131 6,569
Total current assets 418,470 374,539
Property, plant and equipment, net (Notes 5 and 8) 126,919 109,537
Goodwill, net 34,417 3,561
Other assets (Note 6) 45,000 33,593
Total assets $624,806 $521,230
- --------------------------------------------------------------------------
Current liabilities:
Notes payable - banks (Note 7) $ 74,568 $ 10,200
Current portion of long-term debt (Note 8) 17,492 14,262
Accounts payable 30,619 24,625
Sundry payables and accrued expenses 59,031 69,502
Accrued customer returns 15,061 13,446
Payroll and commissions 9,973 10,331
Total current liabilities 206,744 142,366
Long-term debt (Note 8) 172,387 148,665
Deferred income taxes (Note 14) 4,188 5,730
Postretirement benefits other than pensions and
other accrued liabilities (Note 12) 18,576 14,069
Minority interest (429) --
Commitments and contingencies (Notes 8, 9, and 16)
Stockholders' equity (Notes 8, 9, 10 and 11):
Common Stock - par value $2.00 per share:
Authorized 30,000,000 shares, issued 13,324,476 shares
in 1996 and 1995 (including 194,175 and 196,650 shares
held as treasury shares in 1996 and 1995, respectively) 26,649 26,649
Capital in excess of par value 2,705 2,651
Loan to Employee Stock Ownership Plan (ESOP) (3,345) (5,025)
Minimum pension liability adjustment 764 (27)
Retained earnings 200,235 189,837
Foreign currency translation adjustment 71 150
227,079 214,235
Less: Treasury stock - at cost 3,739 3,835
Total stockholders' equity 223,340 210,400
Total liabilities and stockholders' equity $624,806 $521,230
- --------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- F3 -
Standard Motor Products, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------
Net earnings $14,658 $16,132 $23,665
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 16,326 13,680 12,278
(Gain) Loss on disposal of property, plant & equipment (509) 101 364
Proceeds from sales of trading securities 7,646 12,190 7,500
Purchases of trading securities (6,803)(12,573) (7,676)
(Increase) in deferred income taxes (68) (1,671) (1,411)
Tax benefits applicable to E.S.O.P. 113 119 123
Tax benefits applicable to the exercise of employee - 6 249
stock options
Change in assets and liabilities, net of effects
from acquisitions:
(Increase) in accounts receivable, net (26,025) (2,095) (8,734)
(Increase) in inventories (13,303)(17,749)(26,032)
(Increase) decrease in other assets (6,396) (3,060) 3,589
Increase (decrease) in accounts payable 784 (8,472) 1,271
Increase (decrease) in other current assets and (251) (1,799) 956
liabilities
Increase (decrease) in sundry payables and (7,325) 5,992 14,962
accrued expenses
Net cash (used in) provided by operating activities (21,153) 801 21,104
Proceeds from held-to-maturity securities 6,252 6,400 5,828
Purchases of held-to-maturity securities (163) (8,899)(13,618)
Capital expenditures, net of effects from acquisitions (21,389)(16,651)(12,509)
Payments for acquisitions, net of cash acquired (45,060) (7,835) --
Net cash (used in) investing activities (60,360)(26,985)(20,299)
Net borrowings under line-of-credit agreements 58,625 3,600 1,500
Proceeds from issuance of long-term debt 35,469 53,000 --
Principal payments of long-term debt (16,104)(19,987) (5,535)
Reduction of loan to E.S.O.P. 1,680 1,680 1,680
Proceeds from exercise of employee stock options 184 107 538
Purchase of treasury stock (147) -- (4,301)
Dividends paid (4,260) (4,199) (4,217)
Net cash provided by (used in) financing activities 75,447 34,201 (10,335)
Effect of exchange rate changes on cash (126) 43 (20)
Net increase (decrease) in cash and cash equivalents (6,192) 8,060 (9,550)
Cash and cash equivalents at beginning of year 10,856 2,796 12,346
Cash and cash equivalents at end of year $ 4,664 $10,856 $ 2,796
- ------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $17,136 $14,604 $12,377
Income taxes 5,436 7,642 14,376
See accompanying notes to consolidated financial statements.
- F4 -
<TABLE>
<CAPTION>
Standard Motor Products, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
Years Ended December 31, 1996, 1995 and 1994
Minimum Foreign
Capital in Loan Pension Currency
Common Excess of to Liability Retained Translation Treasury
Stock Par Value E.S.O.P. Adjustment Earnings Adjustment Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 26,620 $ 2,120 $ (8,385) $ (581) $ 158,456 $ 69 $ (116) $ 178,183
Net earnings 1994 23,665 23,665
Cash dividends paid (4,217) (4,217)
Exercise of employee stock options 29 63 446 538
Minimum pension liability adjust. (623) (623)
Tax benefits applicable to
Employee Stock Ownership Plan 123 123
Tax benefits applicable to the
exercise of employee stock options 249 249
Employee Stock Ownership Plan 1,680 1,680
Purchase of treasury stock (4,301) (4,301)
Foreign curr. translation adjust. (208) (208)
Balance at December 31, 1994 26,649 2,555 (6,705) (1,204) 177,904 (139) (3,971) 195,089
Net earnings 1995 16,132 16,132
Cash dividends paid (4,199) (4,199)
Exercise of employee stock options (29) 136 107
Minimum pension liability adjust. 1,177 1,177
Tax benefits applicable to
Employee Stock Ownership Plan 119 119
Tax benefits applicable to the
exercise of employee stock options 6 6
Employee Stock Ownership Plan 1,680 1,680
Foreign curr. translation adjust. 289 289
Balance at December 31, 1995 26,649 2,651 (5,025) (27) 189,837 150 (3,835) 210,400
Net earnings 1996 14,658 14,658
Cash dividends paid (4,260) (4,260)
Exercise of employee stock options (59) 243 184
Minimum pension liability adjust. 791 791
Tax benefits applicable to
Employee Stock Ownership Plan 113 113
Employee Stock Ownership Plan 1,680 1,680
Purchase of treasury Stock (147) (147)
Foreign curr. translation adjust. (79) (79)
Balance at December 31, 1996 $ 26,649 $ 2,705 $ (3,345) $ 764 $ 200,235 $ 71 $ (3,739) $ 223,340
See accompanying notes to consolidated financial statements.
</TABLE>
- F5 -
STANDARD MOTOR PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The Company is engaged in the manufacture and sale of automotive
replacement parts.
The consolidated financial statements include the accounts of the
Company and all domestic and international companies in which the
Company has more than a 50% equity ownership. As more fully described in
Note 2, the Company's investments in unconsolidated affiliates are
accounted for on the equity method. All significant intercompany items
have been eliminated.
Use of Estimates
In conformity with generally accepted accounting principles, management
of the Company has made a number of estimates and assumptions relating
to the reporting of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements. Actual results could differ from
those estimates.
Reclassifications
Where appropriate, certain amounts in 1994 and 1995 have been
reclassified to conform with the 1996 presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Marketable Securities
At December 31, 1996, held-to-maturity securities amounted to
approximately $7,200,000. Held-to-maturity securities consist primarily
of U.S. Treasury Bills and corporate debt securities which are reported
at unamortized cost which approximates fair value. As of December 31,
1996, the held-to-maturity securities mature within seven years.
The first-in, first-out method is used in computing realized
gains or losses.
Inventories
Inventories are stated at the lower of cost (determined by means of the
first-in, first-out method) or market.
Property, Plant and Equipment
These assets are recorded at cost and are depreciated using the
straight-line method of depreciation over the estimated useful lives as
follows:
Estimated Life
Buildings and Improvements 10 to 33 1/2 years
Machinery and equipment 7 to 12 years
Tools, dies and auxiliary equipment 3 to 8 years
Furniture and fixtures 3 to 12 years
Leasehold improvements 10 years or life of lease
Goodwill
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over 15
years. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved. Accumulated amortization at
December 31, 1996 and 1995, was $1,772,000 and $184,000, respectively.
Impairment of Long-Lived Assets and Long Lived Assets to be Disposed of
The Company adopted provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," on January 1, 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
Foreign Currency Translation
Assets and liabilities are translated into U.S. dollars at year end
exchange rates and revenues and expenses are translated at average
exchange rates during the year. The resulting translation adjustments
are recorded in a separate component of stockholders' equity.
Revenue Recognition
The Company recognizes revenues from product sales upon shipment to the
customers. Appropriate provisions are made for product returns.
Customer Acquisition Costs
Costs associated with the acquisition of new customer accounts are
deferred and amortized over a twelve-month period.
Income Taxes
Deferred income taxes result from temporary differences in methods of
recording certain revenues and expenses for financial reporting and
income tax purposes (see Note 14).
Net Earnings Per Common Share
Net earnings per common share are calculated using the daily weighted
average number of common shares outstanding during each year. Shares
held by the ESOP are considered outstanding and are included in the
calculation to determine earnings per share. Employee stock options
have been excluded as their effect is not significant.
- F6 -
Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and to provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123 (See note 10).
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and accounts receivable. The Company places its cash
investments with high quality financial institutions and limits the
amount of credit exposure to any one institution. With respect to
accounts receivable, such receivables are primarily from warehouse
distributors in the automotive aftermarket industry located in the
United States. The Company performs ongoing credit evaluations of its
customers' financial conditions. Members of one marketing group
represent the Company's largest group of customers and accounted for
approximately 16%, 15% and 15% of consolidated net sales for the years
ended December 31, 1996, 1995 and 1994, respectively. One individual
member of this marketing group accounted for approximately 11% of net
sales for the year ended December 31, 1996, and less than 10% in the
prior years. The Company's five largest individual customers, including
the members of this marketing group, accounted for 37%, 29% and 27% of
net sales in 1996, 1995, and 1994 respectively.
2. Acquisitions
In February 1995, the Company acquired, for approximately $3,900,000,
the assets and certain liabilities of Pik-A-Nut Corporation. Located in
Huntington, Indiana, Pik-A-Nut Corporation distributes a complete line
of general fasteners, brass fittings, expansion plugs and clamps
primarily to the automotive aftermarket. This acquisition has been
accounted for as a purchase. The acquisition increased consolidated net
sales by approximately $3,800,000 in 1995 and had an immaterial effect
on consolidated net earnings for the same period.
In June 1995, the Company acquired, for approximately $4,000,000,
the assets and certain liabilities of Automotive Dryers, Inc. and Air
Parts, Inc. Automotive Dryers, Inc., located in Cumming, Georgia,
manufactures and distributes receiver filter dryers and accumulators for
mobile air conditioning systems. Air Parts, Inc., also situated in
Cumming, Georgia, is a distributor of parts for mobile air conditioning
systems. This acquisition has been accounted for as a purchase. The
acquisition increased consolidated net sales by approximately $3,400,000
in 1995 and had an immaterial effect on consolidated net earnings for
the same period.
In November 1995, the Company formed a joint venture in China.
The joint venture will produce ignition modules for use in Chinese
original equipment applications. The Company acquired 40% ownership in
the joint venture and the investment is accounted for under the equity
method. The accompanying consolidated Financial Statements include the
investment in "Other Assets." The joint venture had an immaterial
effect on consolidated net earnings in 1995.
In April 1996, the Company formed a 50-50 joint venture with ATS
Automated Tooling Systems, Inc. for the purpose of further development
and commercialization of a heat battery. The venture is accounted for
under the equity method and at December 31, 1996, the consolidated
financial statements reflected an investment of $1,854,000 in "Other
Assets."
During 1996, in addition to the aforementioned joint venture, the
Company acquired and accounted for as a purchase, four additional
businesses as follows:
In February 1996, the Company acquired substantially all of the
net assets of Federal Parts Corporation for approximately $13,400,000
plus contingent payments based on performance.
In July 1996, the Company acquired substantially all of the net
assets of Fibro Friction, Inc. for approximately $14,000,000 plus
contingent payments based on performance. Located in Anjou, Quebec,
Canada, Fibro Friction is a leading formulator of friction materials and
a major supplier of integrally molded brake pads.
In July 1996, the Company acquired a 73.4% equity interest in
Intermotor Holdings Limited for approximately $14,050,000, with the
option to acquire a 100% interest in the future. Located in Nottingham,
England, Intermotor Holdings Limited manufactures and distributes a
broad line of engine management products primarily to European
automotive aftermarket customers.
In December 1996, the Company completed its acquisition of
substantially all of the net assets of the Hayden Division of The Equion
Corporation for approximately $5,200,000. Located in Corona, California,
Hayden assembles and distributes heavy duty cooling products to the
automotive aftermarket.
All four acquisitions were funded from cash and
short term borrowings. Assets acquired consisted principally of
accounts receivable , inventory and property, plant and equipment. In
aggregate, the excess of the purchase prices over the fair value of the
net assets acquired was approximately $32,000,000. The operating
results of these acquired businesses have been included in the
consolidated financial statements from the time of each respective
acquisition.
- F7 -
On the basis of a pro forma consolidation of the results of
operations as if the acquisitions had taken place at the beginning of
fiscal 1995, consolidated net sales would have been $745,900,000 for
fiscal 1996 and $719,200,000 for fiscal 1995. Consolidated pro forma
earnings and earnings per share, would not have been materially
different from the reported amounts for fiscal 1996 and 1995. Such pro
forma amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisition
had been effective at the beginning of fiscal 1995.
Subsequent to year end 1996, the Company acquired FILKO
Automotive Division of F&B Manufacturing Co. for approximately
$7,900,000. Located in Des Plaines, Illinois, FILKO Automotive assembles
and distributes ignition and wire products to the automotive
aftermarket.
3. Sale of Accounts Receivable
The Company's three-year agreement whereby it can sell up to a
$25,000,000 undivided interest in a designated pool of certain eligible
accounts receivable terminated on December 27, 1996, and was
simultaneously extended through March 31, 1997. The Company is presently
negotiating a two-year renewal of the agreement with similar terms and
conditions. At December 31, 1996 and 1995, net receivables amounting to
$25,000,000 had been sold under these agreements.
4. Inventories
(In thousands) December 31,
1996 1995
- -----------------------------------------------
Inventories consist of:
Finished goods $152,404 $133,035
Work in process 4,283 3,550
Raw materials 72,523 69,694
- -----------------------------------------------
Total inventories $229,210 $206,279
- -----------------------------------------------
5. Property, Plant and Equipment
(In thousands) December 31,
1996 1995
- -------------------------------------------------------------------------
Property, plant and equipment consist
of the following:
Land, buildings and improvements $ 72,785 $ 70,159
Machinery and equipment 93,446 76,263
Tools, dies and auxiliary equipment 9,196 7,766
Furniture and fixtures 21,323 17,339
Leasehold improvements 7,105 5,486
Construction in progress 12,013 7,527
----------------
215,868 184,540
Less, accumulated depreciation
and amortization 88,949 75,003
- -------------------------------------------------------------------------
Total property, plant and
equipment, net $126,919 $109,537
- -------------------------------------------------------------------------
6. Other Assets
(In thousands)
December 31,
1996 1995
- -------------------------------------------------------------
Other assets consist of the following:
Deferred new customer acquisition costs $18,178 $13,596
Marketable securities 7,200 7,200
Unamortized customer supply agreements 6,533 5,638
Equity in joint ventures 6,153 3,995
Pension assets 601 476
Other 6,335 2,688
- -------------------------------------------------------------
Total other assets $45,000 $33,593
- -------------------------------------------------------------
Included in Other is a preferred stock investment in a customer of the
Company. Net sales to such customer amounted to $76,283,000, $53,499,000
and $51,935,000 in 1996, 1995, and 1994 respectively.
7. Notes Payable - Banks
The maximum amount of short-term bank borrowings outstanding at any month-
end was $104,700,000 in 1996 and $91,000,000 in 1995, and averaged
$87,447,000 and $61,483,000, respectively. The weighted average short-term
interest rate was 5.86% for 1996 and 6.47% for 1995. At December 31, 1996,
the Company had unused lines of credit aggregating approximately
$50,000,000.
8. Long-Term Debt
(In thousands) December 31,
1996 1995
- -----------------------------------------------------------
Long-term debt consists of:
6.81% senior note payable $73,000 $ 53,000
7.85% senior note payable 55,714 65,000
9.47% senior note payable 30,000 30,000
Credit Facility ($20 million Canadian) 14,624 --
7.50%-10.50% purchase obligations 5,997 7,113
Intermotor Facilities 5,464 --
Credit Agreement 3,354 5,034
Other 1,726 2,780
- -----------------------------------------------------------
189,879 162,927
Less current portion 17,492 14,262
- -----------------------------------------------------------
Total noncurrent portion of
long-term debt $172,387 $148,665
- -----------------------------------------------------------
Under the terms of the $73,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in
2000.
Under the terms of the $55,714,000 senior note agreement, the Company is
required to repay the remaining loan in six equal annual installments from
1997 through 2002.
Under the terms of the $30,000,000 senior note agreement, the Company is
required to repay the loan in seven varying annual installments beginning
in 1998. Subject to certain restrictions, the Company may make prepayments
without premium beginning in 1998.
- F8 -
Under the terms of the $20,000,000 CDN credit agreement, the Company is
required to repay the loan in four equal annual installments of $2,000,000
CDN beginning in 1998 with a final payment of $12,000,000 CDN in 2002.
Subject to certain restrictions, the Company can make prepayments without
premium. The credit agreement has various interest rate options which
averaged 5.5% for 1996.
The purchase obligations, due under agreements with municipalities,
mature in annual installments through 2003, and are secured by properties
having a net book value of approximately $19,458,000 at December 31, 1996.
The Credit Agreement matures in varying annual installments through
1998 and bears interest at the lower of 91% of prime rate, or 91% of the
London Interbank Offering Rate ("LIBOR") plus 1.092%. The Company also
entered into an interest rate swap agreement to reduce the impact of changes in
interest rates on its Credit Agreement. The swap agreement modifies the
interest rate on the Credit Agreement, adjusted favorably or unfavorably
for the spread between 77.52% of the 3-month reserve unadjusted "LIBOR" and
7.69%. The proceeds of such note were loaned to the Company's Employee
Stock Ownership Plan (ESOP) to purchase 1,000,000 shares of the Company's
common stock to be distributed in accordance with the terms of the ESOP
established in 1989 (see Note 11). The Company is exposed to credit loss in
the event of nonperformance by the other parties to the interest rate swap
agreement. However, the Company does not anticipate nonperformance by the
counterparties.
Maturities of long-term debt during the five years ending December 31,
2001, are $17,492,000, $19,042,000, $16,628,000, $26,532,000 and
$26,143,000 respectively.
Certain loan agreements contain restrictive covenants which require the
maintenance, on a quarterly basis, of minimum working capital and tangible
net worth, as defined, and limit, among other items, investments,
indebtedness and distributions for the payment of dividends and the
acquisition of capital stock. At September 30, 1996, the Company did not
comply with certain covenant requirements for which the Company received
waivers and amendments. At December 31, 1996, the Company was in
compliance with such covenants. At December 31, 1996, the Company had
unrestricted retained earnings of $37,683,000.
9. Stockholders' Equity
The Company has authority to issue 500,000 shares of preferred stock, $20
par value, and the Board of Directors is vested with the authority to
establish and designate series of preferred, to fix the number of shares
therein and the variations in relative rights as between series. On
December 18, 1995, the Board of Directors established a new series of
preferred shares designated as Series A Participating Preferred Stock. The
number of shares constituting the Series A Preferred Stock are 30,000. The
Series A Preferred Stock is designed to participate in dividends, ranks
senior to the Company's common stock as to dividends and liquidation rights
and has voting rights. Each share of the Series A Preferred Stock shall
entitle the holder to one thousand votes on all matters submitted to a vote
of the stockholders of the Company. No such shares were outstanding at
December 31, 1996.
On January 17, 1996, the Board of Directors adopted a Shareholder Rights
Plan (Plan). Under the Plan, the Board declared a dividend of one
Preferred Share Purchase Right (Right) for each outstanding common share of
the Company. The dividend was payable on March 1, 1996, to the
shareholders of record as of February 15, 1996. The Rights are attached to
and automatically trade with the outstanding shares of the Company's common
stock.
The Rights will become exercisable only in the event that any person or
group of affiliated persons becomes a holder of 20% or more of the
Company's outstanding common shares, or commences a tender or exchange
offer which, if consummated, would result in that person or group of
affiliated persons owning at least 20% of the Company's outstanding common
shares. Once the rights become exercisable they entitle all other
shareholders to purchase, by payment of an $80.00 exercise price, one one-
thousandth of a share of Series A Participating Preferred Stock, subject to
adjustment, with a value of twice the exercise price. In addition, at any
time after a 20% position is acquired and prior to the acquisition of a 50%
position, the Board of Directors may require, in whole or in part, each
outstanding Right (other than Rights held by the acquiring person or group
of affiliated persons) to be exchanged for one share of common stock or one
one-thousandth of a share of Series A Preferred Stock. The Rights may be
redeemed at a price of $0.001 per Right at any time prior to their
expiration on February 28, 2006.
On April 20, 1994, the Company announced that the Board of Directors has
authorized the repurchase by the Company of up to 200,000 shares of its
common stock to be used to meet present and future requirements of its
stock option program. As of December 31, 1996, 100,300 shares were
repurchased at a cost of $1,627,000.
10. Stock Options
At December 31, 1996, the Company has principally two fixed stock-based
compensation plans. Under the 1994 Omnibus Stock Option Plan, the Company
is authorized to issue 400,000 stock options. The options become
exercisable over a four year period and expire at the end of five years
following the date they become exercisable. Under the 1996 Independent
Director's Stock Option Plan, the Company is authorized to issue 50,000
stock options. The options become exercisable one year after the date of
grant and expire at the end of ten years following the date of grant. At
December 31, 1996, in aggregate 470,000 shares of authorized but unissued
common stock were reserved for issuance under the Company's stock option
plans.
- F9 -
STOCK OPTIONS (continued)
The Company applies Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for the fixed stock option plans. Had compensation
cost for the Company's stock-based compensation plans, for options granted
in 1996 and 1995, been determined based on fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings per
share would have been reduced to the pro forma amounts indicated below:
(Dollars in thousands except per share data) 1996 1995
- ----------------------------------------------------------------
Net Earnings As reported $ 14,658 $ 16,132
Pro forma $ 14,544 $ 16,132
Primary Earnings As reported $ 1.12 $ 1.23
per share Pro forma $ 1.11 $ 1.23
For pro forma calculations, the fair value of each option grant is
estimated on the date of grant using the Cox Rubinstein Binomial option-
pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995: expected volatility of 25.5%, expected life of 4.4
years, dividend yield of 2.0% and risk free interest rate of 6.0% for
issued options.
A summary of the status of the Company's option plans follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
(Shares in thousands) Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 281 $16.54 288 $ 16.52 82 $ 16.31
Granted 157 16.27 -- -- 250 16.39
Exercised (11) 14.40 (7) 15.35 (36) 15.43
Forfeited (3) 16.39 -- -- (8) 15.43
- ---------------------------------------------------------------------------------------
Outstanding at
end of year 424 $16.50 281 $ 16.54 288 $ 16.52
- ---------------------------------------------------------------------------------------
Options exercisable at
end of year 142 94 38
- ---------------------------------------------------------------------------------------
Weighted-average
fair value of
options granted
during the year 142 $ 4.28 $ -- $ 4.32
</TABLE>
Options Outstanding
- --------------------------------------------------------------------------------
Numbered Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Price at 12/31/96 Contractual Life Exercise Price
- --------------------------------------------------------------------------------
$16.00 - $18.56 424,000 6.1 $16.50
Options Exercisable
- --------------------------------------------------------------------------------
Number
Range of Exercisable Weighted-Average
Exercise Price at 12/31/96 Exercise Price
- --------------------------------------------------------------------------------
$16.39 - $18.56 142,000 $16.85
11. Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially all
of the unionized employees of the EIS Brake Parts Division. The benefits
are based on years of service. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be
earned in the future.
(In thousands)
December 31,
1996 1995 1994
- ---------------------------------------------------------------------
Net periodic pension cost for 1996, 1995
and 1994 includes the following components:
Service cost benefits earned
during the period $219 $235 $250
Interest cost on projected benefit
obligation 653 634 631
Actual return on plan assets (1,135) (1,760) (88)
Net amortization and deferral 443 1,185 (521)
- ---------------------------------------------------------------------
Net periodic pension cost $180 $294 $272
- ---------------------------------------------------------------------
The following table sets forth the plans funded status at
December 31, 1996 and 1995:
(In thousands)
December 31,
1996 1995
- --------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $(9,445) and $(9,710)
in 1996 and 1995, respectively $(10,036) $(10,317)
- --------------------------------------------------------------------
Projected benefit obligation $(10,036) $(10,317)
Plan assets at fair value (primarily
debt securities, commercial mortgages
and listed stocks) 10,418 9,814
- --------------------------------------------------------------------
Plan assets greater than/(less than)
projected benefit obligation 382 (503)
Unrecognized prior service cost 374 416
Unrecognized net (gain)/loss (764) 27
Unrecognized net obligation being
recognized over 15 years 118 145
Adjustment required to recognize
minimum liability -- (588)
- --------------------------------------------------------------------
Prepaid (accrued) pension cost
included in accrued expenses $110 $(503)
- --------------------------------------------------------------------
Assumptions used in accounting
for the pension plan are as follows: 1996 1995 1994
- --------------------------------------------------------------------
Discount rates 7.0% 6.5% 6.5%
Expected long-term rate of return
on assets 8.0% 8.0% 8.0%
- --------------------------------------------------------------------
- F10 -
In addition, the Company participates in several multiemployer plans
which provide defined benefits to substantially all unionized workers. The
Multiemployer Pension Plan Amendments Act of 1980 imposes certain liabilities
upon employers associated with multiemployer plans. The Company has not
received information from the plans' administrators to determine its share, if
any, of unfunded vested benefits.
The Company and certain of its subsidiaries also maintain various
defined contribution plans, which include profit sharing, providing
retirement benefits for other eligible employees.
The provisions for retirement expense in connection with the plans are
as follows:
Defined
Multi- Contribution
employer Plans and Other Plans
- ---------------------------------------------------------
Year-end December 31,
1996 $383,000 $2,175,000
1995 366,000 3,091,000
1994 379,000 5,033,000
In January 1989, the Company established an Employee Stock Ownership
Plan and Trust for employees who are not covered by a collective bargaining
agreement. The ESOP authorized the Trust to purchase up to 1,000,000 shares
of the Company's common stock in the open market. In 1989, the Company
entered into an agreement with a bank authorizing the Company to borrow up
to $18,000,000 in connection with the ESOP. Under this agreement, the
Company borrowed $16,729,000, payable in annual installments through 1998
(see Note 8), which was loaned on the same terms to the ESOP for the
purchase of common stock. During 1989, the ESOP made open market purchases
of 1,000,000 shares at an average cost of $16.78 per share. Future company
contributions plus dividends earned will be used to service the debt.
During 1996, 1995 and 1994, 96,800, 97,100 and 96,800 shares were
allocated to the employees, leaving 204,900 unallocated shares in the ESOP
trust at December 31, 1996.
Contributions to the ESOP are based on a predetermined formula which
is primarily tied into dividends earned by the ESOP and loan repayments. The
provision for expense in connection with the ESOP was approximately $1,406,000
in 1996 $1,334,000 in 1995 and $1,321,000 in 1994. The expense was calculated
by subtracting dividend and interest income earned by the ESOP, which amounted
to approximately $274,000, $289,000 and $296,000 for the years ended December
31, 1996, 1995 and 1994, respectively, from the principal repayment on the
outstanding bank loan. Interest costs amounted to approximately $360,000,
$515,000 and $645,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
At December 31, 1996 and 1995, indebtedness of the ESOP to the Company
in the amounts of $3,345,000 and $5,025,000, respectively, is shown as
deductions from stockholders' equity in the consolidated balance sheets.
Dividends paid on ESOP shares are recorded as reductions in retained
earnings in the consolidated balance sheets.
In August 1994 the Company established an unfunded Supplemental
Executive Retirement Plan for key employees of the Company. Under the plan,
employees may elect to defer a portion of their compensation and, in addition,
the Company may at its discretion make contributions to the plan on behalf of
the employees. Such contributions were not significant in 1996, 1995 and 1994.
12. Postretirement Benefits
The Company provides certain medical and dental care benefits to eligible
retired employees. Approximately 2,100 employees and 220 retirees are
eligible under this plan. Salaried employees become eligible for retiree
health care benefits after reaching age 65 if they retire at age 65 or
older with at least 15 years of continuous service. EIS Brake Parts
unionized employees become eligible after reaching age 65 if they retire at
age 65 or older with at least 10 years of continuous service. Other
unionized employees are covered under union health care plans.
Generally, the health care plans pay a stated percentage of most health
care expenses reduced for any deductible and payments made by government
programs and other group coverage. The costs of providing most of these
benefits has been shared with retirees since 1991. Retiree annual
contributions will increase proportionally if the Company's health care
payments increase.
The Company's current policy is to fund the cost of the health care
plans on a pay-as-you-go basis.
The components of the net periodic benefit cost for the years ended
December 31, 1996, 1995 and 1994 are as follows:
(In thousands) 1996 1995 1994
Service cost $ 837 $ 592 $ 701
Interest cost 1,419 1,147 960
Net amortization and deferral 408 30 --
- -----------------------------------------------------
$2,664 $1,769 $1,661
- -----------------------------------------------------
The following table sets forth the amounts included in the accompanying
consolidated balance sheets at December 31, 1996 and 1995:
(In thousands) 1996 1995
- ---------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation (APBO):
Retirees $ 8,556 $ 7,398
Fully eligible active participants 913 888
Other active participants 11,419 9,731
- ---------------------------------------------------------------------
20,888 18,017
Less unrecognized net loss 4,712 3,948
- ---------------------------------------------------------------------
Accrued postretirement benefit costs
recognized in the balance sheet $16,176 $14,069
- ---------------------------------------------------------------------
- F11 -
For measuring the expected postretirement benefit obligation, a health
care cost trend rate of 10 and 11 percent was assumed for 1996 and 1995,
respectively. The rate was assumed to gradually decrease to 5 percent in 2002
and remain at that level thereafter. The weighted-average discount rate used
in determining the APBO was 7.5 and 7 percent at December 31, 1996 and 1995.
The health care cost trend rate has a significant effect on the APBO
and net periodic benefit cost. A 1 percent increase in the trend rate for
health care costs would increase the APBO by $3,151,000 and service and
interest costs by $379,000.
13. Other Income (Expense), Net
(In thousands)
1996 1995 1994
- -------------------------------------------------------------------------
Other income (expense), net consists of:
Interest and dividend income $1,668 $2,066 $1,724
(Loss) on sale of accounts
receivable (Note 3) (1,266) (1,516) (1,107)
Income from joint ventures 1,336 1,700 828
Other net 73 179 (209)
- -------------------------------------------------------------------------
Total other income (expense), net $1,811 $2,429 $1,236
- -------------------------------------------------------------------------
14. Taxes Based on Earnings
Reconciliations between the U.S. federal income tax rate and the
Companys effective income tax rate as a percentage of earnings before
income taxes:
1996 1995 1994
- -------------------------------------------------------------------
U.S. federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
State and local income taxes, net
of federal income tax benefit 1.8 1.4 5.2
Non-deductible items, net 0.6 0.1 0.1
Benefits of income subject to taxes
at lower than the U.S. federal rate (10.6) (15.9) (8.6)
Other (1.1) (0.1) 1.4
- ------------------------------------------------------------------
Effective tax rate 25.7% 20.5% 33.1%
- -------------------------------------------------------------------
The following is a summary of the components of the net deferred tax
assets and liabilities recognized in the accompanying consolidated
balance sheets:
(In thousands) December 31,
1996 1995
- ---------------------------------------------------------------------
Deferred tax assets:
Inventories $11,170 $13,223
Allowance for customer returns 5,945 4,943
Postretirement benefits 5,937 5,639
Allowance for doubtful accounts 983 1,209
Accrued salaries and benefits 1,630 2,123
Other 2,587 2,689
- ---------------------------------------------------------------------
Total $28,252 $29,826
- ---------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 8,207 $ 9,217
Promotional costs 2,230 2,272
Other 1,335 1,420
- ---------------------------------------------------------------------
Total 11,772 12,909
- ---------------------------------------------------------------------
Net deferred tax assets $16,480 $16,917
- ---------------------------------------------------------------------
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, the Company believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to
realize the net deferred tax assets.
The Company has not provided for federal income taxes on the
undistributed income of its foreign subsidiaries because of the
availability of foreign tax credits and/or the Company's intention to
permanently reinvest such undistributed income. Cumulative undistributed
earnings of foreign subsidiaries on which no United States income tax has
been provided were $11,858,000 at the end of 1996, $13,140,000 at the end
of 1995, and $12,502,000 at the end of 1994.
Earnings of a subsidiary operating in Puerto Rico, amounting to
approximately $12,114,000 (1995 - $11,278,000; 1994 - $9,482,000), which
are not subject to United States income taxes, are partially exempt from
Puerto Rican income taxes under a tax exemption grant expiring on December
31, 2002. The tax benefits of the exemption, reduced by a minimum tollgate
tax instituted in 1993, amounted to $.27 per share in 1996 (1995 - $.29;
1994 - $.24).
Foreign income taxes amounted to approximately $1,639,000, $689,000
and $1,097,000 for 1996, 1995 and 1994, respectively.
- F12 -
15. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Marketable securities
The fair values of investments are estimated based on quoted market prices
for these or similar instruments.
Long-term debt
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of the same remaining
maturities.
The estimated fair values of the Company's financial instruments are as
follows:
(In thousands)
Carrying Fair
December 31, 1996 Amount Value
- --------------------------------------------------
Cash and cash equivalents $4,664 $4,664
Marketable securities 7,202 7,202
Long-term debt (189,879) (194,318)
- --------------------------------------------------
(In thousands)
Carrying Fair
December 31, 1995 Amount Value
- --------------------------------------------------
Cash and cash equivalents $10,856 $10,856
Marketable securities 13,872 13,879
Long-term debt (162,927) (169,485)
- --------------------------------------------------
16. Commitments and Contingencies
Total rent expense for the three years ended December 31, 1996 was as
follows:
(In thousands)
Real
Total Estate Other
- --------------------------------------------------
1996 $6,568 $3,244 $3,324
1995 5,839 2,720 3,119
1994 5,345 2,223 3,122
At December 31, 1996, the Company is obligated to make minimum
rental payments (exclusive of real estate taxes and certain other
charges) through 2011, under operating leases for real estate, as
follows:
(In thousands)
1997 $4,077
1998 3,505
1999 3,049
2000 2,751
2001 2,702
Thereafter 7,081
- ----------------------------------------
Total $23,165
- ----------------------------------------
At December 31, 1996, the Company had letters of credit
outstanding aggregating approximately $2,820,000. The contract amount of
the letters of credit is a reasonable estimate of their value as the
value for each is fixed over the life of the commitment.
The Company is involved in various litigation matters arising in
the ordinary course of business. Although the final outcome of these
matters cannot be determined, it is management's opinion that the final
resolution of these matters will not have a material effect on the
Company's financial position and results of operations.
17. Quarterly Financial Data (Unaudited)
Net Gross Net Per
Sales Profit Earnings Share
- ----------------------------------------------------------
(In thousands, except per share amounts)
- ----------------------------------------------------------
1996 Quarter:
First $174,440 $ 55,900 $ 4,293 $ .33
Second 205,252 66,171 6,102 .46
Third 187,792 60,770 3,534 .27
Fourth 154,321 51,994 729 .06
- ---------------------------------------------------------
Total $721,805 $234,835 $14,658 $ 1.12
- ---------------------------------------------------------
1995 Quarter:
First $159,720 $ 54,199 $ 3,894 $ .30
Second 184,040 60,768 8,301 .63
Third 178,251 54,598 3,127 .24
Fourth 141,474 49,859 810 .06
- ---------------------------------------------------------
Total $663,485 $219,424 $16,132 $ 1.23
- ---------------------------------------------------------
The fourth quarter of 1996 reflects favorable year-end adjustments
(defined contribution plan and certain customer allowances) of
approximately $4,400,000 ($2,640,000 net of income taxes).
The fourth quarter of 1995 reflects an improved gross profit percentage,
compared to the prior 1995 quarters, primarily due to favorable year-end
inventory adjustments of approximately $3,000,000 ($1,800,000 net of income
taxes). Conversely, the fourth quarter of 1995 was negatively impacted by
a $1,800,000 ($1,080,000 net of income taxes) reserve for expenses related
to reorganization of the Company's sales force.
- F13 -
PART II (Continued)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and Executive Officers is set forth in
the 1997 Annual Proxy Statement.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS.
Information relating to Management Remuneration and Transactions is set
forth in the 1997 Annual Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial Owners
and Management is set forth in the 1997 Annual Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions is
set forth under "Certain Transactions" in the 1997 Annual Proxy Statement.
- 15 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
14.(A)Document List
(1) Among the responses to this Item14(a)are the following Financial
statements.
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets -
December 31, 1996 and 1995
Consolidated Statements of Earnings - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) The following financial schedule for the years 1996, 1995 and 1994 is
submitted herewith:
Schedule Page
II. Valuation and Qualifying Accounts 22
Selected Quarterly Financial Data, for the Years Ended December 31,
1996, and 1995, are included herein by reference to Part II, Item 8.
All other schedules are omitted because they are not required, not
applicable or the information is included in the financial statements
or notes thereto.
(3) Exhibits required by Item 601 of Securities and Exchange Commission
Regulations S-K: See "Exhibit Index" beginning on page 17.
(B) Reports on Form 8-K
No reports on Form 8-K were required to be filed for the three months
ended December 31, 1996.
- 16 -
EXHIBIT INDEX
Exhibit Reference
Number Number
3.1 By-Laws filed as an Exhibit of Registrant's annual report on *
Form 10-K for the year ended December 31, 1986, is incorporated
herein by reference.
3.2 Restated Certificate of Incorporation, dated July 31, 1990, filed *
as an Exhibit of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990, is incorporated herein by reference.
3.3 Restated Articles of Incorporation, dated February 15, 1996, filed *
as an Exhibit of Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by reference.
3.4 Restated By-Laws, dated May 23, 1996, filed as Exhibit of the E-1
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, is included as Exhibit 3.4 reference number E-1.
4.1 Registration of Preferred Share Purchase Rights filed on Form 8-A on *
February 29, 1996, is incorporated herein by reference.
10.1 Credit Agreement dated March 10, 1989, between the Registrant and *
Chemical Bank filed as an Exhibit of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989, is incorporated
herein by reference.
10.2 Note Purchase Agreement dated October 15, 1989, between the *
Registrant and the American United Life Insurance Company, the
General American Life Insurance Company, the Jefferson-Pilot
Life Insurance Company, the Ohio National Life Insurance
Company, the Crown Insurance Company, the Great-West Life
Assurance Company, the Guarantee Mutual Life Company, the
Security Mutual Life Insurance Company of Lincoln, Nebraska,
and the Woodmen Accident and Life Company filed as an
Exhibit of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, is incorporated herein by reference.
10.3 Letter Agreement of July 20, 1990, amending the Credit Agreement *
between the Registrant and Chemical Bank dated March 10,
1989, filed as an Exhibit of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, is incorporated
herein by reference.
10.4 Letter Agreement of March 4, 1991, amending the Credit Agreement *
between the Registrant and Chemical Bank dated March 10, 1989,
filed as an Exhibit of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated herein by reference.
- 17 -
EXHIBIT INDEX (Continued)
Exhibit Reference
Number Number
10.5 Letter Agreement of December 20, 1991, amending the Credit *
Agreement between the Registrant and Chemical Bank dated
March 10, 1989, filed as an Exhibit of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991, is incorporated
herein by reference.
10.6 Letter Agreement dated October 30, 1992, amending the Credit *
Agreement between the Registrant and Chemical Bank, assigned to
NBD Bank, N.A. with amendment dated December 20, 1991, dated
March 10, 1989, filed as an Exhibit of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992, is incorporated
herein by reference.
10.7 Note Agreement of November 15, 1992, between the Registrant and *
Kemper Investors Life Insurance Company, Federal Kemper Life
Assurance Company, Lumbermens Mutual Casualty Company,
Fidelity Life Association, American Motorists Insurance Company,
American Manufacturers Mutual Insurance Company, Allstate
Life Insurance Company, Teachers Insurance & Annuity Association
of America, and Phoenix Home Life Mutual Insurance Company filed
as an Exhibit of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, is incorporated herein by reference.
10.8 Letter Agreement dated December 27, 1993, amending the Credit *
Agreement between the Registrant and Chemical Bank, assigned to
NBD Bank, N.A. with amendment dated December 20, 1991, dated
March 10, 1989, filed as an Exhibit of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, is incorporated
herein by reference.
10.9 Employee Stock Ownership Plan and Trust dated January 1, 1989, *
filed as an Exhibit of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989, is incorporated herein by reference.
10.10 Supplemental Executive Retirement Plan dated August 15, 1994, *
filed as an Exhibit of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated herein by reference.
10.11 1994 Omnibus Stock Option Plan of Standard Motor Products, Inc. *
is incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-8 (33-58655).
- 18 -
EXHIBIT INDEX (Continued)
Exhibit Reference
Number Number
10.12 Note Purchase Agreement dated December 1, 1995, between *
the Registrant and Metropolitan Life Insurance Company, the
Travelers Insurance Company Connecticut Life Insurance Company,
CIGNA Property and Casualty Insurance Company, Life
Insurance Company of North America and American United Life
Insurance Company filed as an Exhibit of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
10.13 Credit Agreement of May 1, 1996, between the Registrant and E-2
Canadian Imperial Bank of Commerce ("CIBC") is included
as Exhibit 10.13 reference number E-2.
10.14 Letter Agreement dated September 25, 1996, amending the E-3
Note Agreement between the Registrant and Canadian Imperial
Bank of Commerce ("CIBC") is included as Exhibit 10.14
reference number E-3.
10.15 Letter Agreement of September 30, 1996, amending the E-4
Note Agreement between the Registrant and Mutual Life
Insurance Company, Allstate Life Insurance Company,
Teachers Insurance and Annuity Association of America, and
Phoenix Home Life Mutual Insurance Company dated November 15,
1992, is included as Exhibit 10.15 reference number E-4.
10.16 Letter Agreement of November 22, 1996, amending the E-5
Note Agreement between the Registrant and Mutual Life
Insurance Company, Allstate Life Insurance Company,
Teachers Insurance and Annuity Association of America, and
Phoenix Home Life Mutual Insurance Company with amendment
dated September 30, 1996, dated November 15, 1992, is included
as Exhibit 10.16 reference number E-5.
10.17 1996 Independent Outside Directors' Stock Option Plan of E-6
Standard Motor Products, Inc. is included as Exhibit 10.17
reference number E-6.
21 List of Subsidiaries of Standard Motor Products, Inc. is
included on Page 23.
23 Consent of Independent Auditors KPMG Peat Marwick LLP, is
included on Page 24.
27 Financial Data Schedule is included on Page 25
* Incorporated by reference.
- 19 -
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.
STANDARD MOTOR PRODUCTS, INC.
(Registrant)
Lawrence I. Sills
-----------------
Lawrence I. Sills, President, Director,
Chief Operating Officer
Michael J. Bailey
-----------------
Michael J. Bailey, Vice President Finance,
Chief Financial Officer
James J. Burke
--------------
James J. Burke, Corporate Controller
Dated: New York, New York
March 27, 1997
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:
March 27, 1997 Lawrence I. Sills
(Dated) -----------------
Lawrence I. Sills, President, Director,
Chief Operating Officer
March 27, 1997 Bernard Fife
(Dated) ------------
Bernard Fife
Co-Chairman, Director
March 27, 1997 Nathaniel L. Sills
(Dated) ------------------
Nathaniel L. Sills
Co-Chairman, Director
March 27, 1997 Arthur D. Davis
(Dated) ---------------
Arthur D. Davis, Director
March 27, 1997 Marilyn F. Cragin
(Dated) -----------------
Marilyn F. Cragin, Director
March 27, 1997 Arthur S. Sills
(Dated) ---------------
Arthur S. Sills, Director
- 20 -
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
Under date of March 4, 1997, we reported on the consolidated balance sheets of
Standard Motor Products, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, as contained in the annual report on Form 10-K
for the year 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
New York, New York
March 4, 1997
- 21 -
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 3,254,000 $ 505,000 $ 405,000 $ 1,152,000 $ 3,012,000
Allowance for discounts 2,653,000 23,000 189,000 2,487,000
--------------------------------------------------------------
$ 5,907,000 $ 505,000 $ 428,000 $ 1,341,000 $ 5,499,000
Allowance for sales returns $ 13,446,000 $ 91,861,000 $ 189,000 $ 90,435,000 $ 15,061,000
Allowance for inventory valuation $ 13,016,000 $ 3,046,000 $1,169,000 $ 2,947,000 $ 14,284,000
Year ended December 31, 1995:
Allowance for doubtful accounts $ 3,547,000 $ 2,214,000 $ 28,000 $ 2,535,000 $ 3,254,000
Allowance for discounts 2,161,000 492,000 -- -- 2,653,000
--------------------------------------------------------------
$ 5,708,000 $ 2,706,000 $ 28,000 $ 2,535,000 $ 5,907,000
Allowance for sales returns $13,815,000 $ 71,536,000 $ -- $ 71,905,000 $ 13,446,000
Allowance for inventory valuation $13,956,000 $ 2,119,000 $ -- $ 3,059,000 $ 13,016,000
Year ended December 31, 1994:
Allowance for doubtful accounts $ 3,468,000 $ 4,234,000 $ 254,000 $ 4,409,000 $ 3,547,000
Allowance for discounts 2,068,000 93,000 -- -- 2,161,000
--------------------------------------------------------------
$ 5,536,000 $ 4,327,000 $ 254,000 $ 4,409,000 $ 5,708,000
Allowance for sales returns $11,550,000 $ 65,299,000 $ -- $ 63,034,000 $ 13,815,000
Allowance for inventory valuation $11,634,000 $ 2,953,000 $ -- $ 631,000 $ 13,956,000
</TABLE>
- 22 -
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF FEBRUARY 28, 1997
Percent
State or of Voting
Country of Securities
Name Incorporation Owned
SMP Motor Products Ltd. Canada 100
Marathon Auto Parts and Products, Inc. New York 100
Motortronics, Inc. New York 100
Reno Standard Incorporated Nevada 100
Stanric, Inc. (1) Delaware 100
Mardevco Credit Corp. (2) New York 100
Standard Motor Products (Hong Kong) Limited Hong Kong 100
Industrial & Automotive Associates, Inc. California 100
Standard Motor Electronics, Ltd. Israel 100
Four Seasons Europe S.A.R.L. France 100
SMP Credit Corp. Delaware 100
All of the subsidiaries are included in the consolidated financial
statements.
(1) Mardevco owns 12.7% of Stanric
(2) Stanric owns 14.9% of Mardevco
- 23 -
EXHIBIT 23
Independent Auditors' Consent
To the Board of Directors
Standard Motor Products, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-58655) on Form S-8 of Standard Motor Products, Inc. of our reports dated
March 4, 1997, relating to the consolidated balance sheets of Standard Motor
Products, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows and related schedule for each of the years in the three-year
period ended December 31, 1996, which reports appear in the December 31, 1996,
annual report on Form 10-K of Standard Motor Products, Inc.
KPMG Peat Marwick LLP
New York, New York
March 28, 1997
- 24 -
- --------------------------------------------------------------------------------
EXHIBIT E-1
RESTATED AS OF
MAY 23, 1996
RESTATED BY-LAWS
of
STANDARD MOTOR PRODUCTS, INC.
SECTION 1. The annual meeting of the stockholders of the
Corporation shall be held at the office of the Corporation in Long Island
City, unless the Board of Directors shall have designated for the holding
of such meeting in the manner required by statute, some other place
within the State of New York, on the last Tuesday in April of each year
(unless such day be a legal holiday, then the next succeeding business
day) at 2 o'clock in the afternoon, unless the Board of Directors shall
have designated another time and date (not later than 30 days after the
last Tuesday in April) and there shall have been mailed, not later than
the last Tuesday in April, to stockholders, in the manner provided by
laws, a notice of such meeting.
SECTION 2. Special meetings of the stockholders may be held
upon call of the president, a majority of the number of directors in
office or of stockholders holding a majority of the outstanding shares of
stock entitled to vote at such meeting.
SECTION 3. Notice of the time and place of every meeting of
stockholders shall be given in the manner provided by law.
SECTION 4. The holders of as majority of the outstanding
shares of stock of the corporation entitled to vote at any meeting of
stockholders must be present in person or by proxy at such meeting to
constitute a quorum, less than such quorum, however, having power to
adjourn any meeting from time to time without notice.
The Board of Directors may, before any meeting
of stockholders, appoint two inspectors of election to serve at such
meeting. If the board fails to make such appointment, or if their
appointees or either of them fail to appear at such meeting, the chairman
of the meeting may appoint inspectors or an inspector to act at such
meeting.
SECTION 5. Meetings of stockholders shall be presided over
by the president, or, in his absence, a vice-president, or in the absence
of all of them, by a chairman to be elected at the meeting. The
secretary or an assistant secretary of the Corporation shall act as
secretary at such meeting, if present, and in the absence of all of them,
the chairman of the meeting may appoint a secretary.
SECTION 6. The stock of the Corporation shall be
transferable or assignable on the books of the Corporation by holders in
person or by attorney on surrender of the certificates therefor duly
endorsed. Certificates of stock shall be in such form and executed in
such manner as may be prescribed by law and the Board of Directors.
SECTION 7. The directors shall be elected at the annual
meeting of stockholders or as soon thereafter as practicable by a
plurality of the votes at such election, and shall hold office until the
next annual meeting of the stockholders and until their successors are
elected and qualified.
The number of directors of the Corporation shall
be fixed, from time to time, by resolution adopted by a majority of the
total number of directors which the Corporation would have if there were
no vacancies, provided that such number may not be less than three.
If the number of directors be increased by
reason of any such resolution fixing the number of directors, the
additional director or directors may, unless otherwise required by law,
be elected by a majority of the directors in office at the time of the
increase, or by the stockholders at a special meeting of stockholders
called for that purpose, or, if not so elected prior to the next annual
meeting of stockholders, they shall be elected by the stockholders at
such annual meeting.
Directors need not be stockholders of the Corporation. Any and all
of the directors may be removed at any time without cause assigned, at
any meeting called for that purpose, by the vote of the holders of 75% of
each class of the outstanding capital stock of the Corporation then
outstanding and entitled to vote on such action. Vacancies caused by
such removal may be filled at any annual meeting or at any special
meeting called for that purpose by a plurality of votes at such election.
All vacancies in the Board of Directors not
hereinabove provided for may be filled by a majority of the directors
then in office.
SECTION 8. Meetings of the Board of Directors shall be held
at the times fixed by the board or upon call of the president or a
majority of the number of directors in office and may be held at any
place within or without the State of New York. The Secretary or other
officer performing his duties shall give reasonable notice (which need
not in any event exceed two days) of all meetings of directors, provided
that a meeting may be held without notice immediately after the annual
election and notice need not be given of regular meetings held at times
fixed by resolution of the board. Meetings may be held at any time
without notice if all the directors are present or if those not present
waive notice either before or after the meeting. A majority of the whole
board shall constitute a quorum and the act of such a majority of the
whole board at any meeting shall be the act of the board. Less than such
quorum shall have power to adjourn any meeting from time to time without
notice. Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such board of committee
by means of a conference telephone or similar communications equipment
allowing al persons participating in the meting to hear each other at the
same time. Participation by such means shall constitute presence in
person at a meeting.
SECTION 9. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation,
which, to the extent provided in such resolution, shall have and may
exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, including the power to authorize
the seal of the Corporation to be affixed to all papers which may require
it. Each such committee shall make its own rules of procedure and shall
keep regular minutes of its proceedings and report the same to the board
when required. The Board of Directors may, by resolution passed by a
majority of the whole board, appoint one of its members chairman of the
board. Such chairman shall preside at all meetings of the Board of
Directors.
SECTION 10. By a Resolution of the Board, Directors may
receive a specified salary or retainer for their services as Directors or
as members of a Committee of Directors. In addition, a fixed fee and
expenses of attendance may be allowed for attendance at each meeting of
the Board of Directors or at a meeting of a Committee of the Board of
Directors. Nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity as Officer,
Agent or otherwise and receiving compensation therefore.
No contract or other transaction between the
Corporation and any other Corporation, and no act of the Corporation
shall in any way be affected or invalidated by the fact that any of the
Directors of the Corporation are pecuniarily or otherwise interested in,
or are directors, officers or stockholders of, such other Corporation;
any director individually, or any firm or Corporation of which such
director may be a member, director, officer or stockholder or in which
such director may have any other interest, may be a party to, and may be
pecuniarily or otherwise interested in, any contract or transaction of
the Corporation, provided that the fact that he or such firm or
Corporation is so interested shall be disclosed or shall have been known
to the Board of Directors or a majority thereof; and any director of the
Corporation who is also a director, officer or stockholder of such other
Corporation, or who is so interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize such contract or transaction, and may
vote thereat to authorize such contract or transaction, with like force
and effect as if he were not such director or officer of such other
Corporation and not so interested.
SECTION 11. The Board of Directors, as soon as may be
convenient after the election of directors in each year, shall appoint
one of their number president, and shall also appoint a treasurer and a
secretary and may, from time to time, appoint one or more vice-presidents
and such other officers as they may deem proper. The same person may be
appointed to more than one office.
SECTION 12. The term of office of all officers shall be
until the next election of directors and until their respective
successors are chosen and qualify, but any officer may be removed from
office at any time by the Board of Directors. Vacancies in the offices
shall be filled by the Board of Directors.
SECTION 13. The president shall be the chief executive
officer of the Corporation, shall have general supervision of the affairs
of the Corporation and shall report to and be responsible to the Board of
Directors and the stockholders.
The other officers of the Corporation shall have
such powers and duties, except as modified by the Board of Directors, as
generally pertain to their offices respectively, as well as such powers
and duties as from time to time shall be conferred by the board of
directors.
SECTION 14. Except to the extent expressly prohibited by the
New York Business Corporation Law, the Corporation shall indemnify each
person made or threatened to be made a party to, or called as a witness
or asked to submit information in, any action or proceeding by reason of
the fact that such person or such person's testator or intestate is or
was a Director of Officer of the Corporation, or serves or served at the
request of the Corporation any other Corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment or
other final adjudication adverse to such person establishes that his or
her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled,
and provided further that no such indemnification shall be required with
respect to any settlement or other nonadjudicated disposition of any
threatened or pending action or proceeding unless the Corporation has
given its prior consent to such settlement or other disposition. In this
Section 14, reference to any action or proceeding includes, without
limitation, any pending or threatened action, proceeding, hearing or
investigation, whether civil or criminal, whether judicial,
administrative or legislative in nature, and whether or not in the nature
of a direct or a shareholders' derivative action brought by or on behalf
of the Corporation or any other Corporation or enterprise which the
Director or Officer of the Corporation serves or has served at the
Corporation's request.
The Corporation shall advance or promptly
reimburse upon request any person entitled to indemnification hereunder
for all expenses, including attorneys' fees, reasonably incurred in
defending any action or proceeding in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of such person to
repay such amount if such person is ultimately found not to be entitled
to indemnification or, where indemnification is granted, to the extent
the expenses so advanced or reimbursed exceed the amount to which such
person is entitled, provided, however, that such person shall cooperate
in good faith with any request by the Corporation that common counsel be
utilized by the parties to an action or proceeding who are similarly
situated unless to do so would be inappropriate due to actual or
potential differing interests between or among such parties.
The Corporation shall also promptly pay or
reimburse such person for all expenses, including fees and expenses of
counsel, reasonably incurred by such person in successfully enforcing his
or her rights pursuant to this Section 14.
Noting herein shall limit or affect any right of
any person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation,
certificate of incorporation, By-Law, insurance policy, contract or
otherwise.
Anything in these By-Laws to the contrary
notwithstanding, no elimination of this Section 14, and no amendment of
this Section 14 adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective
until the 60th day following notice to such person of such action, and no
elimination of or amendment to this Section 14 shall deprive any person
of his or her rights hereunder arising out of alleged or actual events or
acts occurring prior to such 60th day or actual or alleged failures to
act prior to such 60th day.
The Corporation shall not, except by elimination
or amendment of this Section 14 in a manner consistent with the preceding
paragraph, take any corporate action or enter into any agreement which
prohibits, or otherwise limits the rights of any person to,
indemnification in accordance with the provisions of this Section 14.
The indemnification of any person provided by this Section 14 shall
continue after such person has ceased to be a Director or Officer of the
Corporation and shall inure to the benefit of such person's heirs,
executors, administrators and legal representatives.
The Corporation is authorized to enter into
agreements with any of its Directors or Officers extending rights to
indemnification and advancement of expenses to such person to the fullest
extent permitted by applicable law, but the failure to enter into any
such agreement shall not affect or limit the rights of such person
pursuant to this Section 14, it being expressly recognized hereby that
all Directors or Officers of the Corporation, by serving as such after
the adoption hereof, are acting in reliance hereon and that the
Corporation is estopped to contend otherwise.
In case any provision in this Section 14 shall
be determined at any time to be unenforceable in any respect, the other
provisions shall not in any way be effected or impaired thereby, and the
affected provision shall be given the fullest possible enforcement in the
circumstances, it being the intention of the Corporation to afford
indemnification and advancement of expenses to its Directors and
Officers, acting in such capacities or in the other capacities mentioned
herein, to the fullest extent permitted by applicable law.
For purposes of this Section 14, the Corporation
shall be deemed to have requested a person to serve an employee benefit
plan where the performance by such person of his or her duties to the
Corporation also impose duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan, and
excise taxes assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be considered indemnifiable
expenses. For purposes of this Section 14, the term "Corporation" shall
include any legal successor to the Corporation, including any Corporation
which acquires all or substantially all of the assets of the Corporation
in one or more transactions.
A person who has been successful, on the merits
or otherwise, in the defense of a civil or criminal action or proceeding
of the character described in the first paragraph of this Section 14
shall be entitled to indemnification as authorized in such paragraph.
Except as provided in the preceding sentence and unless ordered by a
court, any indemnification under this Section 14 shall be made by the
Corporation if, and only if, authorized in the specific case:
(1) By the Board of Directors acting by as quorum consisting of Directors
who are not parties to such action or proceeding upon a finding that the
Director or Officer has met the standard of conduct set forth in the first
paragraph of this Section 14, or,
(2) If such a quorum is not obtainable or, even if obtainable, a quorum of
disinterested Directors so directs:
(a) By the Board of Directors upon the opinion in writing of independent
legal counsel that indemnification is proper in the circumstances because
the standard of conduct set forth in the first paragraph of this Section
14 has been met by such Director or Officer, or
(b) By the shareholders upon a finding that the Director or Officer
has met the applicable standard of conduct set forth in such paragraph.
SECTION 15. These by-laws may, at any time, be added to, amended or repealed
in whole or in part by the affirmative voice of a majority of the number of
directors in office given at a duly convened meeting of the board, the
notice of which includes notice of such proposed action. No such notice
need be given if all members of the Board of Directors are present at the
meeting.
All By-Laws, including any By-Laws made, amended or repealed
by the Directors, shall be subject to amendment, repeat or re-enactment
by the stockholders entitled to vote at any annual meeting, or any such
meeting called for that purpose.
END OF EXHIBIT E-1
- --------------------------------------------------------------------------------
EXHIBIT E-2
Greater Toronto West
Commercial Banking Centre
1 City Centre Drive
Suite 200
Mississauga, Ontario
L5B 1M2
May 1, 1996
Mr. Michael J. Bailey
Vice President Finance &
Chief Financial Officer
Standard Motor Products Inc.
37-18 Northern Blvd.
Long Island City, New York
11101
Dear Mr. Bailey:
Credit Agreement
Canadian Imperial Bank of Commerce ("CIBC") is pleased to confirm that subject
to the acceptance of Blue Streak-Hygrade Motor Products, Ltd., EIS Brake
Manufacturing, Ltd., and Unimotor, Ltd. or those of wholly owned Canadian
subsidiaries (collectively, the "Customer"), CIBC has established in favour of
the Customer various credit facilities (each a "Facility") as set out below.
The provisions are as follows:
Facility A - Operating Facility
Credit Limit
C$5,000,000.
Type &
Availment
& Rate
A 364 day committed credit facility under which the Customer may at its option
obtain on a revolving basis the following, subject to the specified rate(s):
(1) Canadian dollar Prime Rate Overdrafts and loans: Prime Rate plus 0.00% per
year.
(2) Canadian dollar Bankers' Acceptances (with terms to maturity of 30 to 180
days): Bankers' Acceptance Rate plus Commerce Acceptance Rate ("CAR")
minus 0.25% (minimum of 0.75% per annum.) CAR as of the date of this letter
is 1.00%.
(3) Canadian dollar, United States dollar Letters of Credit with terms to
expiry of not more than 12 months: subject to CIBC's fees and charges. The
total amount of Letters of Credit outstanding at any time may not exceed
C$500,000.
(4) U.S. dollar US Base Rate Loans and overdrafts: US Base Rate plus 0.00% per
year.
(5) U.S.dollar LIBOR Loans each in a minimum amount of US$1,000,000 and in
multiples of US$500,000 thereafter: LIBO Rates for 1 to 6 month LIBOR periods
plus 0.75% per year.
(6) C$100,000. Corporate Visa Line subject to the Customer signing CIBC's
usual documentation.
Purpose
For the Customer's business purposes.
Special
Provisions/
Conditions
Liabilities under this facility are restricted to an overall limit of
C$5,000,000 and expected to be as follows:
(1) C$5,000,000 under the style of EIS Brake Manufacturing, Ltd., Unimotor,
Ltd., or Blue Streak-Hygrade Motor Products, Ltd.
Facility B - Capital Loan
Credit Limit
C$20,000,000.
Type, Availment
& Rate
A 7 year committed credit facility under which the Customer may at its option
obtain on a non-revolving basis the following, subject to the specified rate(s):
(1) Canadian dollar Prime Rate Loans: Prime Rate plus 0.50% per year.
(2) Canadian dollar Bankers' Acceptances (with terms to maturity of 30 to 180
days): Bankers' Acceptance Rate plus Commerce Acceptance Rate ("CAR") plus
0.25% per year. CAR as of the date of this letter is 1.00%.
(3) U.S. dollar US Base Rate Loans: US Base Rate plus 0.50% per year.
(4) U.S.dollar LIBOR Loans each in a minimum amount of US$1,000,000 and in
multiples of US$500,000 thereafter: LIBO Rates for 1 to 6 month LIBOR periods
plus 1.25% per year.
(5) Upon the request of the Customer, CIBC will, on a best effort basis and
subject to any necessary credit approval, arrange interest rate swaps or other
hedging techniques to fix interest rates under Facility B.
Purpose
To finance the Capital Expenditures program and expansion of the Customer's
Canadian operations and/or those of wholly owned Canadian subsidiaries.
Scheduled Repayment & Maturity.
This Facility will be non-revolving at all times, and may be drawn down only up
to December 31, 1996, inclusive at which time CIBC may cancel the undrawn
portion of this facility. Interest is payable monthly in arrears. Facility B
is repayable in equal annual instalments of principal in accordance with the
following schedule:
drawdown - 30 Apr 97 - Nil (interest only)
01 May 97 - 29 Apr 98 - Nil (interest only)
30 Apr 98 - C$2,000,000
30 Apr 99 - C$2,000,000
30 Apr 00 - C$2,000,000
30 Apr 01 - C$2,000,000
The remaining balance of C$12,000,000 is due April 30, 2002. (To be further
negotiated contingent on firmed up CAPEX plans and the formalized business plan
and cash flow projections).
Early Payment Upon Default. If any Event of Default occurs and is continuing,
CIBC may cancel this Facility and declare all amounts then outstanding or
accrued in connection with this Facility (including all amounts which may be
payable as a consequence of such cancellation and declaration) to be immediately
due and payable, where upon those amounts shall be immediately due and payable
by the Customer to CIBC, without any further requirement and proceed immediately
to exercise all or any of CIBC's rights under this Agreement or other rights
(whether by operation of law, contract or otherwise).
Special Provisions/
Conditions
Facility B - Capital Loan utilization is expected to be utilized by EIS Brake
Manufacturing, Ltd.
Facility C - Foreign Exchange
Credit Limit
US$500,000.
Type &
Availment
enter into one or more spot, forward, or other foreign exchange rate
transactions with CIBC, subject to the Customer signing CIBC's usual foreign
exchange documentation. Credit usage will be determined by CIBC based on the
Customer's outstanding obligations under such transactions measured in
accordance with CIBC's policies and procedures in effect from time to time.
General Provisions
Conditions
Precedent to
Drawdown
Normal conditions precedent are to apply including, without limitation, the
following:
(1) No material adverse change in the condition of the Customer/Guarantor/any
subsidiaries or affiliates.
(2) No Event of Default shall have occurred and is continuing.
(3) Execution and delivery to CIBC of all required legal documentation
reflecting the terms herein.
(4) Delivery of satisfactory legal opinions.
(5) Satisfactory review of the Canadian operations by CIBC's environment
specialist.
Special
Provisions/
Conditions
Current Ratio. The Customer will ensure the ratio, determined on a combined
basis, of its current assets to its current liabilities is not at any time less
than 1.5:1.
Minimum Shareholders' Equity. The Customer will ensure the total, determined
on a combined basis, of (A) its shareholders' equity less the value of its
intangible assets plus (B) such subordinated debt is not at any time less than
C$10,000,000.
(Note: For the purposes of this calculation inter-company advances will be
included as equity.)
Negative Pledge. The Customer will ensure that there is no Lien upon or with
respect of any present or future assets of the Customer and that there is no
assignment by the Customer of any right to income, other than:
(a) a purchase money Lien to secure in the ordinary course of business the
purchase price of such an asset or to secure debt incurred solely for the
purpose of financing the acquisition of such an asset;
(b) a Lien existing on any such asset at the time of its acquisition;
(c) a renewal or replacement Lien for debt secured by a Lien referred to in
clause (a) or (b) above up to the principal amount outstanding with respect to
that Lien at the time of renewal or replacement; or
(d) a Lien incurred or arising by operation of law or in the ordinary course of
business or incidentally as a consequence of the ownership of any such asset
(but in any case not in connection with the borrowing of money or the obtaining
of advances or credit),and which does not (taken in the total with all other
Liens of the nature of kind described in this clause(d)) materially detract from
the value of any such asset or materially impair the use of that asset in the
operation of its business;
where "Lien" upon or in respect of an asset means a mortgage, lien, charge,
security interest or encumbrance in respect of that asset, whether fixed or
floating, real or personal or mixed or tangible or intangible or a pledge or
hypothecation of that asset or a conditional sale agreement or other title
retention agreement or equipment trust or capital lease obligation relating
to that asset.
Increased Costs, Losses, Forgone Return, Etc. If CIBC determines that any new
legal requirement or official regulatory directive or request (including,
without limitation, that calling for new or increased reserves, special
deposits, tax, capital or other allocation, but excluding that solely imposing
increased tax on CIBC's general income) has or will have the direct or indirect
effect of:
(a) increasing the cost to CIBC of maintaining any commitment or performing any
obligation under this Agreement;
(b) reducing any amount received or receivable by CIBC or its effective return
in connection with this Agreement or on its capital; or
(c) causing CIBC to make any payment or to forgo any return based on any amount
received or receivable by CIBC in connection with this Agreement;
then the Customer will pay to CIBC on demand such additional amount or amounts
as shall compensate CIBC for any such cost,reduction, payment or forgone return.
Any certificate of CIBC as to any such compensation shall, except for
demonstrable error, be conclusive and binding upon the Customer. In determining
such compensation, CIBC may use any commercially reasonable method of averaging
and attribution that it considers applicable.
Confidentiality Clause. The Customer acknowledges and agrees that the terms and
conditions recited herein are confidential between the Customer and the CIBC.
The Customer agrees not to disclose the information contained herein to a third
party without the expressed consent of CIBC.
Cross default. This credit will have benefit of cross-default to the credit
facilities of the Guarantor with terms and conditions no less rigorous than
those contained in the Guarantor's credit agreement.
Assignment
CIBC reserves the right to syndicate, participate, sell or assign its rights,
benefits and obligations under the Credit Facility in whole or in part to one or
more persons with the consent of the Customer and Guarantor, such consent not to
be unreasonably withheld or delayed. The Customer and Guarantor agree to enter
into such amended and/or further documentation at the expense of CIBC (including
but not limited to a formal Credit Agreement) as requested by CIBC in connection
with any such assignment.
Security
A Guarantee and specific Postponement of Claim from Standard Motor Products Inc.
in an amount that is unlimited and supported by a negative pledge agreement, a
notification provision in the event of default under the US revolving credit
agreements, a Director's Resolution and Letter of Opinion from the guarantor's
external legal counsel in form satisfactory to CIBC counsel. The Guarantee is
also to include the provisions of Schedule 'A' attached with the specific
language to be prepared by external counsel.
Reporting
Requirements
The Customer, on both an individual and combined basis will provide to CIBC:
(1) Within 45 days of each fiscal quarter, Financial Statements for that quarter
on an unaudited basis.
(2) Within 120 days of each fiscal year-end, Financial Statements for that
year-end on an audited basis.
(3) Within 60 days of each fiscal year-end, an annual budget, or update as
applicable, for the next fiscal year along with a corporate 3 year business
plan/projection or appropriate successor document.
Structuring Fee
A non-refundable fee of $25,000 is to be paid to CIBC in accordance with the
following schedule.
(1) $10,000 payable upon acceptance of this terms letter;
(2) the balance of $15,000 payable upon closing of the transaction.
Administration
Fee
C$100/month
Standby Fee
The Customer will, on the last day of each calendar month, pay to CIBC a standby
fee of 0.125% per year on Facilities A and B, computed on the unused portion of
these Facilities calculated daily in arrears for the actual number of days
elapsed from the date of the Customer's signing of this Agreement.
The Customer may permanently cancel any unused portion of either of these
Facilities without penalty on not less than 5 business days' written notice to
CIBC and upon payment of all accrued standby fees to the effective date of
cancellation.
Legal Fees
All legal fees including out of pocket expenses and disbursements incurred by
CIBC in connection with the preparation, negotiation or enforcement of this
Agreement are for the account of the Customer.
Default Interest
Rate
Prime plus 2.00% per year; US Base rate plus 2.00% per year; Commerce
Acceptance Rate plus 1.75% per year; LIBOR plus 2.75% per year.
Other Standard Provisions
The provisions in the attached Schedule - Standard Credit Provisions -
Form 6326 form part of this Agreement. Section 1.9, Insurance ofthis Schedule
was modified as follows:
Delete the second and third sentence "At CIBC's request, all
policies will contain a loss payable clause and, if that property
includes real property, a mortgagee clause in CIBC's favour. In
any event, the Customer assigns all proceeds of insurance to
CIBC ."
Modity the last sentence to read "The Customer will promptly
give CIBC written notice of any material loss or damage to that
property."
Next Scheduled Review Date
July 31, 1997
Please indicate acceptance by returning a signed copy of this
Agreement. If CIBC does not receive that copy by May 31, 1996, then
this offer of financing will expire.
Yours truly,
Canadian Imperial Bank of Commerce
by:___________________________________
Jake Crough
Authorized Officer
Acknowledgement. The undersigned acknowledges that the Customer has
received a copy of this Credit Agreement (which includes the attached
schedule(s) referred to above).
Accepted
Blue Streak-Hygrade Motor Products, Ltd.
by: ____________________________________
Name:__________________________
Title:__________________________
by: ____________________________________
Name:__________________________
Title:__________________________
EIS Brake Manufacturing, Ltd.
by: ____________________________________
Name:__________________________
Title:__________________________
by: ____________________________________
Name:__________________________
Title:__________________________
Unimotor, Ltd.
by: ____________________________________
Name:__________________________
Title:__________________________
by: ____________________________________
Name:__________________________
Title:__________________________
SCHEDULE "A"
Special Provisions/Conditions:
Working Capital. The Guarantor will maintain, at all times,
consolidated working capital of not less than US$105,000,000.
Working Capital defined as Current Assets less Current Liabilities,
determined in accordance with generally accepted accounting
principles.
Fixed Charge Ratio. The Guarantor will not permit as of the end of
any fiscal quarter the ratio of Consolidated Operating Cash Flow for
any four of the six immediately preceding fiscal quarters to Fixed
Charges for such quarters to be less than 1.75:1. Consolidated
Operating Cash Flow for any period defined as the sum of (i)
Consolidated Net Income for such period, (ii) all provisions for
federal, state and other income taxes made by the Guarantor and its
Subsidiaries for such period, (iii) Interest Charges for such period
and (iv) depreciation and amortization expense for such period.
Fixed Charges for any period defined as the sum of Interest Charges
and Rentals of the Guarantor and its Subsidiaries accrued for such
period.
Rentals defined as of the date of any determination thereof, all
fixed payments (including all payments which the lessee is obligated
to make to the lessor on termination of the lease or surrender of the
property) payable by the Guarantor or a Subsidiary, as lessee of
sublessee under a lease (other than a Capitalized Lease), of real or
personal property, having a remaining unexpired term as at such date
(including the original term and any term renewals or extensions
available at the lessee's sole option) in excess of three (3) years,
but exclusive of any amounts required to be paid by the Guarantor or
a Subsidiary (whether or not designated as rents or additional rents)
on account of maintenance, repairs, insurance, taxes, assessments,
amortization and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed on the basis of the minimum
rents, if any, required to be paid by the lessee, regardless of sales
volume or gross revenues.
Capitalized Lease defined as any lease the obligation for Rentals
with respect to which, in accordance with generally accepted
accounting principles, would be required to be capitalized on a
balance sheet of the lessee or for which the amount of the asset and
liability thereunder, as if so capitalized, would be required to be
disclosed in a note to such balance sheet.
Consolidated Net Income for any period defined as, the consolidated
net income (or net loss) of the Guarantor and its Subsidiaries
determined in accordance with generally accepted accounting
principles, but excluding therefrom:
(i) the net income of any Person (other than a Subsidiary)
in which the Guarantor or a Subsidiary has an equity interest, except to
the extent that such income has been distributed and received by the
Guarantor or a Subsidiary in the form of cash or other property (valued
at the fair market value thereof at the time of distribution as determined
by the Guarantor's independent public accountants), or the net loss of any
Person (other than a Subsidiary) in which the Guarantor or a Subsidiary
has an equity interest,
(ii) the net income or net loss of any Subsidiary for any period prior to
the date it becomes a Subsidiary,
(iii) any gain or loss (net of any tax effect) resulting from the
reappraisal reevaluation or write-up of assets subsequent to the Initial
Closing Date,
(iv) any extraordinary gain or loss (including, without limitation,
capital gains or losses in aggregate amounts exceeding One Hundred
Thousand Dollars ($100,000) in any one fiscal year, and extraordinary
charges or credits),
(v) proceeds of any life insurance policy,
(vi) net income of a Subsidiary which for any reason cannot be distributed
as a dividend to the Guarantor or any Subsidiary,
(vii) gain arising from the acquisition of debt securities for a cost
less than the principal amount thereof plus accrued interest,
(viii) any amounts paid or payable in any currency that at the time of
determination is not fully convertible into United States dollars,
(ix) net earnings of any successor or transferee corporation of the
Guarantor accrued prior to consummation of the transaction that resulted
in such Person being such successor or transferee, and
(x) any deferred credit (or amortization of a deferred credit) arising
from the acquisition by the Guarantor of any Person.
Consolidated Funded Debt/Capitalization Ratio. The Guarantor will
ensure the ratio, determined on a consolidated basis of its funded
debt shall not exceed 60% of its Consolidated Capitalization.
Consolidated Funded Debt defined as the aggregate amount of Funded
Debt of the Guarantor and its Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles. Funded Debt defined as all indebtedness of the
Guarantor and its Subsidiaries which by its terms matures more than
one year from the date of creation thereof, excluding any portion
thereof payable within one year and any portion thereof outstanding
pursuant to a revolving credit or similar agreement that obligates
the lender or lenders thereunder to extend credit over a period of
more than one year. Consolidated Capitalization defined as the sum
of Consolidated Funded Debt and Consolidated Net Worth.
Consolidated Net Worth defined as the consolidated stockholders
equity of the Guarantor and its Subsidiaries determined in
accordance with generally accepted accounting principles.
Ownership. The Guarantor will maintain its 100% ownership interest in
the Customer.
Cross Default. The facilities will have the benefit of cross-
default to credit facilities of the Guarantor, with terms and conditions
contained therein deemed to be contained herein. The Guarantor
undertakes to notify CIBC of any default under its credit facilities
within 5 days of receipt of notification of default from any of its
lenders.
Credit Maintenance. The Guarantor will maintain its credit
facilities on an unsecured basis. To the extent that the Guarantor
grants a security interest over any assets to any other lender, CIBC
will be provided with an equal ranking security interest in such
assets and will be entitled to share in the proceeds thereof.
Reporting Requirements:
(1) Within 45 days of each fiscal quarter, Financial Statements
and 10-Q for that quarter on an unaudited basis.
(2) Within 120 days of each fiscal year-end, Financial
Statements, Annual Report and 10-K for that year-end on an
audited basis.
(3) Within 60 days of each fiscal year-end, an annual budget, or
update as applicable, for the next fiscal year along with a
corporate 3 year business plan/projection or appropriate
successor document.
CIBCLOAN
END OF EXHIBIT E-2
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EXHIBIT E-3
Greater Toronto West
Commercial Banking Centre
1 City Centre Drive
Suite 200
Mississauga, Ontario
L5B 1M2
September 24, 1996
Mr. Michael J. Bailey
Vice President Finance &
Chief Financial Officer
Standard Motor Products Inc.
37-18 Northern Blvd.
Long Island City, New York
11101
Dear Mr. Bailey
AMENDMENT NO. 1 to the Credit Agreement dated May 1, 1996, between Canadian
Imperial Bank of Commerce ("CIBC") and Standard Motor Products Inc. (the
"Customer").
Amendments. The Agreement is amended as follows:
Facility B - Capital Loan - Credit Limit C$20,000,000.
Scheduled Repayment From Drawdown - August 29, 1998
Nil
(interest only)
& Maturity
August 30, 1998 - C$2,000,000
August 30, 1999 - C$2,000,000
August 30, 2000 - C$2,000,000
August 30, 2001 - C$2,000,000
The remaining balance of C$12,000,000 is due August 30, 2002.
Other Matters. (1) Except as revised by this Amendment, the
Agreement remains in full force and effect,
unmodified and unrevoked.
(2) This Amendment is governed by the law of the
Province of Ontario.
(3) The term "the Agreement" means the Credit
Agreement referred to above, as it may have been
amended up to the date of this Amendment.
ACCEPTANCE OF THIS AMENDMENT: By each of the Customer and CIBC through
respective authorized officer(s) or representative(s) signing below and
returning a signed copy of this document to the other, the Customer and
CIBC agree to revise the Agreement in accordance with the provisions set
out above under Amendments and Other Matters, and on any attached page(s)
or schedule(s), as of the following date:
Dated as of: ________________________________1996.
For For
Canadian Imperial Bank of Commerce Standard Motor Products Inc.
by:______________________________ by:_________________________________
name:____________________________ name:_______________________________
title:___________________________title:_______________________________
STANDARD.A96
END OF EXHIBIT E-3
- --------------------------------------------------------------------------------
EXHIBIT E-4
LIMITED WAIVER AND FIRST AMENDMENT TO NOTE AGREEMENT
This Limited Waiver and First Amendment to Note Agreement (this "Agreement") is
entered into as of the 30th day of September, 1996, between STANDARD MOTOR
PRODUCTS, INC., a New York corporation (the "Company"), having its principal
place of business at 37-18 Northern Boulevard, Long Island City, New York, New
York 11101, and PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, having its home office
and principal mailing address at 711 High Street, Des Moines, IA 50392, Attn:
Investment Securities Department; ALLSTATE LIFE INSURANCE COMPANY, having its
home office and pricipal mailing address at 3075 Sanders Road, Suite G3A,
Northbrook, IL 60062, Attn: Private Placements Department; TEACHERS INSURANCE
AND ANNUITY ASSOCIATION OF AMERICA, having its home office and pricipal mailing
address at 730 Third Avenue, New York, NY 10017, Attn: Private Placements
Department; and PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, having its home
office and principal mailing address at One American Row, Hartford, CT 06115,
Attn: Private Placements Division (collectively, the "Noteholders").
RECITALS
The Company entered into a Note Agreement, dated as of November 15, 1992, (the
"Note Agreement"), pursuant to which the Company issued $65,000,000 original
aggregate principal amount of 7.89% Senior Notes due December 15, 2002 to the
Purchasers listed on Schedule 1 of the Note Agreement (the "Notes").
The Company has requested, and Allstate has agreed that the Note Agreement be
amended in certain particulars and that certain Events of Default be waived as
set forth in this Agreement in return for a fee of 25 basis points to be paid
to Allstate on or prior to the closing of this Agreement.
Capitalized terms used but not defined herein shall have the meaning set forth
in the Note Agreement.
NOW THEREFORE, in consideration of the premises set forth above and in
consideration of the mutual covenants and conditions herein continued and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Recitals Incorporated.
The Recitals set forth above are incorporated herein by reference.
2. Limited Waiver of Existing Defaults.
2.1 Allstate agrees that it will not take any action or exercise any
rights that it may have against the Company under the Note
Agreement or the Notes, or given to them by law, based upon the
Company's default under Section 7.2 of the Note Agreement
(Maintenance of Leverage Ratio) for the fiscal quarter ended
September 30, 1996.
2.2 The parties hereto acknowledge that the limited waiver by the
Allstate set forth in paragraph 2.1, above, shall apply only to the
period of time as set forth in said paragraph. Allstate hereby
specifically retains any and all rights that it may have to take
any and all actions available to it under the Note Agreement or the
Notes, or given to it by at law or equity, to enforce its rights
against the Company for any Default or Event of Default not
expressly waived in paragraph 2.1, above.
3. Amendment to Note Agreement
3.1 Section 7.1 shall be deleted in its entirety and the following
inserted in lieu thereof:
"Tangible Net Worth. The Company will not permit its Consolidated
Tangible Net Worth to be less than $150,000,000 at any time."
3.2 Section 7.2 shall be deleted in its entirety and the following
inserted in lieu thereof:
"Consolidated Debt. The Company will not permit Consolidated Debt
to exceed 65% of Consolidated Capitalization at any time on or
after October 1, 1996, up to and including December 31, 1997 or to
exceed 60% of Consolidated Capitalization at any time thereafter."
3.3 Section 7.4 shall be deleted in its entirety and the following
inserted in lieu thereof:
"Fixed Charge Ratio. The Company will not permit as of the end of
any fiscal quarter the ratio of Consolidated Operating Cash flow
for any period of four consecutive immediately preceding fiscal
quarters to Fixed Charges for such quarters to be less than 1.75 to
1.00 for quarters ending after September 30, 1996
4. Representations of the Company.
4.1 After giving effect to the Limited waiver set forth in paragraph
2.1 above, as of the date of this Agreement, no Default or Event of
Default under the Notes or the Note Agreement, or under any other
agreement to which the Company is subject, exists or is continuing.
4.2 The representations and warranties of the Company referred to in
Section 3 of the Note Agreement are true and correct and complete
in all material respects as if made on the date hereof, except as
to those representations and warranties made as of a specific date
which are true and correct and materially complete as of such date.
4.3 No dissolution proceedings with respect to the Company have been
commenced or are contemplated, and there has been no material
adverse change in the business, condition or operations (financial
or otherwise) of the Company as a whole since June 30, 1996.
4.4 This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a legal, valid and binding obligation
of the Company.
5. Amendment Fee.
In consideration of Allstate's agreement to the waiver and amendments set
forth in this Agreement, the Company agrees to pay Allstate an amendment
fee of 25 basis points to be calculated based on the current outstanding
principal amount of the Notes (the "Amendment Fee"). The Company agrees
to pay the Amendment Fee on or prior to the closing date of this
Agreement by wire transfer to Allstate's account as set forth in the
wiring instructions provided in Annex 1 attached hereto.
6. Miscellaneous.
6.1 Except as expressly set forth in this Agreement, the terms of this
Agreement shall not operate as a waiver by Allstate of any of the
provisions of, or otherwise prejudice, remedies or powers under the
Note Agreement, the Notes or applicable law and shall not operate
as a waiver of or otherwise prejudice any rights it may have
against any other person. Except as expressly set forth in this
Agreement, none of the terms or provisions of either the Note
Agreement or the Notes shall be deemed to be modified hereby, and
each of the Note Agreement and the Notes, as modified herein, shall
continue in full force and effect.
6.2 All headings and captions preceding the test of the several
sections of this Agreement are intended solely for convenience of
reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect.
6.3 This Agreement embodies the entire agreement and understanding
among the Company and the Noteholders with regard to the matters
set forth herein, and supersedes all prior agreements and
undertakings relating to such matters.
6.4 This Agreement shall be governed by, and enforced in accordance
with the laws of the State of Illinois.
6.5 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized officers as of the date first written above.
STANDARD MOTOR PRODUCTS, INC.
By:____________________________________
Title: Treasurer
Name: David Kerner
ALLSTATE LIFE INSURANCE COMPANY
By:____________________________________
By:____________________________________
Its Authorized Signatories
END OF EXHIBIT E-4
- --------------------------------------------------------------------------------
EXHIBIT E-5
WAIVER2
LIMITED WAIVER AND SECOND AMENDMENT TO NOTE AGREEMENT
This Limited Waiver and Second Amendment to Note Agreement (this "Agreement")
is entered into as of the 22nd day of November, 1996, between STANDARD MOTOR
PRODUCTS, INC., a New York corporation (the "Company"), having its principal
place of business at 37-18 Northern Boulevard, Long Island City, New York, New
York 11101, and PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, having its home office
and principal mailing address at 711 High Street, Des Moines, IA 50392, Attn:
Investment Securities Department; ALLSTATE LIFE INSURANCE COMPANY, having its
home office and principal mailing address at 3075 Sanders Road, Suite G3A,
Northbrook, IL 60062, Attn: Private Placements Department; TEACHERS INSURANCE
AND ANNUITY ASSOCIATION OF AMERICA, having its home office and principal
mailing address at 730 Third Avenue, New York, NY 10017, Attn: Private
Placement Department; and PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, having
its home office and principal mailing address at One American Row, Hartford, CT
06115, Attn: Private Placements Division (collectively, the "Noteholders").
RECITALS
The Company entered into a Note Agreement, dated as of November 15, 1992, as
amended by Limited Waiver and First Amendment dated September 30, 1996 (the
"Note Agreement"), pursuant to which the Company issued $65,000,000 original
aggregate principal amount of 7.85% Senior Notes due December 15, 2002 (the
"Notes").
The Company has informed the Noteholders that on July 3, 1996, the Company
acquired a 73.42% voting interest in Intermotor Holdings Limited
("Intermotor"), a United Kingdom company. Said acquisition violates Section
7.10 of the Note Agreement in that it caused the $15,000,000 limitation in
clause (x) of the definition of the term "permitted Investments" contained in
Section 5.1 to be exceeded. The Company has requested that the Noteholders
waive any default arising from the Company's acquisition of Intermotor and
amend the Note Agreement to include Intermotor within the definition of
Restricted Subsidiary.
Capitalized terms used but not defined herein shall have the meaning set forth
in the Note Agreement.
NOW THEREFORE, in consideration of the premises set forth above and in
consideration of the mutual covenants and conditions herein continued and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Recitals Incorporated.
The Recitals set forth above are incorporated hereby by reference.
2. Limited Waiver of Existing Defaults.
2.1 The Noteholders agree that they will not take any action or
exercise any rights that
they may have against the Company under the Note Agreement or the
Notes, or given
to them by law, based upon the Company's default under Section 7.10
of the Note
Agreement (Permitted Investments) for the period July 3, 1996
through the date of this
Agreement.
2.2 The parties hereto acknowledge that the limited waiver by the
Noteholders set forth in
paragraph 2.1, above, shall apply only to the period of time as set
forth therein. The
Noteholders hereby specifically retain any and all rights that they
may have to take any
and all actions available to them under the Note Agreement or the
Notes, or given to
them at law or in equity, to enforce their rights against the
Company for any Default or Event of Default not expressly waived in
paragraph 2.1, above.
3. Amendment to Note Agreement
The definition of "Restricted Subsidiary" in Section 5.1 shall be
modified by adding the
following new language at the end of the definition:
"The foregoing notwithstanding, Intermotor Holding Ltd., a
United Kingdom corporation, shall be a Restricted Subsidiary,
provided that the Company shall at all times own not less
than 73% of Intermotor Holdings Limited."
4. Representations of the Company.
4.1 After giving effect to the Limited Waiver and First Amendment to
Note Agreement entered into as of the 30th day of September, 1996,
between the Company and the Noteholders and, after giving effect to
this Agreement, as of the date of this Agreement, no Default or
Event of Default under the Notes or the Note Agreement, or under
any other agreement to which the Company is subject, exists or is
continuing.
4.2 The representations and warranties of the Company referred to in
Section 3 of the Note Agreement are true and correct and complete
in all material respects as if made on the date hereof, except as
to those representations and warranties made as of a specific date
which are true and correct and materially complete as of such date.
4.3 No dissolution proceedings with respect to the Company have been
commenced or are contemplated, and there has been no material
adverse change in the business, condition or operations (financial
or otherwise) of the Company as a whole since June 30, 1996.
4.4 This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a legal, valid and binding obligation
of the Company.
5. Miscellaneous.
5.1 Except as expressly set forth in this Agreement, the terms of this
Agreement shall not operate as a waiver by the Noteholders of any
of the provisions of, or otherwise prejudice, remedies or powers
under the Note Agreement, the Notes or applicable law and shall not
operate as a waiver of or otherwise prejudice any rights it may
have against any other person. Except as expressly set forth in
this Agreement, none of the terms or provisions of either the Note
Agreement or the Notes shall be deemed to be modified hereby, and
each of the Note Agreement and the Notes, as modified herein, shall
continue in full force and effect.
5.2 All headings and captions preceding the test of the several
sections of this Agreement are intended solely for convenience of
reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect.
5.3 This Agreement embodies the entire agreement and understanding
among the Company and the Noteholders with regard to the matters
set forth herein, and supersedes all prior agreements and
undertakings relating to such matters.
5.4 This Agreement shall be governed by, and enforced in accordance
with the laws of the State of Illinois.
5.5 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one
and the same agreement.
5.6 This Agreement shall not be or become effective under the
conditions set forth in Section 9 of the Note Agreement shall first
have been satisfied.
WAIVER2
END OF EXHIBIT E-5
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EXHIBIT E-6
STANDARD MOTOR PRODUCTS, INC.
INDEPENDENT DIRECTORS' STOCK
OPTION PLAN
1. Purpose. The purpose of the Standard Motor Products, Inc.
Independent Directors' Stock Option Plan (the "Plan") is to secure for
Standard Motor Products, Inc., a New York Corporation, (the "Company")
and its stockholders the benefits of the incentive inherent in increased
common stock ownership by the members of the Board of Directors of the
Company who are not employees of the Company or any of its subsidiaries.
2. Definitions. When used in this Plan, unless the context
otherwise requires:
(a) "Board of Directors" or "Board" shall mean the Board
of Directors of the Company, as constituted from time to time, and as
elected at the Company's annual shareholder's meeting.
(b) "Chief Executive Officer" shall mean the persons who
at the time shall be Chief Executive Officer or Co-Chief Executive
Officers of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Fair Market Value" of a Share at any particular time
shall mean with respect to common stock , the average of the high and
low sale prices per share of the Company's common stock on the New York
Stock Exchange on the date prior to the date of a grant.
(e) "Officer Committee" means a committee of officers of
the Company, as designated by the Board, who may be authorized to
administer the Plan pursuant to Section 3.
(f) "Option" shall mean a non-qualified option issued
pursuant to the Plan.
(g) "Plan" shall mean this Standard Motor Products, Inc.
Independent Directors' Stock Option Plan adopted by the Board of
Directors at its meeting held on March 20, 1996, as such Plan from time
to time may be amended.
(h) "Share" shall mean a share of the Company's common
stock, par value $2. per share.
3. Administration. The Plan shall be administered by the
Board; provided, however, that at all times, a minority of the members
of the Board shall be ineligible to receive Options under the Plan. In
the event that a majority of the members of the Board become eligible to
receive Options under the Plan, the Board shall delegate the
administration of the Plan to the Officer Committee. The Officer
Committee shall consist of at least three members, all of whom shall be
officers of the Company. The Board or the Officer Committee, as the
case may be, shall have all the powers vested in it by the terms of the
Plan, such powers to include authority (within the limitations described
herein) to prescribe the form of the agreement embodying awards of
options made under the Plan.
The Board or Officer Committee shall, subject to the provisions of the
Plan, grant Options under the Plan and shall have the power to construe
the Plan, to determine all questions arising thereunder and to adopt and
amend such rules and regulations for the administration of the Plan as
it may deem desirable. Any decision of the Board or Officer Committee
in the administration of the Plan, as described herein, shall be final
and conclusive. The Board or Officer Committee may act only by a
majority of its members in office, except that the members thereof may
authorize any one or more of their number or the Secretary or any other
officer of the Company to execute and deliver documents on behalf of the
Board or Officer Committee. No member of the Board or Officer Committee
shall be liable for anything done or omitted to be done by such member
or by any other member of the Board or Officer Committee in connection
with the Plan, except for such member's own willful misconduct or as
expressly provided by statute.
4. Eligibility. Each member of the Board who is (i) not an
employee of the Company or any subsidiary, and (ii) not a blood relation
of any member of the Board who is a controlling shareholder of the
Company (an "Independent Director") shall be eligible to receive an
Option in accordance with Section 5 below. The adoption of this Plan
shall not be deemed to give any director any right to be granted an
option to purchase Shares of the Company, except to the extent and upon
such terms and conditions as may be determined by the Board or Officer
Committee.
5. Grant of Options. The Shares which may be issued under the
Plan will be common stock (par value $2. per share). Each year, as of
the date of the annual meeting of the shareholders of the Company (or at
such other time as designated by the Board or Officer Committee), each
Independent Director who has been elected or reelected, shall receive an
Option for an amount of Shares as determined by the Board or Officer
Committee, provided however, that the maximum amount of Shares that
shall be issued under the Plan shall not exceed 50,000 Shares. The
Shares to be issued may be either Treasury Shares or authorized but
unissued Shares. Option grants under the Plan will be non-qualified
options.
A Certificate of Option or Option Agreement, in the form
determined by the Board or Officer Committee and signed by the Chairman
of the Board or Officer Committee, the President or the Chief Financial
Officer of the Company, attested by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company, and
having the seal of the Company affixed hereto, shall be delivered to
each person to whom an Option is granted. Each Certificate of Option or
Option Agreement shall bear a legend indicating its status as an non-
qualified option, and shall contain the terms designated by the Board or
Officer Committee pursuant to the Plan and such other terms and
conditions, not inconsistent with the Plan, as the Board or Officer
Committee deems necessary or appropriate.
6. Price. The purchase price per share for the Shares to be
purchased pursuant to the exercise of any Option (the "Share Price")
shall be equal to 100% of the Fair Market Value of a Share on the date
immediately preceding the day such Option is granted. Except as
otherwise permitted below, payment for the number of Shares to be
exercised (the Share price times the number of Shares, the "Exercise
Price") pursuant to the exercise of an Option shall be made in full at
the time of the exercise of the Option, either in cash, or by certified
check payable to the order of the Company. In addition, the Option
shall provide that the Exercise Price may be satisfied, in whole or in
part through the surrender of previously acquired Shares of the Company
at their fair market value on the exercise date or through other
financial arrangements made with a stock broker.
7. Exercise of Options. Except as otherwise provided herein,
an Option, after the grant thereof, shall be exercisable by the holder
at such rate and times as may be fixed by the Board or Officer
Committee, but not sooner than approval of the Plan by stockholders of
the Company as provided in Section 14 hereof. Notwithstanding anything
to the contrary, no Option may be exercised until the first anniversary
of the date upon which the Option was granted.
An Option shall be exercised by the delivery to the Company of a
Certificate of Option or Option Agreement duly signed by the holder
thereof and by full payment of the Exercise Price for the Shares to be
purchased pursuant to such exercise. Such deliveries shall be made to
the officer of the Company appointed by the Chairman of the Board or
Officer Committee or such other designated person for the purpose of
receiving the same.
Within a reasonable time after exercise of an Option, the Company
shall cause to be delivered to the person entitled thereto a certificate
for the Shares purchased pursuant to exercise of the Option. All such
Shares and certificates shall be issued in the name of the person who is
entitled at the time to exercise the Option or, if such person is the
original holder and so elects, in the name of such person and his or her
spouse as joint tenants with right of survivorship. If the Option shall
have been exercised with respect to less than all of the Shares subject
thereto, then the Company shall also cause to be delivered to the person
entitled thereto a new Certificate of Option or Option Agreement in
replacement of the certificate or agreement surrendered at the time of
the exercise, indicating the number of Shares with respect to which the
Option remains available for exercise, or else the original certificate
or agreement shall be marked to give effect to the partial exercise
thereof.
8. Duration of Options. Except as provided below, each Option
granted under the Plan shall provide that it may not be exercised after
ten years from the date upon which the Option was granted, or such
lesser period as determined by the Board or Officer Committee in its
discretion.
9. Non-Transferability of Options. Options shall not be
transferable by the holder thereof, otherwise than by will or the laws
of descent and distribution to the extent provided in Section 12 hereof.
Options may be exercised or surrendered during the holder's lifetime
only by the holder thereof, provided, however, that in the event that an
Option holder becomes legally incapacitated and a representative or
committee is appointed to act on his or her behalf, such representative
or committee may exercise any Options that are held by the incapacitated
Option holder to the same extent as the holder could have had he or she
not suffered such incapacity.
10. Termination of Independent Director Relationship. If an
Option holder shall cease to be an Independent Director for any reason
other than death, while holding an Option that has not expired and has
not been fully exercised, such person shall have until the end of the
90th calendar day following the date he ceases to be such an Independent
Director, and no longer, to exercise any unexercised portion of such
Option that he or she could have exercised on the day on which such
person ceased to be an Independent Director.
If an Option holder shall cease to be an Independent Director by
reason of death, while holding an Option that has not expired and has
not been fully exercised, such person's executors, administrators or
distributees, as the case may be, may, at any time within 120 calendar
days after the date of death (but in no event after the Option has
expired under Section 8 above), exercise the Option with respect to any
Shares as to which the decedent could have exercised at the time of
death.
11. Adjustment of Shares. If prior to the complete exercise of
any Option there shall be declared and paid a stock dividend upon the
Shares or if the Shares shall be split up, converted, exchanged,
reclassified, combined or in any way substituted for, the Option to the
extent that it has not been exercised, shall entitle the holder, upon
the future exercise of the Option, to purchase such number and kind of
securities or other property subject to the terms of the Option which he
or she would have been entitled to receive had he or she actually owned
the Shares subject to the unexercised portion of the Option at the time
of the occurrence of such event; and the aggregate Option Price payable
upon the future exercise of the Option stall be the same as if the
original Shares were being purchased thereunder. Any fractional Shares
or other securities which may be issuable upon the exercise of the
Option as a result of such adjustment shall be payable in cash based
upon the Fair Market Value of such Shares or other securities as of the
time of such exercise. If any such event should occur, the number of
Shares with respect to which Options remain to be granted, or with
respect to which Options may again be granted, shall be similarly
adjusted.
If the Board of Directors approves or authorizes the dissolution
or liquidation of the Company, or the reorganization, merger or
consolidation of the Company with one or more corporations as a result
of which either the Company will become a wholly-owned subsidiary of
another corporation or neither the Company nor a subsidiary is the
surviving corporation, or the sale of all or substantially all of the
assets of the Company other than to a subsidiary, or if a tender offer
for the Common Stock (or any other capital stock of the Company or a
subsidiary for which all the Common Stock has heretofore been exchanged
or into which it has been changed (the "Recapitalized Stock") shall
commence, or, if during any twelve month period, a majority of the
members of the Board of Directors are replaced with newly elected
individuals, or such existing directors cease to constitute a majority
of the Board of Directors, unless such new directors were nominated by
the management of the Company, (each of the foregoing being referred to
hereinafter as an "Extraordinary Transaction"), or, if, after the
adoption of the Plan, any individual, corporation, other entity or any
group (within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended), which is unaffiliated with the Company or a
subsidiary other than as a stockholder of the Company, acquires,
directly or indirectly, within any twelve-month period Shares of the
Common stock or any class of Recapitalized Stock with full voting rights
(excluding any Shares issued in any acquisition or reorganization
approved by the Board of Directors in which the Company is the surviving
corporation or in control of the surviving corporation and any Shares
issued by the Company in a public or private offering), such that such
individual, corporation, other entity or group becomes, directly or
indirectly, after the adoption of the Plan, the holder of Common stock
or such Recapitalized Stock representing 25 percent or more of the then
current ordinary voting power of the Company's stock (a "Substantial
Change in Ownership"), then, effective upon the Board of Directors
approval of the Extraordinary Transaction (other than a tender offer),
the commencement of the tender offer, or the occurrence of the
Substantial Change in Ownership, as the case may be, the time when each
then outstanding Option granted under the Plan may be exercised shall
automatically be accelerated so that each holder thereof may exercise
his or her Options in full or in any part prior to the consummation of
the Extraordinary Transaction or promptly after a Substantial Change in
Ownership. For the purposes of determining if a Substantial Change in
Ownership has occurred, an individual, corporation, other entity or
group shall not be deemed to hold any Common stock or Recapitalized
Stock issuable upon the conversion of any convertible securities of the
Company or a subsidiary or upon the exercise of any option or warrant
for or other right to purchase Common stock or Recapitalized Stock
unless such Common stock or Recapitalized Stock has actually been issued
upon conversion or exercise. Where any Option, the exercise date of
which has been accelerated pursuant to this paragraph, is thereafter
exercised, the Option Price may be paid in any manner and upon the terms
permitted by the applicable Option.
The determination of the Board or Officer Committee as to
adjustments to be made pursuant to this Section 11 shall be final,
binding and conclusive.
12. Issuance of Shares Compliance with Securities Laws. The
Company may postpone the issuance and delivery of Shares upon any
exercise of an Option until (a) the admission of such Shares to listing
on NYSE or any stock exchange or exchanges on which Shares are then
listed and (b) the completion of such registration or other
qualification of such Shares or such filings under any federal or state
law, rule or regulation as the Company shall determine to be necessary
or advisable. Any person exercising any Option shall make such
representations and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue
the Shares in compliance with the provisions of applicable federal and
state securities laws, rules, and regulations. The Company shall have
the right, in its sole discretion, to issue "stop transfer" instructions
for, and to place an appropriate legend on the certificates for, any
Shares which may be issued upon exercise of an Option. Nothing in the
Plan or any Certificate of Option or Option Agreement shall be construed
to require the Company to register the Shares issued or issuable under
the Options under the Securities Act of 1933, as amended, or under any
applicable state securities law.
13. Amendment of the Plan. Except as hereinafter provided, the
Board or Officer Committee may at any time or from time to time amend
the Plan and the terms and conditions of any Options not theretofore
granted, and the Board or Officer Committee may, with the consent of the
affected holder of any Option, at any time or from time to time amend
the terms and conditions of such Options as have been theretofore
granted. Notwithstanding the foregoing the Board of Directors or
Officer Committee may not take any of the following actions unless the
holders of a majority of the Company's stock entitled to vote approve
such action within one year before or after it is taken:
(a) materially increase the total number of Shares for
which Options may be granted under the Plan in the aggregate or to any
one person;
(b) change the minimum Share Price for Shares subject to
Options;
(c) permit an Option to be exercised earlier than one year
after it is granted;
(d) extend the termination date of the Plan; or
(e) take any other action with respect to the Plan which
under the Code would be deemed the adoption of a new plan or which,
under Rule 16b-3 promulgated pursuant to the Securities Exchange, Act of
1934, would require approval of the Company's stockholders.
To the extent not inconsistent with the Plan, the Board or Officer
Committee may authorize and establish such rules and regulations as it
may determine to be advisable to make the Plan Options effective or to
provide for their administration, and may take such other action with
regard to the Plan Options as it shall deem desirable to effectuate
their purpose. The Board or Officer Committee shall have the authority
to interpret the Plan as it may deem advisable and to make
determinations which shall be final, binding and conclusive upon all
persons. No member of the Board or Officer Committee shall be liable
for any action or determination made in good faith with respect to the
Plan or any Option granted under it.
14. Approvals. This Plan is conditioned upon its approval by
the holders of a majority of the stock of the Company entitled to vote,
present in person or by proxy, at the Company's annual meeting, to be
held on May 23, 1996; provided, however, that the Plan is adopted and
approved by the Board of Directors. Any Options granted under the Plan
prior to such approval shall be granted subject to such approval, and in
the event that this Plan is not approved by the stockholders of the
Company as aforesaid, this Plan shall be void and of no force and
effect, and any Options that may have been granted shall be void and of
no force or effect.
15. Applicable Law. The Plan and all Options granted pursuant
to it are subject to all applicable laws and the rules and regulations
of governmental authorities. Notwithstanding any provisions of the Plan
or any Option to the contrary, no option holder shall be entitled to
exercise an Option or any other right under the applicable Option, and
the Company shall not be obligated to issue any Shares to such holder or
to take any other action under the applicable Option, if such exercise,
issuance or other action would constitute a violation of any law, rule,
or regulation applicable to the Option holder or the Company or of any
order, judicial decision, or material agreement to which the Company is
a party or by which it is bound. The Plan will be administered in
accordance with and governed by the laws of the state of New York.
16. Final Issuance Date. No Option shall be granted under the
Plan after March 20, 2006.
END OF EXHIBIT E-6
- --------------------------------------------------------------------------------
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