<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1999
REGISTRATION NO. 333-79177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
STANDARD MOTOR PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK, NEW YORK 11-1362020
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
37-18 NORTHERN BOULEVARD
LONG ISLAND CITY, NEW YORK 11101
(718) 392-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LAWRENCE I. SILLS, PRESIDENT
STANDARD MOTOR PRODUCTS, INC.
37-18 NORTHERN BOULEVARD
LONG ISLAND CITY, NEW YORK 11101
(718) 392-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
BUD G. HOLMAN, ESQ. KIRK A. DAVENPORT, ESQ.
BRIAN J. CALVEY, ESQ. LATHAM & WATKINS
KELLEY DRYE & WARREN LLP 885 THIRD AVENUE, SUITE 1000
101 PARK AVENUE NEW YORK, NEW YORK 10022-4802
NEW YORK, NEW YORK 10178
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as possible after the effective date of this registration
statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED JULY 20, 1999.
$75,000,000
STANDARD MOTOR PRODUCTS, INC.
% Convertible Subordinated Debentures due 2009
------------------
You may convert the Convertible Debentures into shares of Standard Motor
Products' common stock prior to their maturity or redemption by Standard Motor
Products. If you convert the Convertible Debentures into shares of Standard
Motor Products common stock, you will receive shares for each $1,000 of
Convertible Debentures that you convert (equivalent to a conversion price of
approximately $ per share). The number of shares of Standard Motor Products'
common stock to be issued upon conversion is subject to certain adjustments
which are described in more detail under "Description of Convertible
Debentures."
Standard Motor Products' common stock is listed on the New York Stock
Exchange under the symbol "SMP." On July 8, 1999, the common stock closed at
$29.625 per share.
You will earn interest at an annual rate of % for so long as you own
the Convertible Debentures. Standard Motor Products will pay you interest every
six months on and . The Convertible Debentures
will mature on , 2009. Standard Motor Products may, at its
option, redeem some or all of the Convertible Debentures at any time on or after
, 2004, at the prices listed under "Description of Convertible
Debentures." Upon certain specific kinds of change of control events relating to
Standard Motor Products, Standard Motor Products will be required to make an
offer to purchase the Convertible Debentures from you at a purchase price equal
to 101% of their aggregate principal amount on the date of purchase, plus
accrued interest, if any.
The Convertible Debentures are subordinated in right of payment to all of
Standard Motor Products' existing and future senior indebtedness.
See "Risk Factors" beginning on page 10 to read about certain factors you
should consider before buying any of the Convertible Debentures.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Debenture Total
------------- -----
<S> <C> <C>
Initial public offering price............................... % $
Underwriting discount....................................... % $
Proceeds, before expenses, to Standard Motor Products....... % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Convertible Debentures will accrue from
and must be paid by the purchaser if the Convertible Debentures are
delivered after .
The underwriters may, under certain circumstances, purchase up to an
additional $11,250,000 principal amount of Convertible Debentures.
------------------
The underwriters expect to deliver the Convertible Debentures in book-entry
form only through the facilities of The Depository Trust Company against payment
in New York, New York on , 1999.
GOLDMAN, SACHS & CO. MORGAN STANLEY DEAN WITTER
------------------
Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the offering, you should carefully review this entire document and the documents
we have referred you to. In this Prospectus, the words "we," "our," "ours," and
"us" refer only to Standard Motor Products, Inc. and its subsidiaries and not to
any of the underwriters, the words "the Company" refer only to Standard Motor
Products, Inc. and not to any of its subsidiaries.
THE COMPANY
Standard Motor Products is a leading independent manufacturer and
distributor of replacement parts for motor vehicles. We are organized into two
divisions, each focused on a specific type of replacement part: (1) Engine
Management (ignition and emission parts, fuel system parts and wire and cable)
and (2) Temperature Control (compressors, other air conditioning parts and
heating parts). We sell our products primarily to warehouse distributors and
large auto parts retail chains. In 1998, our customers included most of the top
warehouse distributors and all of the leading auto parts retail chains. Our
customers include Advance Auto Parts, AutoZone, Carquest and NAPA Auto Parts. We
distribute parts under our own brand names, such as Standard, Blue Streak and
Four Seasons, and also under private labels for our key customers such as
Advance Auto Parts, Carquest and NAPA Auto Parts.
In 1998, our net sales were $649 million and our operating income was $44
million. Over the past three years, our net sales have grown at a compound
annual rate of 13% and our operating income has grown at a compound annual rate
of 14%. This strong performance has continued in 1999, as first quarter revenues
were 40% higher than the comparable quarter in 1998. Excluding revenues from
acquisitions, net sales increased 12% during the three months ended March 31,
1999, compared to the three months ended March 31, 1998. The following charts
set forth our net sales by manufacturing division, geographic region and
customer group as a percentage of total net sales for the year ended December
31, 1998.
[NET SALES PIE CHARTS]
[Three net sales pie charts are set forth in the Prospectus.
The first pie chart is entitled "1998 Net Sales by Manufacturing
Division." It indicates that engine management products make up
54% of our net sales, and temperature control products make up
46% of our net sales. The second pie chart is entitled "1998
Net Sales by Geographic Region." It indicates that the 90% of
our net sales are to customers in the United States, 4% are to
customers in Canada, and 6% are to customers in the rest of the
world. The third pie chart is entitled "1998 Net Sales by Customer
Group." It indicates that warehouse distributors make up 82% of our
net sales and retail makes up 18% of our net sales.]
We believe the key elements that have led to our success are as follows:
- SHARPENED BUSINESS FOCUS. Beginning in mid-1997, we
implemented a restructuring program to focus on our strong core
businesses of Engine Management and Temperature Control. We exited
our unprofitable and non-strategic brake, service line and fuel
pump businesses. We acquired the temperature control business of
Cooper Industries and made several other strategic acquisitions. In
sum, from mid-1997 to mid-1998, we repositioned approximately 30%
of our revenue base. We believe this strategy of developing
critical mass in two core businesses has allowed us to improve our
cost position, to access new markets and to focus our engineering
development efforts.
3
<PAGE> 4
- CONTINUED SUBSTANTIAL MARKET SHARE. Following the
restructuring, our two divisions have substantial market shares in
their respective product lines. In Engine Management, we have more
than 30% of the North American aftermarket and we believe that we
are the number one manufacturer serving this market. In Temperature
Control, we have more than 50% of the North American aftermarket
and are the number one manufacturer serving this market. Our
significant market position allows us to maximize our production
and distribution efficiencies and to leverage access to our
customer base.
- IMPROVED OPERATING AND FINANCIAL PERFORMANCE. In late 1997,
we adopted Economic Value Added (EVA(R)) as our primary financial
measurement for evaluating investments and for determining
incentive compensation. Since adopting EVA, our operating margin
improved from 1.7% in 1997 to 6.8% in 1998. Our return on average
stockholders' equity improved from a loss in 1997 to 11.4% in 1998.
Our management places significant emphasis on improving our
financial performance, achieving operating efficiencies and
improving asset utilization.
- EXPANDED CHANNEL BREADTH. We have greatly expanded our
coverage of the channels of distribution in North America since the
early 1990's, when we focused primarily on wholesale distributors.
Today we ship products to all channels of distribution, including
wholesale distributors, retail chains, service chains and original
equipment dealer service. The most dramatic expansion has been in
the growing retail segment. In 1992, we sold approximately $12
million to retailers (representing 3% of net sales from continuing
operations for that year) and in 1998 we sold approximately $119
million to retailers (representing 18% of net sales from continuing
operations for that year). We believe that the breadth of our
distribution channel coverage positions us to take advantage of any
future shifts in market distribution channels.
COMPANY STRATEGY
Our goal is to drive revenue and earnings growth by providing high quality,
low cost replacement parts in the engine management and temperature control
automotive aftermarkets.
The key elements of our strategy are as follows:
- MAINTAIN TECHNOLOGICAL LEADERSHIP. We are committed to
investing the resources necessary to maintain our technological
leadership in emerging aftermarket product areas such as
computer-controlled engine management systems, distributorless
ignition systems, sensors and fuel injection parts.
- EXPAND INTERNATIONAL PRESENCE. We have developed a base for
European expansion through four acquisitions and internal growth,
and we intend to capitalize on what we believe to be major
opportunities to broaden our international sales.
- BROADEN CUSTOMER BASE. We intend to continue efforts to
market our products more broadly to certain repair chains, original
equipment vehicle manufacturers for dealer service and other
aftermarket parts manufacturers.
- DEVELOP NEW PRODUCT LINES AND PRODUCT LINE EXTENSIONS. We
intend to continue to expand the range of engine management and
temperature control products we offer our customers through a
combination of internal development and selective acquisitions.
- IMPROVE OPERATING EFFICIENCY AND COST POSITION. We intend
to continue to improve our operating efficiency and cost position,
by:
-- increasing cost-effective vertical integration,
4
<PAGE> 5
-- focusing on efficient inventory management,
-- adopting company-wide programs geared toward manufacturing
and distribution efficiency, and
-- implementing company-wide overhead (operating expense) cost
reductions.
RECENT EVENTS
In January 1999, we acquired 85% of the stock of Webcon UK Limited and,
through our United Kingdom joint venture Blue Streak Europe Limited, 87.2% of
the stock of Webcon's affiliate, Injection Correction UK Limited, for $3.5
million in cash. Both Webcon UK Limited and Injection Correction UK Limited are
United Kingdom-based producers and distributors of fuel system and ignition
parts. In April 1999, we acquired Lemark Auto Accessories Limited, a United
Kingdom-based manufacturer and distributor primarily of ignition wire and other
engine management products for $2.0 million in cash. These manufacturers and
distributors of engine management products will be consolidated with our
existing European operations. These transactions reflect our strategy to expand
in Europe.
In February 1999, we acquired 100% of the stock of Eaglemotive Corporation
for approximately $13.4 million in cash. Eaglemotive manufactures and
distributes fan clutches and oil coolers, and will be consolidated with our
existing Hayden business which produces similar products.
Standard Motor Products was founded in 1919 and our common stock is traded
on the New York Stock Exchange under the symbol "SMP". On July 8, 1999, our
common stock closed at $29.625 per share.
Standard Motor Products is a New York corporation. Our corporate
headquarters are located at 37-18 Northern Blvd., Long Island City, NY 11101.
Our telephone number is (718) 392-0200. Our website is located at
http://www.smpcorp.com. Information contained on our website is not a part of
this Prospectus.
5
<PAGE> 6
THE OFFERING
SECURITIES OFFERED............ We are offering a total of $75,000,000 in
principal amount of % Convertible
Debentures.
ADDITIONAL SECURITIES......... We have granted the Underwriters an option for
30 days to purchase up to an additional
$11,250,000 in principal amount of Convertible
Debentures to cover over-allotments. See
"Underwriting."
ISSUE PRICE................... We are offering the Convertible Debentures for
$1,000 per Convertible Debenture purchased.
MATURITY...................... , 2009.
INTEREST...................... We will pay interest on the Convertible
Debentures at an annual rate of %.
INTEREST PAYMENT DATES........ We will pay the interest due on the Convertible
Debentures every six months on
and . We will make the first
payment on , .
CONVERSION RIGHTS............. You may convert the Convertible Debentures into
shares of our common stock. If you convert the
Convertible Debentures into shares of our
common stock, you will receive shares
for each $1,000 of Convertible Debentures that
you convert (equivalent to a conversion price
of approximately $ per share). The number
of shares of our common stock to be issued upon
conversion is subject to certain adjustments
which are described in more detail under
"Description of Convertible Debentures" under
the subheading "Conversion Rights."
SUBORDINATION................. The Convertible Debentures:
- are subordinated to all of the Company's
existing debts and future indebtedness,
except trade payables and indebtedness
that expressly provides that it ranks
equal or subordinate in right of payment
to the Convertible Debentures (assuming
that the Company had completed this
offering on March 31, 1999 and applied
the net proceeds from the offering as
contemplated under "Use of Proceeds",
the Company would have had approximately
$156 million of senior debt, excluding
trade payables, outstanding); and
- are also effectively subordinated to all
of the existing debts and future
indebtedness of the Company's
subsidiaries, including trade payables
(assuming that we had completed this
offering on March 31, 1999 and applied
the net proceeds from the offering as
contemplated under "Use of Proceeds",
these subsidiaries would have had
approximately $30 million of debt and
other liabilities, including trade
payables of approximately $10 million,
outstanding).
See "Description of Convertible Debentures --
Subordination."
OPTIONAL REDEMPTION........... We may, at our option, redeem some or all of
the Convertible Debentures at any time on or
after
6
<PAGE> 7
, 2004, at the prices listed under "Description
of Convertible Debentures -- Optional
Redemption," plus any interest that is accrued
to the date we redeem the Convertible
Debentures. See "Description of Convertible
Debentures -- Optional Redemption."
REPURCHASE AT OPTION OF
HOLDERS UPON A CHANGE OF
CONTROL..................... Upon certain specified kinds of change of
control events relating to Standard Motor
Products, we are required to make an offer to
purchase the Convertible Debentures from you at
a purchase price equal to 101% of their
aggregate principal amount on the date of
purchase, plus accrued interest, if any. See
"Description of Convertible
Debentures -- Repurchase at Option of Holders
Upon a Change of Control."
USE OF PROCEEDS............... We intend to use the proceeds from this
offering to repay certain borrowings, to
repurchase shares of our common stock for use
in connection with our employee benefit plans,
and for general corporate purposes, including
acquisitions. Any proceeds derived from the
exercise of the Underwriters' over-allotment
option will be used for general corporate
purposes. See "Use of Proceeds."
COMMON STOCK.................. Our common stock is listed on the New York
Stock Exchange under the symbol "SMP."
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
certain factors that you should consider in connection with your investment in
the Convertible Debentures.
7
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1999 1998 1998 1997(1) 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $176,789 $126,045 $649,420 $559,823 $513,407
Gross profit.................................... 53,220 43,790 205,622 179,488 178,295
Operating income................................ 8,788 6,285 43,931 9,455 44,734
Earnings from continuing operations before
interest, taxes and minority interest......... 8,475 6,517 42,509 10,453 46,444
Earnings (loss) from continuing operations...... 3,648 2,653 22,257 (1,620) 23,866
Loss from discontinued operations............... -- -- -- (32,904) (9,208)
Net earnings (loss)............................. 3,648 2,653 22,257 (34,524) 14,658
Ratio of earnings to fixed charges(2)........... 2.2x 1.8x 2.3x -- 3.2x
PER SHARE DATA:
Net earnings (loss) from continuing operations
per common share:
Basic......................................... $ 0.28 $ 0.20 $ 1.70 $ (0.12) $ 1.82
Diluted....................................... 0.28 0.20 1.69 (0.12) 1.82
Net earnings (loss) per common share:
Basic......................................... $ 0.28 $ 0.20 $ 1.70 $ (2.63) $ 1.12
Diluted....................................... 0.28 0.20 1.69 (2.63) 1.12
OTHER OPERATING DATA:
EBITDA(3)....................................... $ 12,948 $ 10,460 $ 58,426 $ 25,225 $ 59,234
EBITDA margin(4)................................ 7.3% 8.4% 9.0% 4.5% 11.5%
Depreciation and amortization(5)................ $ 4,473 $ 3,943 $ 15,917 $ 14,772 $ 12,790
Capital expenditures............................ 3,764 1,709 15,325 15,597 21,389
Dividends....................................... 1,051 -- 2,092 4,197 4,260
CASH FLOW DATA:
Cash provided by (used in):
Operating activities.......................... $(58,171) $ (6,099) $108,711 $ 71,692 $(21,153)
Investing activities.......................... (19,263) (1,709) (21,812) (31,910) (60,360)
Financing activities.......................... 55,018 (1,541) (80,141) (27,352) 75,447
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,266 $ 21,303
Working capital............................................. 166,166 196,458
Total assets................................................ 610,177 638,370
Long-term debt, excluding current portion................... 123,091 166,984
Stockholders' equity........................................ 209,496 204,323
</TABLE>
- ---------------
(1) The results for the year ended December 31, 1997 were negatively impacted by
several items, including an increase of $10.5 million in bad debt expense
from continuing operations as a result of a bankruptcy filing by our
customer, A.P.S., Inc., a $3.0 million provision for severance payments
related to a reduction in the workforce, and $27.0 million of estimated
losses associated with the divestitures of our discontinued Brake and
Service Line divisions.
(2) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income or loss from continuing
operations before interest expense and income taxes plus fixed charges) by
fixed charges. Fixed charges consist of interest expense (including
amortization of
8
<PAGE> 9
deferred financing costs) and an estimate of the portion of rental expense
that is representative of the interest factor (currently deemed to be
one-third of all rental expense). As a result of the loss incurred in 1997,
fixed charges exceeded earnings available for fixed charges by $4.0 million.
(3) EBITDA is defined as earnings or loss from continuing operations before
interest expense, minority interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used by
investors to analyze and compare companies on the basis of operating
performance. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be construed as a
substitute for operating income or net earnings or loss for purposes of
analyzing our operating performance or financial position. EBITDA is not
necessarily comparable to similarly titled measures for other companies.
(4) EBITDA margin represents EBITDA as a percentage of net sales.
(5) Represents depreciation and amortization from continuing operations.
(6) Adjusted to give effect to $72.2 million of net proceeds from the sale of
the Convertible Debentures we are offering and our initial application of
the net proceeds from the sale.
9
<PAGE> 10
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, in particular, the statements about our plans,
strategies, and prospects under the headings "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
can give no assurance that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ materially
from the forward-looking statements we make in this Prospectus are set forth
below and elsewhere in this Prospectus. All forward-looking statements
attributable to us or to persons acting on our behalf are expressly qualified in
their entirety by the following cautionary statements.
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS
We have now and, after the offering, will continue to have a significant
amount of indebtedness. The following chart shows certain important credit
statistics and is presented assuming we had completed this offering as of the
date, or at the beginning of the period, specified below and applied the
proceeds as intended:
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
Total indebtedness.......................................... $250,753
Stockholders' equity........................................ $204,323
Debt to equity ratio........................................ 1.23x
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
<S> <C>
Ratio of earnings to fixed charges........................ 1.4x
</TABLE>
The actual ratio of earnings to fixed charges for the three months ended
March 31, 1999 was 2.2x.
Our indebtedness could have important consequences to you. For example, it
could:
- increase our vulnerability to general adverse economic and
industry conditions;
- require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, product development efforts and
other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
- place us at a competitive disadvantage compared to those of
our competitors who have less debt;
- limit our ability to pay dividends;
- limit, along with the financial and other restrictive
covenants in our indebtedness, among other things, our ability
to borrow additional funds; and
- make it more difficult for us to complete additional
acquisitions.
10
<PAGE> 11
WE MAY INCUR MORE INDEBTEDNESS IN THE FUTURE
We may have to incur substantial additional indebtedness in the future. At
July 8, 1999, our credit facilities permitted borrowings of approximately $114
million, of which $84 million was in use, leaving $30 million available as
additional borrowings. All of those borrowings would be senior to the
Convertible Debentures. If new debt is added to our current debt levels, the
related risks that we now face could intensify. See "Capitalization," "Selected
Consolidated Financial Data" and "Description of Convertible
Debentures -- Repurchase at Option of Holders Upon a Change of Control."
WE WILL HAVE SIGNIFICANT DEBT SERVICE REQUIREMENTS AND MAY NEED TO REFINANCE ALL
OR A PORTION OF OUR DEBT
Our ability to make payments on our indebtedness, including the Convertible
Debentures, and to fund planned capital expenditures, product development
efforts and acquisitions will depend on our ability to generate cash in the
future. This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facilities, will be adequate to meet
our future liquidity needs and service our debt requirements for at least the
next 12 months. Significant assumptions underlie this belief, including, among
other things, that there will be no material adverse developments in our
business, liquidity or capital requirements. If we are unable to service our
debt, we will be forced to adopt an alternative strategy that may include
actions such as:
- delaying or forgoing acquisitions,
- reducing capital expenditures,
- selling assets,
- reducing or delaying dividends,
- restructuring or refinancing our indebtedness, or
- seeking additional equity capital.
We cannot assure you that our business will generate sufficient cash flow from
operations, that currently anticipated cost savings and operating improvements
will be realized on schedule, or that future borrowings will be available to us
in an amount sufficient to enable us to pay our indebtedness, including the
Convertible Debentures, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness, including the Convertible
Debentures, at or before maturity. If we need to refinance our debt, we cannot
assure you that we will be able to refinance the debt on commercially reasonable
terms or at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
THE CONVERTIBLE DEBENTURES WILL BE SUBORDINATED TO ALL OF THE COMPANY'S EXISTING
SENIOR INDEBTEDNESS AND MAY BE SUBORDINATE TO FUTURE SENIOR INDEBTEDNESS
The Convertible Debentures rank behind all of the Company's existing
indebtedness and all of the Company's future borrowings, except trade payables
and any future indebtedness that expressly provides that it ranks equal with, or
subordinated in right of payment to, the Convertible Debentures. As a result,
upon any distribution to the Company's creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to the Company or its property,
the holders of the Company's senior debt will be entitled to be paid in full in
cash before any payment may be made with respect to the Convertible Debentures.
11
<PAGE> 12
In addition, all payments on the Convertible Debentures will be blocked in
the event of a payment default on senior debt, and may be blocked in the event
of certain non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to the Company, holders of the Convertible Debentures will
participate with all other holders of the Company's subordinated indebtedness in
the assets remaining after the Company has paid all of the senior debt. In any
of these cases, the Company may not have sufficient funds to pay all of its
creditors and holders of Convertible Debentures may receive less, ratably, than
the holders of senior debt.
Assuming the Company had completed this offering on March 31, 1999, the
Convertible Debentures would have been subordinated to approximately $156
million of senior debt and approximately $54 million would have been available
for borrowing as additional senior debt under our credit facilities. The Company
will be permitted to borrow substantial additional indebtedness, including
senior debt, in the future under the terms of the Indenture. As a result of our
business being seasonal, at times our borrowings may increase. At July 8, 1999
the Company had available to it borrowings in the amount of $30 million under
its credit facilities.
THE CONVERTIBLE DEBENTURES WILL BE EFFECTIVELY SUBORDINATED TO THE OUTSTANDING
INDEBTEDNESS AND OTHER LIABILITIES OF THE COMPANY'S SUBSIDIARIES
Holders of indebtedness of, and trade creditors of, the Company's
subsidiaries would generally be entitled to payment of their claims from the
assets of the affected subsidiaries before such assets were made available for
distribution to the Company. In the event of a bankruptcy, liquidation or
reorganization of one of the Company's subsidiaries, holders of any of such
subsidiary's indebtedness will have a claim to the assets of the subsidiary that
is prior to the Company's interest in those assets.
Assuming we had completed this offering on March 31, 1999, the aggregate
amount of indebtedness and other liabilities of the Company's subsidiaries
(including trade payables of approximately $10 million) would have been
approximately $30 million and approximately $2 million would have been available
to the Company's subsidiaries for additional borrowing under their credit
facilities. If any subsidiary indebtedness were to be accelerated, there can be
no assurance that the assets of such subsidiary would be sufficient to repay
such indebtedness or that the Company's assets and the assets of the Company's
other subsidiaries would be sufficient to repay in full the Company's
indebtedness, including the Convertible Debentures.
OUR BUSINESS IS DEPENDENT ON THE AUTOMOTIVE INDUSTRY, WHICH IS CYCLICAL
Our business is dependent upon sales of the automotive industry, which
creates the total number of vehicles available for repair. This industry is
cyclical and has historically experienced periodic downturns. These downturns
are difficult to predict and historically have not had an immediate impact on
the aftermarket. The primary market for replacement parts is vehicles that have
been on the road for at least five years. A protracted downturn in the
automotive industry could, however, impact the performance of the aftermarket
parts industry in general and our performance in particular. Our future
performance may be adversely affected by automotive industry downturns.
THE MARKET FOR REPLACEMENT PARTS IS EXPECTED TO EXPERIENCE MINIMAL GROWTH OVER
THE NEXT FEW YEARS
The replacement parts market is expected to have minimal growth over the
next few years. 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. These factors are exhibiting minimal growth. The replacement parts
market also has been negatively impacted by the fact that the
12
<PAGE> 13
quality of today's automotive vehicles and their component parts has improved,
thereby lengthening the repair cycle. See "Industry -- Factors Influencing the
Automotive Aftermarket -- New Cars Are Being Made Better and Have Longer
Warranties."
OUR BUSINESS IS SEASONAL AND SUBJECT TO SUBSTANTIAL QUARTERLY FLUCTUATIONS
Historically, our operating results have fluctuated by quarter, with the
greatest sales occurring in the second and third quarters of the year. It is in
these quarters that demand for our products is typically the highest; thus, it
is in these quarters that a high volume of our products are shipped to
customers, with revenues being recognized at the time of shipment. As a result,
we experience significant variability in our quarterly results. We anticipate
that these quarterly fluctuations will become more pronounced as a result of the
divestiture of our brake business to Cooper Industries and the expansion of our
seasonal air conditioning parts business, through our acquisition of the
temperature control business of Cooper Industries.
In addition to the seasonal nature of our business, the following factors,
among others, may cause our quarterly operating results to fluctuate
significantly in the future:
- changes in our and our competitors' pricing policies;
- changes in the mix of products we sell or the channels through which
we sell our products;
- decreases in user demand resulting from continued improvements in the
quality of parts originally installed in new automobiles;
- technological changes;
- the structure and timing of future acquisitions of businesses and
products, if any;
- increased competition; and
- our ability to introduce and market new products on a timely basis.
OUR INDUSTRY IS HIGHLY COMPETITIVE; SOME OF OUR COMPETITORS HAVE GREATER
RESOURCES THAN WE DO
The automotive aftermarket industry is highly competitive. Competition is
based primarily on price, product quality and customer service, with the
relative importance of the factors varying among products and customers. Our
current competitors include a number of other larger, established independent
manufacturers, as well as divisions of companies having greater financial
resources than we do. In addition, we also have begun to experience limited
competition from new entrants in the automotive aftermarket industry. Some of
our competitors include Dana Corporation, Wells Manufacturing Corporation (a
UIS, Inc. subsidiary) and Delphi Automotive Systems Corp. We cannot assure you
that other companies involved in the automotive aftermarket industry, but which
do not presently offer competitive products, will not expand their operations in
the future into product lines that we produce and sell, nor can we assure you
that additional new entrants will not enter the automotive aftermarket industry.
OUR BUSINESS IS DEPENDENT ON CERTAIN KEY CUSTOMERS
In the year ended December 31, 1998, our five largest customers accounted
for approximately 30% of our sales. The loss of one or more of these customers
could have a material adverse impact on our business, financial condition and
results of operations and our ability to make required payments on the
Convertible Debentures. Also, it has been our practice with respect to certain
customers to allow for the redating of receivables. The financial health of our
major customers and their future ability to pay these redated receivables could
have a material adverse effect on our business, financial condition and results
of operations and our ability to make required payments on the Convertible
Debentures.
13
<PAGE> 14
OUR BUSINESS IS DEPENDENT UPON OUR MAINTAINING SATISFACTORY RELATIONSHIPS WITH
OUR SUPPLIERS
Our business depends upon our relationships with suppliers of raw materials
and certain components which we use in our product lines, and on our ability to
purchase these raw materials and components at prices and on terms comparable to
similarly situated companies. We maintain certain supply contracts with selected
suppliers to gain favorable concessions. The loss of several major suppliers
could have an adverse impact on our business, financial condition and results of
operations and, if new suppliers were not obtained in a timely manner and upon
acceptable terms, our results of operations and our ability to make required
payments on the Convertible Debentures could be materially adversely affected.
THERE IS SUBSTANTIAL PRICE COMPETITION IN OUR INDUSTRY AND OUR SUCCESS WILL
DEPEND UPON OUR ABILITY TO MAINTAIN A COMPETITIVE PRICE AND COST STRUCTURE
Our ability to continue to sell products is conditioned upon, among other
things, our prices remaining competitive. Our future profitability will depend
upon, among other things, our ability to continue to improve our manufacturing
efficiencies and maintain a cost structure that will enable us to offer
competitive prices profitably. Our inability to maintain a competitive cost
structure could have an adverse effect on our business, financial performance
and results of operations and on our ability to make required payments on the
Convertible Debentures. We may have to reduce prices in the future to remain
competitive.
ADVERSE EFFECT OF REGULATION AND GOVERNMENT POLICY; ENVIRONMENTAL LAWS
Domestic and foreign political developments and government regulations and
policies directly affect automotive consumer products in the United States and
abroad. Regulations and policies relating to over-the-highway vehicles include
standards established by the United States Department of Transportation for
motor vehicle safety and emissions. The modification of existing laws,
regulations or policies, or the adoption of new laws, regulations or policies,
could have an adverse impact on our business, financial condition and results of
operations and our ability to make required payments on the Convertible
Debentures. Our failure to comply with these laws and regulations could also
subject us to civil and criminal penalties.
Like similar companies, our operations and properties are subject to a wide
variety of increasingly complex and stringent federal, state, local and
international laws and regulations, including those governing the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials, substances and wastes, the remediation of contaminated soil
and groundwater, and the health and safety of employees. These laws and
regulations, including but not limited to those under the U.S. Comprehensive
Environmental Response, Compensation, & Liability Act, may impose joint and
several liability and may apply to conditions at properties presently or
formerly owned or operated by an entity or its predecessors, as well as to
conditions at properties at which wastes or other contamination attributable to
an entity or its predecessors have been sent or otherwise come to be located.
The nature of our operations exposes us to the risk of claims with respect to
such matters and there can be no assurance that violations of such laws have not
occurred or will not occur or that material costs or liabilities will not be
incurred in connection with such claims. Based upon our experience to date, we
believe that the future cost of compliance with existing environmental laws, and
liability for known environmental claims pursuant to those laws, will not have a
material adverse effect on our business, financial position or results of
operations. However, future events, such as new information, changes in existing
environmental or health and safety laws or their interpretation or the enactment
of new environmental or health and safety laws, and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material.
14
<PAGE> 15
CONTROL BY PRINCIPAL SHAREHOLDERS
At April 30, 1999, members of the Sills and Fife families, descendents of
the original founders of Standard Motor Products, beneficially owned
approximately 39.9% of our common stock. Specifically, shares of common stock
beneficially owned by members of the Sills family aggregated 2,387,170 shares
(approximately 18.1% of our outstanding common stock), and shares of common
stock beneficially owned by members of the Fife family aggregated 3,206,205
shares (approximately 24.4% of our outstanding common stock). Certain of these
shares are deemed to be beneficially owned by members of both Sills and Fife
families, because certain members of such families act as trustees for the same
trusts. To the extent that these shareholders exercise their voting rights in
concert, they effectively will have the ability to control the election of our
Board of Directors, to control the outcome of matters submitted to a vote of the
holders of common stock and generally to direct our affairs.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH OUR ACQUISITION ACTIVITIES
Our future operations and earnings will be dependent in part on our ability
to integrate further the temperature control operations which we acquired from
Cooper Industries into our current operations. We cannot assure you that we will
be able to successfully integrate these operations. Additionally, in the future
we may seek to acquire other companies or product lines which are complementary
to our existing product lines or add new product lines. Any such future
acquisitions will be accompanied by the risks commonly encountered in such
transactions. Such risks include, among others:
- the difficulty of identifying appropriate acquisition candidates;
- the difficulty of assimilating the operations and personnel of the
acquired entities;
- the potential disruption of our ongoing business;
- our inability to capitalize on the opportunities presented by
acquisitions;
- our failure to maintain uniform standards, controls, procedures and
policies; and
- the impairment of relationships with employees as a result of changes
in management and ownership.
Further, to the extent that any such transaction involves businesses located
outside the United States, the transaction would involve the additional risks
associated with international operations. We cannot assure you that we will be
successful in overcoming these risks or any other problems encountered with such
acquisitions. Any failure to overcome these risks and successfully integrate
acquired businesses could have a material adverse effect on our business,
financial condition and results of operations and our ability to make required
payments on the Convertible Debentures. See "-- There Are Significant Risks
Associated with the Expansion of Our International Operations."
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH THE EXPANSION OF OUR INTERNATIONAL
OPERATIONS
During 1998, we derived approximately 90% of our sales from products sold
in the United States. International sales for 1998 (including revenues from
Canada) accounted for approximately 10% of our total sales. We believe that our
future success will depend, in part, upon our ability to expand our operations
internationally. As we expand our international operations, we will become
subject to certain risks inherent in conducting an international business. These
risks include:
- unexpected changes in regulatory requirements;
- tariffs, customs, duties and other trade barriers;
15
<PAGE> 16
- delays from customs brokers or government agencies;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- political risks;
- fluctuations in currency exchange rates;
- foreign exchange controls which restrict or prohibit repatriation of
funds;
- technology export and import restrictions or prohibitions; and
- potentially adverse tax consequences resulting from operating in
multiple jurisdictions with different tax laws.
Any failure to overcome these risks could have a material adverse effect on our
business, financial condition and results of operations and our ability to make
required payments on the Convertible Debentures. See "Business -- Strategy."
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Some of the provisions of our certificate of incorporation and by-laws
could make a takeover of Standard Motor Products more difficult, even if such a
transaction would be beneficial to shareholders. Specifically, our certificate
of incorporation requires the affirmative vote of the holders of (a) at least
75% of the outstanding shares of each class of our capital stock entitled to
vote in an election of directors and (b) at least a majority of the remaining
outstanding shares, which are not directly or indirectly beneficially owned by
such other corporation, person or entity to the transaction, of each such class
of our capital stock entitled to vote in elections of directors, if, as of the
record date for the determination of shareholders entitled to notice thereof and
to vote thereon, such other party to the transaction is the beneficial owner,
directly or indirectly, of 5% or more of the outstanding shares of any class
entitled to so vote. Our certificate of incorporation and by-laws also provide
that our Board of Directors may be removed without cause only by a vote of the
holders of at least 75% of the outstanding shares of each class of our stock
entitled to vote. See "Description of Capital Stock -- Certificate of
Incorporation and By-laws."
Section 912 of the New York Business Corporation Law also would prohibit
certain business combinations with an "interested shareholder," which is
generally a person who beneficially owns 20% or more of a company's voting
stock, for five years after that person becomes an "interested shareholder,"
unless our Board of Directors approves the transaction before the person becomes
an interested shareholder. See "Description of Capital Stock -- New York
Business Corporation Law." This provision may also have the effect of making a
takeover of Standard Motor Products more difficult.
In addition, in 1996 we declared a dividend to the shareholders of record
of our common stock of one preferred share purchase right for each outstanding
share of our common stock. Each of these purchase rights entitles the holder to
purchase from us one one-thousandth of a share of our Series A Participating
Preferred Stock, $20.00 par value per share, at a price of $80.00 per one
one-thousandth of a share, subject to certain adjustments. The purchase rights
will, in effect, prevent a person or group from acquiring more than 20% of our
common stock without approval from our Board of Directors. For a further
description of the purchase rights, see "Description of Capital Stock -- Rights
Agreement".
16
<PAGE> 17
THE FUTURE SUCCESS OF OUR BUSINESS DEPENDS UPON CERTAIN KEY PERSONNEL
The success of our business is dependent, to a significant extent, upon the
abilities and continued efforts of Lawrence I. Sills, our President and Chief
Operating Officer, Michael J. Bailey, our Senior Vice President of Finance and
Administration and Chief Financial Officer, John P. Gethin, our Senior Vice
President of Operations and General Manager of our Four Seasons Division and
Joseph G. Forlenza, our Vice President and General Manager of the Standard
Division, none of whom currently has an employment agreement with Standard Motor
Products. The loss of any of these persons and our inability to attract
replacements for these key personnel could have a material adverse effect on our
business, financial condition and results of operations and our ability to make
required payments on the Convertible Debentures. We do not currently maintain
key-man life insurance on any of our executive officers.
IF YOU CONVERT ANY CONVERTIBLE DEBENTURES, THE VALUE OF THE COMMON STOCK WHICH
YOU RECEIVE WILL BE SUBJECT TO SECURITIES MARKET VOLATILITY
In recent years, the securities markets have experienced a high level of
volume volatility and market price fluctuation for many companies. Specifically,
the market price of our common stock traditionally has fluctuated over a wide
range and may continue to do so in the future. Factors such as quarterly
variations in our operating results, changes in concentration of equity
ownership by members of the Sills and Fife families, factors affecting the
automobile and aftermarket industries generally and changes in general market
conditions may have a significant impact on the market for our securities.
General market price declines or market volatility in the future could adversely
affect the future price of our securities. See "Price Range of Common Stock and
Dividend Policy."
THERE ARE A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE
SALE WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND IMPAIR
OUR ABILITY TO RAISE CAPITAL THROUGH THE SALE OF ADDITIONAL EQUITY
As of July 8, 1999, we had 7,871,026 shares of common stock outstanding
which were freely tradeable, and an additional 5,278,222 shares which were
eligible for public sale subject to the provisions of Rule 144 promulgated under
the Securities Act of 1933. The volume limitations of Rule 144 will apply to the
sale of all of such shares of common stock held by directors, certain executive
officers and shareholders owning over 10% of our outstanding common stock. Sales
of substantial amounts of shares of common stock in the public market, or even
the potential for such sales, could adversely affect the prevailing market price
of the common stock and impair our ability to raise capital through the sale of
equity securities.
WE COULD EXPERIENCE SYSTEM FAILURES AND OPERATIONAL DISRUPTIONS AS A RESULT OF
THE YEAR 2000 PROBLEM
We are currently working to resolve the potential impact of the Year 2000
"bug" on the processing of date-sensitive information by our computerized
information systems. We also are communicating with our suppliers, customers,
financial institutions and others with which we conduct business to determine
the extent to which we would be vulnerable to these third parties' failure to
remediate their own potential Year 2000 problems. Our inability, or the
inability of certain of our significant business partners to adequately address
the Year 2000 issues, could cause disruption of our operations which could have
a material adverse effect on our business, financial condition and results of
operations and our ability to make required payments on the Convertible
Debentures. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000."
17
<PAGE> 18
OUR ABILITY TO REPURCHASE CONVERTIBLE DEBENTURES UPON A CHANGE OF CONTROL WILL
BE SUBJECT TO SIGNIFICANT LIMITATIONS
Upon certain change of control events involving Standard Motor Products,
you will have the right, at your option, to require us to repurchase all or a
portion of your Convertible Debentures. We cannot assure you that, if a change
of control event were to occur, we would have sufficient funds to pay the
repurchase price for all Convertible Debentures tendered. We may elect, subject
to certain conditions, to make such payment using shares of common stock. In
addition, our repurchase of Convertible Debentures as a result of the occurrence
of a change of control event may be prohibited or limited by, or create an event
of default under, the terms of agreements related to borrowings which we may
enter into from time to time, including agreements relating to our senior debt.
See "Description of Convertible Debentures -- Repurchase at Option of Holders
Upon a Change of Control."
THERE IS CURRENTLY NO PUBLIC TRADING MARKET FOR THE CONVERTIBLE DEBENTURES AND
YOUR ABILITY TO TRANSFER THEM WILL BE LIMITED
The Convertible Debentures will be a new issue of securities with no
established trading market. Although the underwriters have advised us that they
intend to make a market in the Convertible Debentures, they are not obligated to
do so, and may discontinue such market making at any time in their sole
discretion without notice. We cannot assure you that an active market for the
Convertible Debentures will develop and continue upon completion of this
offering or that the market price of the Convertible Debentures will not
decline. Various factors could cause the market price of the Convertible
Debentures to fluctuate significantly, including changes in prevailing interest
rates or changes in perceptions of our creditworthiness. The trading price of
the Convertible Debentures also could be significantly affected by the market
price of our common stock, which could be subject to wide fluctuations in
response to a variety of factors, including quarterly variations in operating
results and general economic and market conditions. The Convertible Debentures
will not be listed on any securities exchange or quoted on the New York Stock
Exchange. See "Underwriting."
18
<PAGE> 19
USE OF PROCEEDS
The net proceeds from the sale of the Convertible Debentures are estimated
to be $72.2 million ($83.1 million if the Underwriters' over-allotment option is
exercised in full), after deducting estimated discounts and commissions and
other fees and expenses related to this offering payable by us. We currently
intend to use the net proceeds from this offering to repay certain borrowings,
to repurchase shares of our common stock, which shares will be contributed to
our long standing Employee Stock Ownership Plan and issued upon exercise of
options under our incentive stock option plan, and for general corporate
purposes, including acquisitions. Any proceeds derived from the exercise of the
Underwriters' over-allotment option will be used for general corporate purposes.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
% Senior Subordinated Convertible Debentures due
2009.................................................. $75.0
-----
TOTAL SOURCES OF FUNDS............................ $75.0
=====
USES OF FUNDS
Prepay 8.60% note due 2002 (including approximately $2
million in prepayment penalty)........................ $39.1
Prepay 10.22% note due 2003............................ 3.2
Purchase of certain minority interests in
subsidiaries.......................................... 6.2
Repurchase of common stock............................. 3.7
General corporate purposes............................. 20.0
Estimated transaction fees and expenses................ 2.8
-----
TOTAL USES OF FUNDS............................... $75.0
=====
</TABLE>
An important component of our growth strategy is the ability to pursue
acquisitions. The purpose of this offering is to provide us with increased
financial flexibility to pursue acquisitions of other businesses or lines of
business that are consistent with our growth strategy. There are currently no
agreements or understandings with respect to any material acquisition
transactions.
Pending use of the net proceeds of this offering, we may make temporary
investments in interest-bearing savings accounts, certificates of deposit,
United States Government obligations, money market accounts, interest-bearing
securities or other insured short-term, interest-bearing investments.
19
<PAGE> 20
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange under the symbol
"SMP." The following table sets forth the high and low sale prices for a share
of common stock and the cash dividends paid per share of common stock during the
periods shown.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PAID
---- --- ---------
<S> <C> <C> <C>
FISCAL 1999
Third Quarter (through July 8, 1999).................... $ 29.63 $ 24.50 $
Second Quarter.......................................... 25.25 20.44 $ 0.08
First Quarter........................................... 25.00 20.50 0.08
FISCAL 1998
Fourth Quarter.......................................... $ 24.69 $ 19.75 $ 0.08
Third Quarter........................................... 26.50 21.00 0.08
Second Quarter.......................................... 25.00 19.13 --
First Quarter........................................... 23.50 16.31 --
FISCAL 1997
Fourth Quarter.......................................... $ 25.00 $ 19.50 $ 0.08
Third Quarter........................................... 23.38 13.56 0.08
Second Quarter.......................................... 14.63 13.13 0.08
First Quarter........................................... 14.75 13.13 0.08
FISCAL 1996
Fourth Quarter.......................................... $ 14.50 $ 13.38 $ 0.08
Third Quarter........................................... 17.88 13.63 0.08
Second Quarter.......................................... 18.25 16.00 0.08
First Quarter........................................... 16.25 12.63 0.08
</TABLE>
The closing price of the common stock on July 8, 1999 was $29.625. As of
July 8, 1999, there were 666 holders of record of common stock.
The Board of Directors will consider the payment of future dividends on the
basis of our earnings, capital requirements and financial condition. Our loan
agreements limit dividends and distributions by us. In the first and second
quarters of 1998, we paid no dividends due to losses we incurred during the
fourth quarter of 1997 and continued weak results in the first quarter of 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
20
<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999, and as
adjusted to give effect to the sale of $75,000,000 principal amount of
Convertible Debentures offered hereby, and the application of the estimated net
proceeds thereof. The table should be read in conjunction with the selected
financial data, the Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
AS
ACTUAL ADJUSTED
------ --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,266 $ 21,303
======== ========
Short-term debt(1).......................................... $ 60,350 $ 60,350
-------- --------
Long-term debt:(2)(3)
% Convertible Subordinated Debentures due 2009.......... -- 75,000
7.56% senior note payable................................. 73,000 73,000
8.60% senior note payable................................. 37,143 --
10.22% senior note payable................................ 21,500 18,250
Credit Facility ($17 Million Canadian).................... 11,230 11,230
Other..................................................... 12,923 12,923
-------- --------
Total long-term debt.............................. 155,796 190,403
-------- --------
Stockholders' equity:
Common stock -- par value $2.00 per share
Authorized -- 30,000,000 shares
Issued -- 13,324,476 shares in 1999 (including 196,458
shares held as treasury shares in 1999)(4)............. $ 26,649 $ 26,649
Capital in excess of par value............................ 2,712 2,712
Retained earnings......................................... 184,276 182,823
Accumulated other comprehensive income.................... 25 25
Less: treasury stock -- at cost........................... 4,166 7,886
-------- --------
Total stockholders' equity........................ 209,496 204,323
-------- --------
Total capitalization.............................. $425,642 $455,076
======== ========
</TABLE>
- ---------------
(1) Reflects borrowings under our credit facilities. At July 8, 1999, our credit
facilities permitted borrowings of approximately $114 million, of which $84
million was in use, leaving $30 million available as additional borrowings.
(2) Includes current portion of long-term debt of $32.7 million for the three
months ended March 31, 1999 and $23.4 million for the three months ended
March 31, 1999, as adjusted.
(3) Assumes no exercise of the over-allotment option.
(4) Excludes approximately 903,000 shares of common stock reserved for issuance
upon the exercise of stock options available for grant under the incentive
option plan, under which plan options to purchase approximately 725,000
shares of common stock are outstanding at exercise prices ranging from
$13.63 to $23.72.
21
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
The selected consolidated financial data for, and as of the end of, each of
the years in the five year period ended December 31, 1998 are derived from our
Consolidated Financial Statements included in our Annual Reports on Form 10-K
which have been audited by KPMG LLP, independent certified public accountants.
The selected consolidated financial data as of and for the three months ended
March 31, 1999 and 1998 have been derived from our unaudited consolidated
financial statements included in our Quarterly Report on Form 10-Q, which, in
the opinion of our management, includes all adjustments necessary for a fair
presentation of our financial condition and results of operations for such
periods. The results of operations for interim periods are not necessarily
indicative of a full year's operations. You should read this information in
conjunction with the Consolidated Financial Statements and Notes thereto, the
independent auditors' report and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
---- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $176,789 $126,045 $649,420 $559,823 $513,407 $452,253 $434,252
Cost of goods sold............ 123,569 82,255 443,798 380,335 335,112 295,807 269,524
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 53,220 43,790 205,622 179,488 178,295 156,446 164,728
Selling, general and
administrative expenses..... 44,432 37,505 161,691 170,033 133,561 127,100 124,544
-------- -------- -------- -------- -------- -------- --------
Operating income.............. 8,788 6,285 43,931 9,455 44,734 29,346 40,184
Other income (expense), net... (313) 232 (1,422) 998 1,710 2,274 1,208
-------- -------- -------- -------- -------- -------- --------
Earnings from continuing
operations before interest,
taxes and minority
interest.................... 8,475 6,517 42,509 10,453 46,444 31,620 41,392
Interest expense.............. 3,441 3,375 16,419 14,158 13,091 10,403 8,332
Minority interest............. (138) (118) (256) (332) (87) -- --
Taxes......................... 1,248 371 3,577 (2,417) 9,400 4,366 11,131
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations....... 3,648 2,653 22,257 (1,620) 23,866 16,851 21,929
Earnings (loss) from
discontinued operations..... -- -- -- (32,904) (9,208) (719) 1,736
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)........... $ 3,648 $ 2,653 $ 22,257 $(34,524) $ 14,658 $ 16,132 $ 23,665
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net earnings (loss) from
continuing operations per
common share:
Basic....................... $ 0.28 $ 0.20 $ 1.70 $ (0.12) $ 1.82 $ 1.28 $ 1.67
Diluted..................... 0.28 0.20 1.69 (0.12) 1.82 1.28 1.67
Net earnings (loss) per common
share:
Basic....................... $ 0.28 $ 0.20 $ 1.70 $ (2.63) $ 1.12 $ 1.23 $ 1.80
Diluted..................... 0.28 0.20 1.69 (2.63) 1.12 1.23 1.80
OTHER OPERATING DATA:
EBITDA(2)..................... $ 12,948 $ 10,460 $ 58,426 $ 25,225 $ 59,234 $ 42,215 $ 50,898
EBITDA margin(3).............. 7.3% 8.4% 9.0% 4.5% 11.5% 9.3% 11.7%
Depreciation and
amortization(4)............. $ 4,473 $ 3,943 $ 15,917 $ 14,772 $ 12,790 $ 10,595 $ 9,505
Capital expenditures.......... 3,764 1,709 15,325 15,597 21,389 16,651 12,509
Dividends..................... 1,051 -- 2,092 4,197 4,260 4,199 4,217
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
---- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Cash provided by (used in):
Operating activities........ (58,171) (6,099) 108,711 71,692 (21,153) 801 21,104
Investing activities........ (19,263) (1,709) (21,812) (31,910) (60,360) (26,985) (20,299)
Financing activities........ 55,018 (1,541) (80,141) (27,352) 75,447 34,201 (10,335)
BALANCE SHEET DATA:
Working capital............... 166,166 189,797 178,324 177,426 210,962 232,173 189,207
Total assets.................. 610,177 595,726 521,556 577,137 624,806 521,230 469,387
Long-term debt excluding
current portion............. 123,091 159,586 133,749 159,109 172,387 148,665 109,927
Stockholders' equity.......... 209,496 187,866 205,025 183,782 222,576 210,400 195,089
Stockholders' equity per
share....................... 16.01 14.37 15.68 14.01 16.95 16.03 14.82
Cash dividends per common
share....................... 0.08 -- 0.16 0.32 0.32 0.32 0.32
</TABLE>
- ---------------
(1) The results for the year ended December 31, 1997 were negatively impacted by
several items, including an increase of $10.5 million in bad debt expense
from continuing operations as a result of a bankruptcy filing by our
customer, A.P.S., Inc., a $3.0 million provision for severance payments
related to a reduction in the workforce, and $27.0 million of estimated
losses associated with the divestitures of our discontinued Brake and
Service Line divisions.
(2) EBITDA is defined as earnings or loss from continuing operations before
interest expense, minority interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used by
investors to analyze and compare companies on the basis of operating
performance. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be construed as a
substitute for operating income or net earnings or loss for purposes of
analyzing our operating performance or financial position. EBITDA is not
necessarily comparable to similarly titled measures for other companies.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Represents depreciation and amortization from continuing operations.
23
<PAGE> 24
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to our fixed charges
for the periods indicated. There were no shares of our preferred stock issued or
outstanding during the periods indicated below and therefore the combined ratio
of earnings to fixed charges and preferred dividends would have been the same as
set forth below.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1999, THREE MONTHS
AS ENDED
ADJUSTED(1) MARCH 31,(1) YEARS ENDED DECEMBER 31,
------------ ------------ -----------------------------------------
1999 1998 1998 1997(2) 1996 1995 1994
---- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges....... 1.4x 2.2x 1.8x 2.3x -- 3.2x 2.8x 4.3x
---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income (loss) from continuing operations
before interest expense and income taxes plus fixed charges) by fixed charges.
Fixed charges consist of interest expense (including amortization of deferred
financing costs) and an estimate of the portion of rental expense that is
representative of the interest factor (currently deemed to be one-third of all
rental expense).
- ---------------
(1) Due to the seasonality of our business, the ratios of earnings to fixed
charges for the first and fourth quarters have historically been lower than
those for the second and third quarters.
(2) As a result of the loss incurred in 1997, fixed charges exceeded earnings
available for fixed charges by $4.0 million.
24
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a leading independent manufacturer and distributor of replacement
parts for motor vehicles. We are organized into two divisions, each focused on a
specific type of replacement part: (1) Engine Management (ignition and emission
parts, fuel system parts and wire and cable) and (2) Temperature Control
(compressors, other air conditioning parts, and heating parts). We sell our
products primarily to warehouse distributors and large auto parts retail chains.
In 1998, our customers included many of the top warehouse distributors and all
of the leading auto parts retail chains. Our customers include Advance Auto
Parts, AutoZone, Carquest and NAPA Auto Parts. We distribute parts under our own
brand names, such as Standard, Blue Streak and Four Seasons, and also under
private labels for our key customers such as Advance Auto Parts, Carquest and
NAPA Auto Parts.
In 1998, our net sales were $649 million and our operating income was $44
million. Over the past three years, our net sales have grown at a compound
annual rate of 13% and our operating income has grown at a compound annual rate
of 14%. This strong performance has continued in 1999 as first quarter revenues
were 40% higher than the comparable quarter in 1998. Excluding revenues from
acquisitions, sales increased 12% during the three months ended March 31, 1999,
as compared to the three months ended March 31, 1998.
The temperature control business is a seasonal business, and we benefit by
having our products on our customers' shelves in advance of the peak summer
selling season through a pre-season stocking program. Sales under our 1999
pre-season program were stronger than we anticipated and may have resulted in a
pull ahead into the first quarter of sales that would have normally occurred in
the second quarter, when pre-season program discounts and terms are not
available to the same extent.
Our restructuring has resulted in a material increase in the portion of our
sales represented by temperature control products. Temperature control products,
which are primarily air conditioning parts, are seasonal and are impacted by
weather. The variability in our quarterly earnings has increased as a result of
this shift in sales mix, with the second and third quarters generating a
majority of our sales and earnings. During these quarters, a significant portion
of annual temperature control sales are made.
RECENT DEVELOPMENTS
On July 14, 1999, we reported our financial results for the three and six
month periods ended June 30, 1999. Our net sales for the three months ended June
30, 1999 were $205.7 million compared to net sales of $208.8 million for the
three months ended June 30, 1998. Our net earnings for the three months ended
June 30, 1999 were $12.0 million, or $0.92 per share, compared to net earnings
of $8.6 million, or $0.66 per share, for the three months ended June 30, 1998.
Our net sales for the six months ended June 30, 1999 were $382.5 million
compared to net sales of $334.8 million for the six months ended June 30, 1998.
Excluding the $47.0 million in net sales resulting from acquisitions not present
in the prior year, net sales during the first half of 1999 were essentially flat
compared with the six months ended June 30, 1998. Net earnings for the six
months ended June 30, 1999 were $15.7 million, or $1.20 per share, compared to
$11.3 million, or $0.86 per share, for the six months ended June 30, 1998.
25
<PAGE> 26
RESULTS OF OPERATIONS
The following table summarizes the breakdown of our results of operations
as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 69.9 65.3 68.3 68.0 65.3
Gross profit............................................ 30.1 34.7 31.7 32.0 34.7
Selling, general & administrative expenses.............. 25.1 29.7 24.9 30.4 26.0
Operating income........................................ 5.0 5.0 6.8 1.6 8.7
Other income (expense).................................. (0.2) 0.2 (0.2) 0.2 0.3
Earnings from continuing operations before interest,
taxes and minority interest........................... 4.8 5.2 6.6 1.8 9.0
Interest expense........................................ 2.0 2.7 2.5 2.5 2.6
Minority interest....................................... (0.1) (0.1) -- (0.1) --
Taxes................................................... 0.7 0.3 0.6 (0.4) 1.8
Earnings (loss) from continuing operations.............. 2.0 2.1 3.5 (0.4) 4.6
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED
MARCH 31, 1998
Our net sales for the current quarter increased by $50.7 million or 40.3%
from the comparable period in 1998. Excluding revenues from acquisitions not
present in the first quarter of last year, our revenues increased by
approximately $14.9 million or 11.8%. This sales increase, excluding
acquisitions, is primarily due to a pre-season selling program for products in
our Temperature Control division. This program, which resulted in increased
sales in the first quarter, may have caused a pull ahead from future sales. The
magnitude of the pull ahead will not be known, however, until late in the second
quarter. We anticipate that the pre-season selling program will result in
improvements to our customer order fill rates, as we enter the peak period for
our temperature control products with our distributors fully stocked.
Our gross profit for the first quarter of 1999 increased by $9.4 million or
21.5% from the comparable period in 1998, reflecting the strong growth of
temperature control product sales. The gross margin as a percent of net sales,
however, declined from 34.7% in the first quarter of 1998 to 30.1% in the first
quarter of 1999. The decline in the gross margin percentage was primarily due to
the higher mix of temperature control product sales in relation to our total
sales. Temperature control products have lower average gross margins than
products sold by our Engine Management division and therefore result in a lower
margin percentage for us. The gross margin percentage also was negatively
impacted by discounts related to the pre-season selling program at the
Temperature Control division, which were not present in 1998.
Selling, general and administrative (SG&A) expenses increased by $6.9
million or 18.5% over the comparable quarter in 1998 reflecting higher expenses
to support the growth within the Temperature Control division. However, as a
percent of net sales SG&A expenses decreased by 4.7 percentage points (25.1% in
1999 versus 29.8% in 1998). This percentage improvement is primarily due to the
leverage achieved from higher sales and synergies which have begun to be
realized from the consolidation of the temperature control business of Cooper
Industries. Additional cost reductions from the consolidation of the temperature
control business of Cooper Industries will continue, with the full
implementation scheduled to be completed early in the year 2000.
Our operating income increased by $2.5 million or 39.8% over the comparable
quarter in 1998, primarily due to the significant sales volume increases we
experienced during the first
26
<PAGE> 27
quarter of 1999. As a percentage of net sales, our operating income has remained
relatively flat at 5%. The Engine Management division, as compared to a year
ago, experienced a reduction in operating income of $3.2 million as a result of
lower sales and a decline in gross margin, attributable to shifts in sales mix
and changes in overhead absorption. The sales decline was primarily the result
of our divestiture of our fuel pump business, which occurred in the third
quarter of 1998, and lower orders from certain customers as they absorbed
inventory acquired from A.P.S., Inc. The negative impact from sales mix was a
result of a shift towards second line sales. The under-absorption of overhead
experienced at certain facilities was a result of our divestiture of our Service
Line business, which shared these facilities. We are currently developing plans
which should reduce these costs.
Our Temperature Control division improved operating income by $5.0 million,
compared to a year ago, primarily due to incremental sales volume of $54.3 from
the temperature control business of Cooper Industries and increases in unit
volume as a result of the pre-season selling program. Efficiencies achieved from
consolidating the temperature control business of Cooper Industries also
improved our income. The temperature control business of Cooper Industries was
not present in the prior year results, as the acquisition was completed on March
28, 1998.
Other income -- net for the first quarter of 1999 decreased by $0.5
million, primarily due to losses recognized in connection with our continuing
original equipment ventures. These losses were attributed to costs incurred in
developing and launching these projects.
Interest expense attributable to continuing operations remained flat as
compared to 1998. Including amounts related to discontinued operations in 1998,
interest expense decreased by $1.2 million in 1999.
Taxes based on earnings increased by $0.9 million primarily due to improved
pre-tax earnings. At December 31, 1998, we had a $14.2 million deferred tax
asset valuation allowance. Due to the seasonal nature of our business, we did
not deem adjustments to this valuation allowance necessary during the three
month period ended March 31, 1999. However, management is continuing to evaluate
the likelihood of our achieving sufficient future profitability that would
enable us to utilize all or a portion of these deferred tax assets. If
management determines, based on these evaluations, that it is more likely than
not that deferred tax assets will be realized, then the valuation allowance will
be adjusted.
COMPARISON OF 1998 TO 1997
Our net sales in 1998 were $649.4 million, an increase of $89.6 million or
16.0% from the comparable period in 1997. Excluding revenues from acquisitions
not present in 1997, our total net sales increased by $11.6 million, or 2.1%, as
compared to 1997. Sales increases in our Temperature Control division,
reflecting market share gains, product line expansions and the impact of an
extremely hot summer were partially offset by sales declines in our Engine
Management division reflecting the weakness in the automotive aftermarket and
reduced sales to A.P.S., Inc., one of our largest customers, as it worked its
way through bankruptcy proceedings. Our sales remain focused in the U.S., as 90%
of sales were to domestic customers. Sales to Canada, Europe and other export
markets remained relatively flat in 1998.
Our cost of goods sold increased $63.5 million from $380.3 million to
$443.8 million. Our gross margins, as a percentage of net sales, decreased from
32.1% in 1997 to 31.7% in 1998. This decline reflects a higher mix of
temperature control products with lower average gross margins than engine
management products. Our gross margins also were negatively affected by the
Cooper transaction due to the higher carrying cost of the acquired inventory
compared with comparable products produced by our existing temperature control
business. We sold the majority of this inventory in 1998 and temperature control
gross margins should improve in 1999.
Our SG&A expenses in 1998, excluding bad debt expenses, increased $1.6
million, or 1.0%, while our net sales increased 16%. As a percentage of net
sales, our SG&A expenses, excluding bad debt expense, decreased from 28.1% in
1997 to 24.5% in 1998. The 3.6 percentage point
27
<PAGE> 28
improvement in our SG&A expenses, excluding bad debt expenses, resulted
primarily from lower new customer acquisition costs and the partial integration
of Cooper Industries' temperature control business into the existing Temperature
Control infrastructure. We also reduced selling expenses as we completed a
further restructuring of our sales force.
We have largely completed our restructuring program and are now entirely
focused on the product lines in our two divisions where we are a market leader.
In 1999 and into the year 2000, we anticipate that the full impact of our cost
reduction programs will take effect and that synergies from the consolidation of
the temperature control business of Cooper Industries and other acquisitions
will begin to be fully realized and provide further earnings benefits.
Other income (expense), net, decreased by $2.4 million, primarily due to
losses related to our continuing joint ventures and the writeoff of the carrying
value of our Chinese joint venture and one of our original equipment ventures.
Our earnings before interest and taxes increased to $42.5 million in 1998
from $10.5 million in 1997. This increase was a direct result of the cost
reductions discussed above, combined with the non-recurrence of the $10.5
million in bad debt expense recorded in 1997, due to the bankruptcy filing of
A.P.S., Inc.
Our interest expense increased by $2.3 million to $16.4 million resulting
from several factors including: interest costs related to discontinued
operations in 1997 and higher average interest rates in 1998 partially
offsetting lower outstanding borrowings during 1998. Including amounts related
to discontinued operations, interest expense decreased by $2.2 million,
primarily as a result of lower outstanding borrowings.
In 1998, we focused significant attention on reducing debt and
strengthening our balance sheet. Total debt was reduced by $79.7 million, and we
succeeded in completing a multi-year committed revolving credit line. In
addition, we reduced receivables by $29.0 million and inventories by $14.9
million and increased cash and short term investments by $6.6 million. The
progress made in asset management and debt reduction is reflected by a reduction
in our total debt to capitalization percentage from 56.6% in 1997 to 43.8% in
1998.
Income tax expense related to continuing operations in 1998 was $3.6
million, compared to a benefit of $2.4 million in 1997, when we posted a net
loss. Earnings from our Puerto Rico and Hong Kong subsidiaries resulted in a
1998 effective tax rate that is lower than the statutory corporate rate in the
U.S.
COMPARISON OF 1997 TO 1996
Net sales in 1997 were $559.8 million, up 9.0% from sales of $513.4 million
in 1996. Excluding revenues from acquisitions not present in 1996, net sales
remained relatively flat as compared to 1996. Sales increases in our Temperature
Control division, reflecting market share gains and product line expansions,
were offset by sales declines in our Engine Management division, reflecting the
general weakness in the automotive aftermarket.
Cost of goods sold increased $45.2 million in 1997, from $335.1 million in
1996 to $380.3 million in 1997. Gross margins, as a percentage of net sales,
decreased from 34.7% in 1996 to 32.1% in 1997. This decline reflects a higher
mix of temperature control products and non-traditional business which have
lower gross margins and reduced manufacturing efficiencies, as production
schedules were lowered to reduce inventories.
SG&A expenses from continuing operations in 1997, excluding bad debt
expenses, increased $23.4 million in 1997 and as a percentage of net sales from
continuing operations, increased from 26.1% in 1996 to 28.1% in 1997. The
increase in these expenses resulted primarily from a $3.0 million provision for
severance payments related to personnel reductions, higher new customer
acquisition costs, increases in overhead costs as a result of our acquisition of
the Filko Automotive Division of F&B Manufacturing (these costs are reduced
significantly in 1998 as Filko has been integrated into Standard Motor
Products), and finally due to increases in costs to
28
<PAGE> 29
support our high technology original equipment programs. Bad debt expenses from
continuing operations increased significantly in 1997 as a result of the
bankruptcy filing of A.P.S., Inc., one of our largest customers. We continued to
supply this customer on a cash-in-advance basis in 1998, but did not subject
ourselves to any additional exposure.
Other income (expense), net, from continuing operations decreased by $0.7
million in 1997 primarily due to lower interest income as available cash early
in 1997 was used to reduce short-term borrowings under credit lines.
Interest expense from continuing operations increased by $1.1 million in
1997 to $14.2 million, resulting from higher average interest rates.
Taxes based on earnings from continuing operations reflect a benefit of
$2.4 million for 1997 as compared to an expense of $9.4 million for 1996. The
significant decrease in tax expense is a result of the losses incurred by us
during 1997. The current year tax benefit recognized was a function of the
significant losses from our United States operations being partially offset by
earnings of our Puerto Rico and Hong Kong subsidiaries, which have lower tax
rates than the United States statutory rate. The combination of the foreign
earnings and domestic losses results in a favorable effective tax rate of 65.2%
against losses.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1999, cash used in operations amounted to $58.2
million, compared to $6.1 million for the first quarter of 1998. The increase is
due primarily to higher accounts receivable and inventories resulting from a
pre-season selling program for temperature control products, that was not in
effect in 1998, partially offset by increased payables and accrued expenses.
Cash used in investing activities amounted to $19.3 million in the first quarter
of 1999 and $1.7 million for the comparable period in 1998. The increase is
mainly due to the acquisitions of Eaglemotive Corporation and Webcon UK Limited,
discussed below. Capital expenditures amounted to $3.8 million during the first
quarter of 1999 and $1.7 million for the comparable period in 1998. Cash
provided by financing activities totaled $55.0 million in the first quarter of
1999. In the prior year's first quarter, cash used in financing activities
amounted to $1.5 million. The change is due to increased short term borrowings
to finance the seasonal working capital needs of our Temperature Control
division, which have become more significant due to the inclusion of the
temperature control business of Cooper Industries. In the first quarter of 1999,
we paid dividends amounting to $1.1 million. We did not pay dividends in the
comparable period for 1998.
In 1998, cash provided by operations amounted to $108.7 million. This
compares favorably to 1997 and 1996 when cash provided by (used in) operations
was $71.7 million and $(21.1) million, respectively. The strong cash flow
performance resulted primarily from net earnings for 1998 of $22.3 million and
decreases in inventories and accounts receivable of $27.7 million and $27.5
million, respectively. Cash used in investing activities in 1998 was $21.8
million, as capital expenditures and payments related to the Cooper transaction
were partially offset by proceeds from the sale of businesses and property,
plant and equipment. For the three years ended December 31, 1998, 1997 and 1996
capital expenditures totaled $15.3 million, $15.6 million and $21.4 million,
respectively. Cash used in financing activities in 1998 was $80.1 million, which
was primarily due to the repayment of $52.3 million in borrowings from bank
lines, and $27.0 million in principal repayments on long-term financing.
Dividends paid for the three years ended December 31, 1998, 1997 and 1996 were
$2.1 million, $4.2 million and $4.3 million, respectively.
In the first two quarters of 1998 we suspended the dividend due to a
deterioration in financial performance. We reinstated our dividend in the third
quarter of 1998 as our financial results and prospects greatly improved.
On November 30, 1998, we entered into a new three-year revolving credit
facility. The new facility with eight lending institutions, provides a $110.0
million unsecured line of credit, subject to a borrowing base. The facility
allows us to select from two interest rate options, one a function of
29
<PAGE> 30
LIBOR and the other a function of the United States prime rate. The spread above
each interest rate option is determined by our ratio of consolidated debt to
earnings before interest, taxes, depreciation and amortization. The interest
rates available to us under this facility should compare favorably with the
short term credit rates obtained by us during most of 1998 and should result in
lower interest costs in 1999 compared to 1998. The terms of this revolving
credit facility include, among other provisions, the requirement for a
"clean-down" to $10.0 million, for any consecutive thirty days during each 12
month period of the facility, maintenance of defined levels of tangible net
worth, various financial performance ratios and restrictions on capital
expenditures, dividend payments, acquisitions and additional indebtedness. We
have already satisfied the requirement for a clean-down to $10.0 million for the
initial twelve month period and are presently in compliance with the other
provisions of the facility.
We have renewed our existing agreement to sell certain of our accounts
receivable. The agreement as renewed extends through March 2002.
As of March 31, 1999, we had stockholders' equity of $209.5 million and
working capital of $166.2 million. We expect capital expenditures, primarily for
new machinery and equipment, to be approximately $14.0 million, for the
remainder of 1999.
At December 31, 1997, we were not in compliance with certain covenant
requirements associated with certain long term notes payable; however, we
received the appropriate waivers and certain amendments were made to the note
agreements. The amendments contained, among other things, provisions for the
payment of up front fees of 1.5% and an increase in the interest rate on each
note payable of 1.25%. The increased interest rate was reduced by 50 basis
points when we refinanced our short-term credit facility on November 30, 1998
and a further reduction is possible as our balance sheet is strengthened.
As of March 31, 1999, our remaining required long term debt repayments for
the balance of the year are approximately $22.0 million.
Total debt (current and non-current) at December 31, 1998 decreased $79.7
million as compared to December 31, 1997. This was mainly due to decreased
requirements to support inventories and accounts receivable. We continue to
aggressively pursue ways to reduce inventories. We are focusing significant
efforts on pack-to-order systems and improved requirements forecasting systems.
Pack-to-order systems retain certain parts in a bulk state until an order is
received for a specific brand of product.
In January 1999, we acquired, through our European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited, and
through our United Kingdom joint venture Blue Streak Europe Limited, Webcon's
affiliate, Injection Correction UK Limited. The total acquisition price amounted
to approximately $3.5 million and was funded from our operating cash flow.
In February 1999, we acquired 100% of the stock of Eaglemotive Corporation
for approximately $13.4 million. Located in Fort Worth Texas, Eaglemotive
assembles and distributes fan clutches and other cooling products to the
automotive aftermarket. The acquisition was funded from short term borrowings.
The reductions in capital employed by Standard Motor Products, coupled with
our increased earnings have resulted in a year-over-year improvement in EVA(R).
We have expanded our EVA focus to ensure that we invest capital wisely in
programs that exceed our cost of capital and improve our asset utilization.
SEASONALITY
As with profitability, our working capital requirements have become more
seasonal with the increased sales mix of temperature control products. Our
working capital requirements peak near the end of the second quarter, as the
inventory build-up of air conditioning products is converted to sales and
payments on the receivables associated with such sales begin to be received.
These
30
<PAGE> 31
increased working capital requirements are funded by borrowings from our lines
of credit. Our peak borrowings for the second quarter of 1998 and 1999 were
$82.4 million and $89.0 million, respectively.
DEBT SERVICE
Our ability to make payments on and to refinance our indebtedness,
including the Convertible Debentures, and to fund planned capital expenditures,
product development efforts and acquisitions will depend on our ability to
generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Based on our current level of operations and anticipated
cost savings and operating improvements, we believe our cash flow from
operations, available cash and available borrowings under our credit facilities,
will be adequate to meet our future liquidity needs for at least the next 12
months. See "Risk Factors -- We Will Have Significant Debt Service Requirements
and May Need to Refinance All or a Portion of Our Debt."
We cannot assure you that our business will generate sufficient cash flow from
operations, that currently anticipated cost savings and operating improvements
will be realized on schedule, or that future borrowings will be available to us
in an amount sufficient to enable us to pay our indebtedness, including the
Convertible Debentures, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness, including the Convertible
Debentures, at or before maturity. If we need to refinance our debt, we cannot
assure you that we will be able to refinance the debt on commercially reasonable
terms or at all. See "-- Liquidity and Capital Resources."
IMPACT OF INFLATION
Inflation is not a significant issue and our management believes that we
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
We continue to face competitive pressures. In order to sell at competitive
prices while maintaining profit margins, we are continuing to focus on overhead
and cost reduction. We have completed much of our restructuring program, and are
now focused on the two industry segments in which we are a market leader. We
anticipate that significant cost savings will continue to develop from the
consolidation of the temperature control business of Cooper Industries with our
existing Temperature Control division. These savings commenced during 1998 and
should have a favorable impact on our 1999 and 2000 results. Additional cost
reductions in other areas that were implemented in 1998 should have significant
benefits in 1999. These actions, coupled with the continued focus on EVA, are
intended to ensure that we invest only in programs that exceed the cost of
capital and focus on improving margins and asset utilization.
YEAR 2000
We are currently working to resolve the potential impact of the year 2000
on the processing of date-sensitive information by our computerized information
system. The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures.
We have established a comprehensive response to our Year 2000 exposure.
Generally, we have Year 2000 exposure in two areas: (i) our information
technology systems and (ii) our non-information technology systems. At June
1998, we completed an inventory of our internal information technology systems
and made a preliminary determination of which programs were or were not Year
2000 compliant. During the period ended December 1998, we tested each
significant information technology system which we believed to be Year 2000
compliant. In some
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<PAGE> 32
cases, we will correct Year 2000 issues by implementing new programs which
enhance or provide new functionality to these financial and management operating
systems. We expect that the cost of this effort will be approximately $1.4
million, which includes capital costs for new software, computers and related
equipment. We substantially completed Year 2000 testing and remediation on our
critical information technology systems in June 1999 and we expect to
substantially complete Year 2000 testing and remediation on our non-critical
information technology systems and our non-information technology systems in
October 1999.
As of June 30, 1999, we were nearly complete with our interviews of
suppliers, customers, financial institutions and others with which we conduct
business to determine the extent to which we would be vulnerable to these third
parties' failure to remediate their own potential Year 2000 problems. Our
inability, or the inability of these other significant business partners, to
adequately address the Year 2000 issues could cause disruption of our
operations.
We do not presently anticipate that our costs to address the Year 2000
issue will have a material adverse impact on our financial condition, results of
operations or liquidity.
Although we expect our internal information technology and non-information
technology systems to be Year 2000 compliant as described above, we intend to
prepare a contingency plan that will specify what we plan to do if we or
important external companies are not Year 2000 compliant in a timely manner.
These contingency plans will address the most likely worst case Year 2000
scenarios. We expect to finalize our contingency plans by October 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities": (SFAS No. 133), effective for fiscal years beginning
after June 15, 1999 (the FASB has, however, voted to issue an exposure draft to
propose a one-year delay in the effective date). SFAS No. 133 requires
derivatives to be recorded on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in values of
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. We have not yet completed our
evaluation of the impact that SFAS No. 133 may have on our results of operations
or financial position.
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INDUSTRY
A large, diverse number of manufacturers varying in product specialization
and size makes up the automotive aftermarket industry. In addition to
manufacturing, aftermarket companies also allocate resources towards an
efficient distribution process and product engineering in order to maintain the
flexibility and responsiveness on which their customers depend. The automotive
aftermarket differs substantially from the original equipment manufacturer
supply business. Aftermarket manufacturers must be efficient producers of small
run lot sizes and do not have to provide systems engineering support.
Aftermarket manufacturers also must distribute, with rapid turnaround times,
products for a full range of vehicles on the road. While sales of original
equipment manufacturer suppliers are tied closely to the North American
production volumes of the "Big Three" automakers, aftermarket manufacturers tend
to follow different trends (such as average vehicle age, scrappage rates, total
miles driven and vehicular registration), generally making aftermarket companies
less susceptible to cyclical downturns that may occur in new vehicle production.
New car dealer networks of original equipment manufacturers account for
approximately 30% of aftermarket sales. Traditionally, the supply arms of the
original equipment manufacturers and the independent manufacturers who supply
the original equipment part applications have supplied a majority of this
business. Ford and General Motors have moved to make their supply arms more
independent, which may provide future opportunities for independent aftermarket
manufacturers to supply replacement parts to the dealer networks of the original
equipment vehicle manufacturers, both for warranty and out-of-warranty repairs.
The primary customers of the automotive aftermarket manufacturers are
national and regional warehouse distributors, large retail chains, automotive
repair chains and the dealer service networks of the original equipment vehicle
manufacturers, as illustrated below.
[DISTRIBUTION CHANNELS OF AFTERMARKET PARTS FLOW CHARTS]
[Three flow charts. The first flow charts shows that the Traditional
Distribution Channel is as follows: from Standard Motor Products, Inc. to the
Warehouse Distributor then to the Jobbing Store, and finally to the Installer,
the Dealer or the Do-It-Yourselfer. The second flow chart shows that the
Original Equipment Service distribution channel is as follows: from Standard
Motor Products, Inc. to the Vehicle Manufacturer Parts and Service to the
Dealer, and finally to the Installer, the Do-It-Yourselfer or the Jobber. The
third flow chart shows that the Retail Distribution Channel is as follows: from
Standard Motor Products, Inc. to the Automobile Parts Retailer, and finally to
the Do-It-Yourselfer or the Installer.]
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In the traditional distribution network, automotive replacement parts are
distributed through a number of levels before reaching the final users. Standard
Motor Products and its competitors sell their products to warehouse distributors
who supply over 15,000 local auto parts jobbers. These jobbers, in turn, sell
primarily to professional mechanics at service stations, garages, and repair
shops, and also to consumers who perform automotive repairs themselves (known as
"do-it-yourselfers").
Over the last ten years, there has been a trend toward consolidation in the
distribution chain, both by warehouse distributors and retailers, as large
firms, with their superior buying power and more efficient distribution systems,
have gained market share at the expense of smaller, localized firms. The
proliferation of new car models, which are both produced in greater varieties
and carry more complex parts, may have hastened consolidation. This
proliferation of new car models requires a much greater capital base to support
a higher number and variety of parts that must be maintained in a warehouse
distributor's inventory for same day delivery to mechanics.
Retail chains such as Advance Auto Parts, AutoZone, CSK Auto, Discount Auto
Parts and Pep Boys/Parts USA sell a substantial amount of automotive aftermarket
parts. A key difference between warehouse distributors and retailers is the
substantially lower number of parts carried in inventory by retailers. A
retailer's inventory is focused on fast-moving items and those used in easier
repair jobs, and thus relies on overnight emergency orders to fill in slower
moving parts as required. A retailer may carry only 20,000 parts, compared with
80,000 to 100,000 parts carried by warehouse distributors. While both mechanics
and do-it-yourselfers purchase aftermarket parts from retail chains, as
automotive parts grow more complex, consumers may be less likely to service
their own vehicles and may have to become more reliant on dealers and mechanics
that have traditionally used warehouse distributors as their parts suppliers.
Retailers are currently expanding into the jobber market and warehouse
distributors are seeking means to better serve "do-it-yourselfers", possibly
resulting in a long-term consolidation of the market. Through our strategy of
serving all levels of the aftermarket industry, we believe that we are
well-positioned to take advantage of this consolidation. A listing of some of
the major automotive retailers and warehouse distributors that distribute
aftermarket parts is below.
TOP FIVE AUTO PARTS RETAILERS AND WAREHOUSE DISTRIBUTORS
<TABLE>
<CAPTION>
RANK CHAIN 1998 STORES 1998 SALES(1)
- ---- ----- ----------- -------------
(IN THOUSANDS)
<C> <S> <C> <C>
1 AutoZone................................................... 2,001 $2,691,440
2 General Parts/Carquest (warehouse distributor)(2).......... 860 800,000
3 Advance Auto Parts......................................... 814 848,000
4 Genuine Parts/NAPA (warehouse distributor)................. 758 925,000
5 CSK Auto................................................... 718 845,700
</TABLE>
- ---------------
Source: Automotive Marketing
(1) Includes all sales volume for these entities, including sales generated
from products not sold by us.
(2) Only General Parts-owned stores.
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FACTORS INFLUENCING THE AUTOMOTIVE AFTERMARKET
The automotive aftermarket is going through a period of changes in its
structure. Several factors are driving these changes, including:
- Growth in the number of vehicles on the road
- Increases in the driving age population and number of vehicles per
household
- Vehicles are on the road longer and driven more miles per year
- New cars are being priced more out of reach of the average first-time
buyer
- Automotive parts retailers are attempting to displace traditional jobbers
- Environmental laws are becoming more stringent
- Broader range in prices for replacement parts
- Vehicles are comprised of more complex systems, requiring a greater
specialization of parts
- New cars are being made better and have longer warranties
- Effects of dealer versus non-dealer servicing
We believe that the above factors also are driving changes in the structure
of the European aftermarket.
GROWTH IN THE NUMBER OF VEHICLES ON THE ROAD. From 1988 to 1997, the
number of registered vehicles in the United States increased at an annual rate
of approximately 1.8% to approximately 201.1 million vehicles, as represented by
the graph below. Growth in light trucks in particular has been strong,
increasing 3.7% in 1997 compared to 1996, continuing a decade of steady growth.
Canada and Mexico contribute another estimated 17.5 million and 8 million light
vehicles on the road, respectively, bringing the 1997 North American market to
roughly 227 million potential customers.
[VEHICLES IN USE BAR GRAPH]
[Bar Graph - Vehicles in Use - United States - bar graph setting forth the
number of vehicles in use in the United States, indicating that approximately
171 million vehicles were in use in the United States in 1988, 175 million
vehicles were in use in the United States in 1989, 180 million vehicles were in
use in the United States in 1990, 182 million vehicles were in use in the United
States in each of 1991 and 1992, 186 million vehicles were in use in the United
States in 1993, 188 million vehicles were in use in the United States in 1994,
194 million vehicles were in use in the United States in 1995, 198 million
vehicles were in use in the United States in 1996, and 201 million vehicles
were in use in the United States in 1997]
-------------------------
SOURCE: U.S. DEPARTMENT OF TRANSPORTATION.
INCREASES IN THE DRIVING AGE POPULATION AND NUMBER OF VEHICLES PER
HOUSEHOLD. The size of the driving age population and the number of vehicles
per household (vehicle penetration) impact the size of the aftermarket. In 1997,
the driving age population reached roughly 183 million drivers, continuing an
annual growth rate of 1.6% since 1990. On a per household basis, the number of
vehicles increased to 1.99 per family in 1997, reflecting an annual growth rate
of 0.5% since 1990. In addition, there were approximately 1.10 vehicles per
person of driving age, representing an annual growth rate of 1.2%.
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<PAGE> 36
VEHICLES ARE ON THE ROAD LONGER AND MORE MILES ARE BEING DRIVEN PER
YEAR. Approximately 44% of the 1997 vehicle population was ten years of age or
older. More importantly, 74% of the vehicles on the road are over five years of
age, a segment which represents the primary customer base of the independent
aftermarket. Dealerships typically service vehicles newer than five years old,
which do not contribute significant sales to aftermarket distributors or
retailers. In 1997, the average car was 8.8 years old, compared to 6.9 years old
in 1980. Trucks have also extended their average life to 9.3 years (see the
following graph). The increase in average life per vehicle is attributable,
among other things, to an increase in the structural integrity of vehicles as
well as significant technological innovations in protecting autos from
structural and exterior corrosion and improved quality in the major parts
systems such as engines and transmissions.
Vehicles also are being driven more miles per year. This number of miles
driven has been steadily rising for the past decade, possibly due to the
declining price of gasoline (adjusted for inflation), over the same period. This
results in greater wear on a vehicle and therefore a greater need for
replacement parts sold in the aftermarket. See "-- New Cars Are Being Made
Better and Have Longer Warranties."
[AVERAGE AGE OF VEHICLE FLEET GRAPH]
Bar graph setting forth the average age of the
the vehicle fleet in the United States showing that
in each of 1988, 1989 and 1990, the average age of
the vehicle fleet in the United States was 8.0 years;
in 1991, the average age of the vehicle fleet in the
United States was approximately 8.1 years; in 1992, the
average age of the vehicle fleet in the United States
was approximately 8.3 years; in each of 1993, 1994 and
1995, the average age of the vehicle fleet in the
United States was approximately 8.5 years; in 1996, the
average age of the vehicle fleet in the United States
was approximately 8.7 years; and in 1997, the average
age of the vehicle fleet in the United States was
approximately 8.8 years.
- ---------------
Source: R.L. Polk & Co.
NEW CARS ARE BEING PRICED MORE OUT OF REACH OF THE AVERAGE FIRST-TIME
BUYER. While cars and light trucks are increasingly incorporating technology in
both their design and engineering, such technology comes at a price to the
consumer in the show room. In 1989, the average number of weeks of income that
it took to pay off a new car was approximately 21.5 based on an average new car
price and household median income. As of 1997, this number increased to 31.8
weeks required to pay off the purchase price of a new vehicle. Therefore, more
people are driving older cars which are more likely to need replacement parts.
AUTOMOTIVE PARTS RETAILERS ARE ATTEMPTING TO DISPLACE TRADITIONAL
JOBBERS. More aftermarket parts are now being sold through the retail channel
as these stores begin to serve professional mechanics as well as their
traditional retail clients. Given that retailers have conveniently located
stores already in place, they have been able to sell certain fast-moving product
lines to the jobber client base by simply adding more inventory coverage, a same
day delivery service and an overnight emergency order system. The increase in
the number of retail outlets, serving a broader market volume (partially offset
by a decrease in the number of jobbers), results in a net increase in the number
of locations carrying a broader range of replacement parts.
ENVIRONMENTAL LAWS ARE BECOMING MORE STRINGENT. Environmental pressures
have forced new measures onto the average driver as well as the original
equipment manufacturers at the point of vehicle origination. Recently, several
states have begun to impose tighter emission controls at the inspection station,
requiring otherwise "clean" vehicles to undergo repair of their emissions
systems in order to pass. This translates into a higher utilization of jobbers
and service bays as these vehicles are forced to conform to tighter regulatory
standards. The end
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<PAGE> 37
result is a greater demand for aftermarket emission parts. In addition, the
growth in anti-fluorocarbon legislation has made similar demands on the interior
temperature control systems of the average vehicle. United States production of
R-12 based refrigerants such as Freon was no longer permitted as of December 31,
1995. This has forced original equipment manufacturers to replace the system
with a recyclable coolant variant. As anti-ozone legislation increases, the
average driver will be forced to replace his or her system as well with a
variant that is not only more costly, but also requires a lengthy service bay
visit.
BROADER RANGE IN PRICES FOR REPLACEMENT PARTS. Many price conscious
consumers have balked at paying a higher price to get original equipment quality
replacement parts for their aging cars with a limited remaining life.
Aftermarket suppliers responded by supplying multiple versions of the same
product at differing price/quality points. This has hurt margins among primarily
the smaller suppliers who do not have the efficient distribution channels and
production capabilities needed to handle lower margin sales. This factor is
contributing heavily to the consolidation of automotive suppliers. Lower margin
products have also made many of the aftermarket supplier products more
attractive compared to original equipment supplier products in the replacement
market. This may work to increase aftermarket firms' share of the automotive
replacement parts business. Ultimately, we believe that the larger surviving
aftermarket firms will benefit.
VEHICLES ARE COMPRISED OF MORE COMPLEX SYSTEMS, REQUIRING A GREATER
SPECIALIZATION OF PARTS. Vehicles are becoming increasingly complex in terms of
their electronics, on a content per vehicle basis. While on average these parts
have a greater longevity than the electromechanical parts they are replacing, we
believe that the sheer volume of parts required and higher average prices per
part outweigh any of the negative effects that longevity may have on aftermarket
sales. In short, we believe that the more complicated the system, the greater
the chance that a replacement part will be needed in some capacity.
NEW CARS ARE BEING MADE BETTER AND HAVE LONGER WARRANTIES. As new
technology makes its way into the interior of cars, it is also entering vehicles
in terms of structural materials. New, corrosive resistant steel and other
materials make the average vehicle on the road today less likely to fail
structurally, raising the life of the vehicle considerably. Many functional
parts are now being designed to last for 100,000 miles of usage. The extension
of the average new car warranty evidences the change in durability and quality
in the structural and functional components of the vehicle. These longer
warranties are likely to keep car owners returning to their dealer for servicing
for a longer period of time, thus hurting aftermarket sales. The extent of this
influence is uncertain.
EFFECTS OF DEALER VERSUS NON-DEALER SERVICING. Late model domestic cars
and imported vehicles require more expertise and technology to repair. As these
have become a greater percentage of the vehicles on the road, non-dealer
mechanics have had to invest in greater amounts of equipment and training to
service them or risk losing business. While import vehicle owners may return
more often to their dealer for servicing, we do not believe that this will
substantially hurt aftermarket part sales. Non-dealer repair shops have been
rapidly investing in technology and expertise to compete effectively with
dealers in servicing import cars. The major replacement parts manufacturers have
also responded by providing enhanced ongoing training of professional mechanics
and telephonic services that assist mechanics in diagnosing repairs and
installing parts. In addition, independent manufacturers are designing parts for
ease of installation and providing specialty tools to speed the installation
process.
The net impact of the foregoing factors results in a forecast for the North
American automotive aftermarket industry to grow at a minimal rate over the next
several years. Because of this limited projected growth, companies are looking
for other ways to achieve growth and increase profitability. One of the primary
ways to do this is through consolidation. Therefore, companies are looking for
acquisition targets that can enhance market share, decrease overhead costs or
reduce the numbers of competitors in a product area. See "Risk Factors -- The
Market for Replacement Parts is Expected to Experience Minimal Growth Over the
Next Few Years."
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BUSINESS
COMPANY OVERVIEW
Standard Motor Products is a leading independent manufacturer and
distributor of replacement parts for motor vehicles. We are organized into two
divisions, each focused on a specific type of replacement part: (1) Engine
Management (ignition and emission parts, fuel system parts and wire and cable)
and (2) Temperature Control (compressors, other air conditioning parts and
heating parts). We sell our products primarily to warehouse distributors and
large auto parts retail chains. In 1998, our customers included most of the top
warehouse distributors and all of the leading auto parts retail chains. Our
customers include Advance Auto Parts, AutoZone, Carquest and NAPA Auto Parts. We
distribute parts under our own brand names, such as Standard, Blue Streak and
Four Seasons, and also under private labels for our key customers such as
Advance Auto Parts, Carquest and NAPA Auto Parts.
In 1998, our net sales were $649 million and our operating income was $44
million. Over the past three years, our net sales have grown at a compound
annual rate of 13% and our operating income has grown at a compound annual rate
of 14%. This strong performance has continued in 1999, as first quarter revenues
were 40% higher than the comparable quarter in 1998. Excluding revenues from
acquisitions, net sales increased 12% during the three months ended March 31,
1999, compared to the three months ended March 31, 1998. The following charts
set forth our net sales by manufacturing division, geographic region and
customer group as a percentage of total net sales for the year ended December
31, 1998.
[THREE PIE CHARTS]
[Three net sales pie charts are set forth in the Prospectus.
The first pie chart is entitled "1998 Net Sales by Manufacturing
Division." It indicates that engine management products make up
54% of our net sales, and temperature control products make up
46% of our net sales. The second pie chart is entitled "1998
Net Sales by Geographic Region." It indicates that the 90% of
our net sales are to customers in the United States, 4% are to
customers in Canada, and 6% are to customers in the rest of the
world. The third pie chart is entitled "1998 Net Sales by Customer
Group." It indicates that warehouse distributors make up 82% of our
net sales and retail makes up 18% of our net sales.]
We believe that the key elements that have led to our success are as
follows:
- SHARPENED BUSINESS FOCUS. Beginning in mid-1997, we
implemented a restructuring program to focus on our strong core
businesses of Engine Management and Temperature Control. We exited our
unprofitable and non-strategic brake, service line and fuel pump
businesses. We acquired the temperature control business of Cooper
Industries and made several other strategic acquisitions. In sum, from
mid-1997 to mid-1998, we repositioned approximately 30% of our revenue
base. We believe this strategy of developing critical mass in two core
businesses has allowed us to improve our cost position, to access new
markets and to focus our engineering efforts.
- CONTINUED SUBSTANTIAL MARKET SHARE. Following the
restructuring, our two divisions have substantial market shares in
their respective product lines. In Engine Management, we have more
than 30% of the North American aftermarket and we believe that we are
the number one manufacturer serving this market. In Temperature
Control, we have more than 50% of the North American aftermarket and
are the number one manufacturer serving this market. Our significant
market position allows us to maximize our production and distribution
efficiencies and to leverage access to our customer base.
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<PAGE> 39
- IMPROVED OPERATING AND FINANCIAL PERFORMANCE. In late 1997, we
adopted Economic Value Added (EVA(R)) as our primary financial
measurement for evaluating investments and for determining incentive
compensation. Since adopting EVA, our operating margin improved from
1.7% in 1997 to 6.8% in 1998. Our return on average stockholders'
equity improved from a loss in 1997 to 11.4% in 1998. EVA is equal to
net operating profits after economic taxes, less a charge for capital
invested in Standard Motor Products. The charge for invested capital
is equal to the product of the total capital invested in Standard
Motor Products and the weighted average cost of capital for Standard
Motor Products' target blend of debt and equity (12% for us). Our
management places significant emphasis on improving our financial
performance, achieving operating efficiencies and improving asset
utilization. As we continue to expand both our product base and
geographic scope and as we identify programs to reduce costs, our
management will evaluate investments and acquisitions based on both
EVA and strategic importance. In addition, we currently determine
compensation for all top managers using an EVA-based system and in
1999 increased the number of managers participating in our EVA-based
compensation system to more than 200 participants.
- EXPANDED CHANNEL BREADTH. We have greatly expanded our
coverage of the channels of distribution in North America since the
early 1990's, when we focused primarily on wholesale distributors.
Today we ship products to all channels of distribution including
wholesale distributors, retail chains, service chains and original
equipment dealer service. The most dramatic expansion has been in the
growing retail segment. In 1992, we sold approximately $12 million to
retailers (representing 3% of net sales from continuing operations for
that year) and in 1998 we sold approximately $119 million to retailers
(representing 18% of net sales from continuing operations for that
year). We believe that the breadth of our distribution channel
coverage positions us to take advantage of any future shifts in market
distribution channels.
We believe that our success also is attributable to our emphasis on product
quality; the breadth and depth of our product lines for both domestic and
imported automobiles; and our reputation for outstanding customer service, as
measured by rapid order turn-around times and high order fill rates. In
addition, we have a highly regarded direct sales force of approximately 300
people marketing all of our product lines, which serves to generate strong name
recognition and customer loyalty. Our sales force is acknowledged as an industry
leader in technical competence and training. We also use independent sales
representatives to complement our sales force in certain product lines and
distribution channels.
STRATEGY
Our goal is to drive revenue and earnings growth by providing high quality,
low cost replacement parts in the engine management and temperature control
automotive aftermarkets. We intend to achieve this goal by focusing on further
penetration of domestic markets, by broadening our product range while focusing
on developing technology, leveraging our significant market share, pursuing cost
cutting initiatives and acquiring businesses complementary to our two product
lines. We also are expanding our presence in the original equipment service and
international arenas.
The key elements of our strategy are as follows:
- MAINTAIN TECHNOLOGICAL LEADERSHIP. We are committed to
investing the resources necessary to maintain our technological
leadership in emerging aftermarket product areas such as
computer-controlled engine management systems, distributorless
ignition systems, sensors and fuel injection parts. We are actively
working to develop further applications of our present product lines
to incorporate the latest technologies in North America and Europe. We
have established Blue Streak Electronics, Inc., a joint
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<PAGE> 40
venture which is today a leader in remanufactured automotive computers.
Other examples of our commitment to technology include our oxygen sensor
business' expansion into the latest four wire sensors, our motor business'
expansion into four pole motors and our electronic ignition business'
expansion into state-of-the-art applications. We believe that this assures
our access to the replacement parts business for the latest vehicles
introduced. We have expanded our product lines to include certain sensors,
air conditioning controls and other automotive computers.
- EXPAND INTERNATIONAL PRESENCE. International sales for the
year ended December 31, 1998 made up approximately 10% of our
revenues, approximately 40% of which were in Canada. We believe that
major opportunities exist to broaden our international base. We have
developed a base for European expansion through four acquisitions and
internal growth because we believe that the following present an
opportunity for us in the European market:
-- the fragmentation of the market for European automotive
aftermarket parts and the increasing presence of many
non-original equipment, independent suppliers in this market,
-- the increasing pan-European nature of distribution of automotive
aftermarket parts in Europe due to the establishment of the
European Union, and pan-European distribution groups,
-- the replacement of original equipment service outlets with
additional independent jobber and retail outlets, and
-- the dramatic growth in the number of automobiles on the road
with installed air conditioners and engine electronics.
We believe that these factors will create consolidation in the
European automotive aftermarket parts market, allow for increased
distribution channels throughout Europe and present an opportunity for
independent suppliers, such as Standard Motor Products, who provide a
full range of products for European applications. The demographic
factors for this market are the same as in North America. We are
currently evaluating opportunities in Europe to broaden our product
lines and establish enhanced geographic distribution through
established brand names. To date, we have established a distribution
center for temperature control products in Strasbourg, France,
established a joint venture for the remanufacture of air conditioning
compressors, and launched a remanufacturing site for engine computers
and sensors in England to support the European market. Early in 1999,
we acquired Webcon and Injection Correction to further expand our
engine management presence in Europe. In April 1999, we continued our
European expansion effort with the acquisition of Lemark Auto
Accessories Limited, a United Kingdom-based manufacturer and
distributor, primarily of ignition wire and other engine management
products, improving our market share position to number two in the
United Kingdom market.
The shift in Europe to engine management and temperature control
products such as those sold by Standard Motor Products is occurring
much later than in the United States. In 1999, the installation rate
of air conditioning systems in European cars was approaching 61%, as
opposed to 98% in the United States. The mass introduction of
electronics for fueling and engine controls in Europe was nearly ten
years behind that in the United States. Today, most European vehicles
have electronic injection fueling systems and engine management
systems.
- BROADEN CUSTOMER BASE. We intend to continue efforts to market
our products more broadly to certain repair chains, original equipment
vehicle manufacturers for dealer service and other aftermarket parts
manufacturers. These customer groups have
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<PAGE> 41
historically been underrepresented in our sales. We have grown our direct
sales to retailers over the past five years from $12 million in 1992 to
$119 million in 1998. We believe that the move to create independent
component manufacturing companies at Ford and General Motors will present
us with increased original equipment service opportunities. We are actively
working on and have received several small orders for original equipment
service parts. In addition, we are continuing to utilize cross-marketing to
increase sales to existing customers who are currently purchasing only some
of our product lines.
- DEVELOP NEW PRODUCT LINES AND PRODUCT LINE EXTENSIONS. We
intend to continue to expand the range of engine management and
temperature control products we offer our customers through a
combination of internal development and selective acquisitions. By
adding new products manufactured by us, such as small motors, oxygen
sensors and fan clutches, we have been able to increase our sales to
existing customers and to attract new customers. As part of this
strategy, we also are expanding our product penetration by
increasingly developing multiple brands and private label brands under
a "good-better-best" concept to address different market segments and
price points.
- IMPROVE OPERATING EFFICIENCY AND COST POSITION. We intend to
continue to improve our operating efficiency and cost position, by:
-- increasing cost-effective vertical integration,
-- focusing on efficient inventory management,
-- adopting company-wide programs geared toward manufacturing and
distribution efficiency, and
-- implementing company-wide overhead (operating expense) cost
reductions.
We have increased vertical integration in key product lines through
both internal development and acquisitions. Examples of this include
our 1995 establishment of our blower motor business and our
acquisitions of the Hayden division of The Equion Corporation and of
Eaglemotive Corporation, which make us a more vertically integrated
manufacturer in the air conditioning business, and our acquisition of
AlliedSignal's oxygen sensor manufacturing business in the engine
management business. We have improved our asset management, as
reflected in the $55 million decline in inventory from 1996 to 1998.
This decline was the result of several factors, including the
divestiture of our discontinued Brake and Service Line divisions,
offset by acquisitions, and approximately $22 million related to
inventory management systems we have implemented in our Engine
Management division. We expect further improvements in 1999. We have
instituted a number of company-wide cost containment programs
including reducing new customer acquisition costs, implementing
administrative headcount reductions, reorganizing our sales force, and
rationalizing our existing manufacturing facilities into lower cost
locations. Examples of this are the consolidations within our wire
business and within our small motor business, and the pending
consolidation of five temperature control facilities into two. During
the same time period, we have decreased our selling, general and
administrative expenses (excluding debt expense) from 28.1% of sales
in 1997 to 24.5% in 1998. We also are focusing heavily on lowering
in-house manufacturing cost for key products to ensure high quality,
competitive cost and availability.
ACQUISITION HISTORY
We have established an acquisition strategy covering specific areas in
engine management and temperature control, namely: the broadening of new product
lines; the addition of low cost
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lines within the main areas of our business; vertical integration; and
international expansion. We have made several acquisitions since our strategy
was implemented in 1995, and plan to continue with our acquisition strategy. Our
management has adhered to a disciplined business strategy and EVA(R) in
assessing acquisition opportunities, including a requirement that any
acquisition be accretive to earnings no later than the second full year after
its completion.
On March 28, 1998, we completed the exchange of our brake business for the
temperature control business of Cooper Industries. This exchange was the largest
component of our restructuring program as we exited the unprofitable and
non-strategic brake business. The acquisition of Cooper's temperature control
business increased the division's revenues for the three month period ended
March 31, 1999 by $30.8 million or 87.3% and provided us with more than a 50%
North American market share. This restructuring has allowed us to develop
critical mass and to improve our cost position in temperature control and access
new markets. We recently began the process of consolidating the acquired
business into our Four Seasons division, and expect to realize the full benefits
of the acquisition by fiscal year 2000.
The following table summarizes acquisitions and divestitures we have made
since January 1, 1996:
<TABLE>
<CAPTION>
ACQUISITION BUSINESS OF ACQUIRED
ACQUISITION DATE LOCATION COMPANY
- ----------- ----------- -------- --------------------
<S> <C> <C> <C>
Lemark Auto Accessories Limited....... April 1999 United Kingdom Manufacture and distribution primarily
of ignition wire and other engine
management products
Eaglemotive Corporation............... February 1999 Fort Worth, Manufacture and distribution of fan
Texas clutches and oil coolers
Webcon UK Limited and Injection
Correction UK Limited............... January 1999 Two locations Manufacture and distribution of
in the United full-line engine management products
Kingdom
Temperature control division of Cooper
Industries.......................... March 1998 Multiple Manufacture and distribution of
locations in full-line temperature control products
the United
States
Oxygen sensor manufacturing business
of AlliedSignal..................... September 1997 Wilson, North Manufacture of oxygen sensors
Carolina
Filko Automotive Division of F&B
Manufacturing....................... January 1997 Bradenton, Manufacture and distribution of
Florida ignition wire and other engine
management products
Hayden Division of The Equion
Corporation......................... December 1996 Corona, Assembly and distribution of heavy
California duty cooling products
Fibro Friction, Inc. (since
divested)........................... July 1996 Montreal, Formulation of friction materials and
Canada supply of integrally molded brake pads
Intermotor Holdings Limited........... July 1996 Nottingham, Manufacture and distribution of engine
England management products, primarily to the
European market
Federal Parts Corporation............. February 1996 Dallas, Texas Manufacture and distribution of
ignition wire products
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
DISPOSITION BUSINESS OF DISPOSED
DISPOSITION DATE LOCATION COMPANY
----------- ----------- -------- --------------------
<S> <C> <C> <C>
Champ/ASL............................. Fall 1998 Edwardsville, General service line
Kansas
Pik-A-Nut............................. Fall 1998 Huntington, General service line
Indiana
Fuel Pump business.................... October 1998 Long Island City, Manufacture and distribution of fuel
New York pumps
EIS Brake parts....................... March 1998 Berlin, Manufacture of brake parts
Connecticut
EIS Brake Manufacturing (EBM)......... March 1998 Ontario, Canada Manufacture of brake parts
Fibro Friction, Inc................... March 1998 Montreal, Canada Formulation of friction materials and
supply of integrally molded brake pads
</TABLE>
DESCRIPTION OF OPERATIONS
The table below shows our sales by product groups for the last three
years(1):
<TABLE>
<CAPTION>
1998(2) 1997 1996
--------------------- --------------------- ---------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ENGINE MANAGEMENT:
Ignition and Emission
Parts..................... $256,913 39.6% $265,662 47.4% $259,782 50.6%
Fuel Systems................. 22,911 3.5 29,678 5.3 32,909 6.4
Wire and Cable............... 68,840 10.6 70,484 12.6 60,718 11.9
-------- ------ -------- ------ -------- ------
Subtotal.................. 348,664 53.7 365,824 65.3 353,409 68.9
-------- ------ -------- ------ -------- ------
TEMPERATURE CONTROL:
Compressors.................. 131,154 20.2 79,237 14.2 72,522 14.1
Other Air Conditioning
Parts..................... 145,207 22.4 94,744 16.9 70,677 13.8
Heating Parts................ 20,783 3.2 13,937 2.5 13,224 2.5
-------- ------ -------- ------ -------- ------
Subtotal.................. 297,144 45.8 187,918 33.6 156,423 30.4
-------- ------ -------- ------ -------- ------
Other........................ 3,612 0.5 6,081 1.1 3,575 0.7
-------- ------ -------- ------ -------- ------
Total................ $649,420 100.0% $559,823 100.0% $513,407 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
- ---------------
(1) This table reflects continuing operations only and has excluded our
discontinued Brake and Service Line divisions.
(2) The decline in 1998 sales reflects the divestiture of our fuel pump business
in October 1998 and reduced sales to A.P.S., Inc., one of our largest
customers, as A.P.S., Inc. went through bankruptcy proceedings.
ENGINE MANAGEMENT DIVISION
Our Engine Management Division manufactures and distributes a broad range
of parts including ignition and emission parts, rebuilt engine computers and
various sensors, fuel system components, wire and cable products for domestic
and import vehicles. As shown in the table above, this division had sales of
$348.7 million in 1998, which represented a 4.7% decrease over 1997. The decline
in sales was primarily due to the sale of our fuel pump business and reduced
sales to A.P.S., Inc., one of our largest customers, as A.P.S., Inc. went
through bankruptcy proceedings.
Replacement parts for automotive ignition and emission control systems
accounted for 39.6% of our total sales in 1998. These parts include distributor
caps and rotors, electronic ignition control modules, voltage regulators, engine
control modules, coils, switches, sensors and EGR valves. We are a basic
manufacturer of many ignition parts we market. These products cover a
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wide range of applications, from 30-year old vehicles to current models, both
domestic and imports, including passenger cars and light trucks. The products
also cover certain farm, off-road and marine applications.
We offer products at three different price points under a
"good-better-best" concept. We began by offering ignition parts under the
"Standard" brand name that were equal in quality to original equipment parts
installed on new vehicles. Soon afterward, we pioneered the concept of offering
higher quality parts, sold under the Blue Streak brand name, that were
significantly better than original equipment. We priced these products at a
premium. We now offer lower-priced lines under the Tru-Tech and Modern Mechanic
brand to compete with certain lower priced private labels.
Nearly 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. We are a leader in the manufacture and sale of these engine management
component parts, including remanufactured automotive computers. The shift from
the traditional breaker-point ignition systems to electronic ignition systems
started approximately 20 years ago. The shift was a response to pressures from
the government and environmental groups to reduce national fuel consumption and
the level of pollutants from auto exhaust. Electronic ignition systems enable
the engine to improve fuel efficiency and reduce the level of hazardous fumes in
exhaust gases. Electronic control modules and electronic voltage regulators
comprise a significant and growing portion of our total ignition sales. In 1998,
electronic components comprised 13.2% of our total ignition sales.
In 1992, we entered into a 50/50 joint venture, Blue Streak Electronics,
Inc., in Canada to rebuild automotive engine management computers and mass air
flow sensors. This joint venture's volume is sold primarily to Standard Motor
Products and has positioned us as a key supplier in the rapidly growing
remanufactured electronics markets. In 1994, we vastly increased our offering of
remanufactured computers and instituted a program of offering slower moving
items by overnight shipment from our factory. This has enabled our customers to
expand their coverage without increasing inventory investment. The joint venture
has further expanded its product range to include temperature control computers,
anti-lock brake system computers and air bag computers and in 1997 launched an
operation in Europe to serve that market and an operation in Florida to better
serve the United States market in slow-moving items.
We divide our electronic operations between product design and highly
automated manufacturing operations we perform in Orlando, Florida, and assembly
operations, which we perform in assembly plants in Orlando, Florida and Hong
Kong.
Our sales of sensors, valves, solenoids and related parts have increased
steadily as auto manufacturers equip their cars with more complex engine
management systems. Stricter government emission laws are being implemented in
various parts of the United States. Specifically, the most significant law is
1990's Federal Clean Air Act. The I/M240 section of the Clean Air Act imposes
strict emission control test standards on existing as well as new vehicles, by
means of a dynamometer test. The law is widely expected to be gradually
implemented throughout the United States. In the future, we expect these new
laws to have a positive impact on sales of our ignition and emission controls
parts. However, the timing of such impact will depend on how quickly government
agencies implement these new procedures at state levels. Vehicles failing these
new, more stringent test have required repairs utilizing parts sold by us.
Although we have completed the sale of our fuel pump business, we remain in
the business of selling carburetor repair kits worldwide and carburetor systems
in Europe and fuel injectors worldwide.
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<PAGE> 45
TEMPERATURE CONTROL DIVISION
We market a broad line of replacement parts for automotive temperature
control systems (air conditioning and heating), primarily under the brand names
Four Seasons, Factory Air, Tru-Tech, Everco, Murray, NAPA and Carquest. In
recent years Four Seasons has offered private label packaging to its larger
accounts. The major product groups we sell are compressors, small motors, fan
clutches, dryers, evaporators, accumulators, hoses, heater cores and valves.
Revenues from our Temperature Control division increased 58.1% in 1998 to
$297.1 million and accounted for approximately 45.8% of our total sales.
Excluding revenues from acquisitions not present in 1997, revenues increased by
$31.5 million or 16.8% in 1998. Following is a breakdown of this division's 1998
sales by major product category:
<TABLE>
<CAPTION>
MAJOR PRODUCT CATEGORY 1998 SALES
- ---------------------- --------------
(IN THOUSANDS)
<S> <C>
Compressors................................................. $131,154
Other Air Conditioner Parts................................. 145,207
Heating Parts............................................... 20,783
--------
Total............................................. $297,144
========
</TABLE>
A major factor in the Temperature Control division's business is the
federal regulation of chlorofluorocarbon refrigerants. United States legislation
phased out production of domestic R-12 refrigerant (e.g., DuPont's Freon)
completely by the end of 1995. As the law became effective, vehicle air
conditioners needing repair or recharge were retrofitted to use the new R-134a
refrigerant. New vehicles began to use the new refrigerants in 1993. Installers
continue to seek training and certification in the new technology and our
Temperature Control division has taken the lead in providing this training and
certification. Technological changes necessitate many new parts, as well as new
service equipment. In anticipation of the CFC phaseout, in 1994 we re-
engineered our compressor line to be able to operate efficiently utilizing
either R-12 or R-134a refrigerants. This was the first such move in the
industry. We remain a leader in providing retro-fit kits for conversion of R-12
systems.
In June 1995, we acquired Automotive Dryers, Inc. and Air Parts, Inc. to
become a more basic manufacturer of the major product supplied by the
Temperature Control division and to gain access to the lower priced tier of the
market through a new distribution channel. Automotive Dryers, Inc. manufactures
and distributes receiver filter dryers and accumulators for mobile air
conditioning systems, and is the leading independent supplier of aftermarket
evaporators and accumulators for high performance cars (such as BMW and
Porsche), in the United States. Air Parts, Inc. is a distributor of a limited,
no-frills line of parts for mobile air conditioning systems. These acquisitions
expanded the manufacturing and distribution capabilities of our Temperature
Control division. Air Parts, Inc. also has provided us with our first
temperature control sales to NAPA, the largest automotive aftermarket
distributor in the United States.
In December 1996, we acquired the Hayden Division of The Equion
Corporation, a basic manufacturer of fan clutches and oil coolers. This
acquisition expanded Four Seasons' profitable manufacturing base and greatly
expanded the distribution channels for this key product line.
To further leverage our strong base with retailers, in 1996 Four Seasons
launched a small electric motor manufacturing and assembly facility in Ontario,
Canada. This has greatly enhanced the sale of parts requiring small motors. In
1999, Four Seasons plans to launch production of the latest motor technology to
further enhance its market position. In 1997, we also launched a facility to
produce aluminum evaporators. This product enhanced Four Seasons' position in
both aftermarket and original equipment channels.
Four Seasons is the world's leader in the remanufacture of compressors for
mobile air conditioning systems. We believe that Four Seasons has the highest
quality and lowest cost
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<PAGE> 46
product. To further enhance its market position, in 1997 Four Seasons began the
manufacture of select models of new compressors. These new compressors are
generally for models whose cores used for remanufacturing are difficult to find
and are expensive. Four Seasons is the only replacement parts manufacturer to
provide such models of new compressors.
In March 1998, we exchanged our brake business for the temperature control
business of Cooper Industries. In addition to further strengthening our market
share of the air conditioning replacement parts market, it greatly expanded our
position in the small motor and heater parts market. Work has begun to
consolidate the two businesses, and by early 2000 we expect to have closed three
manufacturing facilities and consolidated three distribution sites into one. We
have begun to achieve significant cost reductions, with the full impact not
expected to be realized until the year 2000.
With our leading technical, manufacturing and distribution skills, we are
well positioned to play a significant role in the expanding European market for
air conditioning replacement parts. As the installation rates of air
conditioning in new vehicles grow and this expanding population of air
conditioning equipped vehicles ages, this will create a significant growth
opportunity for us. Work has begun for us to be positioned to take advantage of
this future opportunity through the launch of a remanufactured compressor joint
venture in France and a Four Seasons distribution center in Strasbourg, France.
The compressor joint venture with Valeo S.A. will provide products for both
original equipment service requirements and independent distribution channels
throughout Europe. We are evaluating other pan-European channels of distribution
for our products to serve this expanding market.
INTERNATIONAL SALES
We sell to the international markets primarily through our Canadian
subsidiaries, direct exports and through a growing local presence in Europe.
During 1998, approximately 10% of our total sales, or $63.3 million, were
international, of which approximately 40%, or $25.5 million, were to the
Canadian market. Our sales to the Canadian market in 1998 remained relatively
flat compared to 1997. Our remaining international sales are largely in Europe
and through direct exports to Latin America.
The table below shows our international sales for the last three years,
excluding sales from discontinued operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Canada.............................................. $25,513 $25,748 $24,470
All Other........................................... 37,863 40,252 14,226
------- ------- -------
Total............................................... $63,376 $66,000 $38,696
------- ------- -------
</TABLE>
The European automotive aftermarket has historically been regional in
nature and more dependent on original equipment dealers, making penetration by
non-original equipment suppliers very difficult. However, it is currently
undergoing large scale changes, evolving into a Pan-European market, with
broader availability of independent replacement parts. We believe that
opportunities exist through acquisitions, internal direct investment and the
establishment of joint ventures with European partners whereby we would combine
the export of products with manufacturing operations in European countries. We
would provide technical and production expertise while the joint venture partner
would assume primary distribution responsibility under an established brand.
Products that we believe are good candidates for such joint ventures include
remanufactured computers, temperature control parts, and ignition and emission
control products. In July 1996, we acquired a 73% interest in Intermotor
Holdings Limited, which we believe is the leading manufacturer of ignition
replacement parts in the United Kingdom. We are
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<PAGE> 47
in the process of expanding this business by adding new products and seeking
acquisitions. In 1997, Blue Streak Electronics, a joint venture 50% owned by us,
launched a venture in Europe to produce re-manufactured engine computers. In
late 1996, we also launched Four Seasons Europe, a business which distributes
temperature control products in Europe. In late 1998, Standard Motor Products
Holdings Limited acquired an 85% interest in Webcon UK Limited, a leading
distributor of carburetor and engine management products and, through Blue
Streak Electronics, an 87.5% interest in Injection Correction UK Limited, a
remanufacturer of engine computers. In April 1999, we acquired Lemark Auto
Accessories Limited, a United Kingdom-based manufacturer and distributor
primarily of ignition wire and other engine management products. We will
integrate these businesses within our existing European operations.
SALES AND DISTRIBUTION
We sell products under our proprietary brand names throughout the United
States, Canada, Latin America, Europe and the Middle East. The Company's
products are then distributed to warehouse distributors, including approximately
15,000 jobber outlets located throughout the United States and Canada. The
jobbers sell our products primarily to professional mechanics and to consumers
who perform their own automobile repairs. In addition, we sell directly to large
auto parts retail chains such as Advance Auto Parts, AutoZone, CSK Auto,
Discount Auto Parts and Pep Boys/Parts USA.
As of March 31, 1999, we sold and serviced our products through a direct
sales force of approximately 300 people and, in certain instances, through
independent sales representatives. Independent surveys have indicated that our
sales force is the premier direct sales force for our two product lines. We
believe the primary reason for this reputation is our high concentration of
highly qualified, well-trained salespeople dedicated to geographic territories.
This allows us to provide a level of customer service that is unmatched. The
United States sales force is divided into four regions, each with five to six
zones and approximately eight salespeople per zone. We also have two dedicated
sales forces, one for Carquest customers in the United States and the second for
Canadian customers. These two dedicated sales forces aggregate approximately 100
people.
From the outset, we thoroughly train our salespeople both in the function
and application of every product line we sell, as well as in proven sales
techniques. Customers therefore depend on these salespeople as a reliable source
for technical information. We give newly hired salespeople extensive instruction
at our training facility in Grapevine, Texas and have a policy of continuing
education that allows our sales force to stay current on troubleshooting and
repair techniques, as well as the latest automotive parts and systems
technology. We employ a comprehensive CD-ROM training program that further
broadens our capability to provide real-time updated training to our
salespeople.
We generate demand for our products by directing a significant portion of
our sales effort to our customers' customers (i.e., jobbers and professional
mechanics), creating a demand-pull through our traditional distribution system.
To help our salespeople to be teachers and trainers, we focus our recruitment
efforts on candidates who already have strong technical backgrounds as well as
sales experience. Many are certified mechanics in their area of expertise under
industry-accepted tests developed by the National Institute for Automotive
Service Excellence (ASE). Our sales force has collectively earned almost 1,000
ASE certificates in engine performance, electrical systems and air conditioning.
We also create pull-through demand for our products through the Standard Plus
Club. The Standard Plus Club, a professional service dealer network comprised of
approximately 13,000 members, offers technical and business development support
and has a technical service telephone hotline which provides diagnostics and
installation support. This club is available to any jobber or installer and
provides training, special discount programs, on-line diagnostics assistance and
logo merchandise.
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<PAGE> 48
Our salespeople are responsible for training the sales forces of warehouse
distributors and jobbers and the mechanics who work with our products. With
constant changes in automobile models, our salespeople ensure that our customers
are informed of the latest technological advances. One means of educating
mechanics, warehouse distributors and jobber salespeople is through clinics,
usually consisting of a lecture supported by visual aids. Our salespeople
frequently give clinics with the sponsorship of local warehouse distributors
and/or jobbers. They set up field classrooms and examine specific vehicle
systems in-depth. Another new training tool that we have found highly successful
is the use of instructional videotapes which we produce.
In 1998 we conducted approximately 4,000 instructional clinics to teach
mechanics how to diagnose and repair complex systems related to our products. We
also publish and sell related service manuals and video/cassettes and provide a
free technical information bulletin service to registered mechanics.
While we make minimal use of advertising, the use of catalogues is a major
marketing tool. During 1998, we utilized approximately 25 different catalogues.
We also use promotions such as cooperative advertising programs.
CUSTOMERS
Our customer base is comprised largely of warehouse distributors, jobber
outlets, retailers, other manufacturers and export customers. No single customer
accounted for more than 10% of our 1998 sales. Warehouse distributors were our
largest customer group, representing approximately 82% of our total sales in
1998. Our major customers in this category include the rapidly growing company
General Parts, Inc. (an operator of warehouse distributors and jobber stores
under the Carquest name) and the largest wholesale distributor, Genuine Parts
Company (NAPA Auto Parts).
In addition to serving our traditional customer base, we have expanded into
the retail market by commencing sales to large retail chains such as Advance
Auto Parts, AutoZone, CSK Auto, Discount Auto Parts and Pep Boys/Parts USA,
among others. Sales to retail chains totaled approximately $119 million in 1998.
The acquisition of new customers typically involves sizable start-up costs,
including stocklifts, new packaging, sales aids and sales training. In the
aftermarket, large initial changeover costs are an unavoidable and necessary
part of acquiring a new customer. Conversely, due to their physical complexity,
cost and size, such changeovers also create significant barriers to entry for
new competitors. In certain instances, we have made acquisitions of smaller
competitors as a cost-effective means of gaining access to new customers and
markets.
In addition to our core customer base, we see growth opportunities in two
new customer categories: other aftermarket manufacturers and original equipment
dealers and the parts and service network of the original equipment vehicle
manufacturers. Sales to other aftermarket manufacturers ("co-manufacturing")
have evolved with parts proliferation. The setup and production of a new line of
products can be expensive and time consuming. Consequently, aftermarket
manufacturers outsource the production of certain parts while still offering
such products under their existing brand names. This results in manufacturers
concentrating on their core competencies, while still being able to offer a
broad product line. We believe that co-manufacturing sales will continue to grow
and we currently sell certain parts to Dana and Federal Mogul, among others.
COMPETITION
We are among the largest manufacturers of replacement parts for product
lines in our two divisions, namely engine management and temperature control. We
compete primarily on the
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<PAGE> 49
basis of product quality, price, customer service, product coverage, product
availability, order turn-around time and order fill-rate. Our management
believes that we differentiate ourselves primarily through our value-added,
knowledgeable sales force; our extensive product coverage; our sophisticated
parts cataloguing systems; and inventory levels sufficient to meet the rapid
delivery requirements of customers.
In the engine management business, we are the top aftermarket manufacturer
in the United States. We estimate that our market share in 1998 was
approximately 30%. Dana and Delco Electronics Corporation (a GM subsidiary) each
have a 25% to 30% share of the market, followed by Wells Manufacturing
Corporation (a UIS, Inc. subsidiary) which we estimate has a 10% market share.
Our temperature control business is the primary producer and distributor of
a full line of temperature control products in the North American market. With a
market share of over 50%, we are greater in size and scope than any of our
competitors. Delco Electronics Corporation, Filters, Go Dan and Stant are key
competitors in this market, but each produces a limited product line.
Although we are a leading independent manufacturer of automotive
replacement parts with strong brand name recognition, we face substantial
competition in all markets that we serve. Certain major manufacturers of
replacement parts are divisions of companies having greater financial resources
than Standard Motor Products. In addition, automobile manufacturers supply
virtually every replacement part sold by us, although these manufacturers
generally supply parts only for cars they produce. See "Risk Factors -- Our
Industry is Highly Competitive; Some of Our Competitors Have Greater Resources
Than We Do."
WORKING CAPITAL MANAGEMENT
Since the early 1990s, automotive aftermarket companies have been under
increasing pressure to provide broad SKU coverage in response to parts and brand
proliferation. Consequently, our inventory rose to historically high levels and,
in response, in early 1991 we initiated a major program to reduce excess
inventory which included the following elements:
- single point distribution,
- introduction of just-in-time cellular manufacturing techniques, and
- the consolidation of distribution facilities.
In recent years, we have reduced inventories from $229.2 million at
December 31, 1996 (with inventory turns at 2.3x for that year) to $174.1 million
at December 31, 1998 (with inventory turns at 2.4x for that year).
Since 1996, we have made significant changes to our inventory management
system to reduce inventory requirements. We launched a new forecasting system in
our Engine Management division that permitted a significant reduction in safety
stocks. Our Engine Management division also is introducing a new distribution
system in the second half of 1999, which will permit pack-to-order systems to be
implemented. Such systems permit us to retain slow moving items in a bulk
storage state until an order for a specific brand part is received. This system
reduces the volume of a given part in inventory and reduces the labor
requirements to package and repackage inventory. Significant benefits from these
systems will accrue once they are fully implemented by year end 1999.
As discussed above, one of the cost savings measures we adopted in the
early 1990s was a single point distribution system that eliminated
cross-shipping between distribution centers. Historically, we had stocked a
complete selection of products at each distribution center to minimize delivery
times to our customers. This resulted in shipping costs and inventory levels
that were higher than necessary. In 1991, we dramatically reduced this practice.
We began
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<PAGE> 50
shipping products primarily from those distribution centers located closest to
the manufacturing facility where each respective product line was produced. We
are continuing to refine this practice. While a slight increase in delivery
times to customers has been experienced, we have improved service fill rates and
there has been no significant impact on our reputation for outstanding customer
service.
Average accounts receivable have increased from 23.9% of sales as of March
31, 1996 to 27.2% of sales as of March 31, 1999. Meanwhile, receivable days
outstanding have increased from 100.7 days as of March 31, 1996 to 123.2 days as
of March 31, 1999. This trend is primarily due to a change in our customer mix.
We expect the average terms of accounts receivable to improve during 1999. Bad
debt expense from continuing operations typically has been less than 1% of sales
for the past several years, except for 1997 when a $10.5 million reserve was
established for the write-off of receivables from A.P.S., Inc., which filed for
Chapter 11 bankruptcy protection in February 1998. We are implementing a new
accounts receivable system in 1999 that should provide the necessary tools for
improved collection efforts to reduce past due accounts and days outstanding.
SUPPLIERS
Our raw material purchases consist principally of brass, electronic
components, fabricated copper (primarily in the form of magnet 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.
Additionally, we use components and cores (used parts) in our remanufacturing
processes for computerized electronics and air conditioning compressors.
We purchase most materials in the open market, but we do have a limited
number of supply agreements on key components. A number of prime suppliers make
these materials available. In the case of cores, we obtain them either from
exchanges with customers who return cores when purchasing remanufactured parts,
or through direct purchases from a network of core brokers. We believe there is
an adequate supply of primary raw materials and cores. In order to ensure a
consistent, high quality, low cost supply of key components for each product
line, we continue to develop our own sources through internal manufacturing
capacity and/or acquisitions.
PRODUCTION AND ENGINEERING
We engineer, tool and manufacture many of the components for our products.
We purchase certain commonly available small component parts from outside
suppliers. We also perform our own plastic and rubber molding operations,
stamping and machining operations, automated electronics assembly and a wide
variety of other processes. In the case of remanufactured components, we conduct
our own teardown, diagnostics, and rebuilding for computer modules and air
conditioning compressors. We have found that this level of vertical integration
provides advantages in terms of cost, quality and availability. We intend to
selectively continue efforts toward further vertical integration to ensure a
consistent quality and supply of low cost components.
We have an engineering department staffed by approximately 120 people,
approximately 65% of whom are graduate engineers. The department performs
product development and quality control, and, wherever practical, designs
machinery for the automation of our processes. A unique facility at the Orlando,
Florida plant is the Class 10,000 clean room. At this location, hybrid thick
film circuits are screen printed on ceramic substances. We also make the metal
screens used in printing at this facility, utilizing an advanced photographic
process. This facility allows us to go from design to production in a matter of
days rather than weeks.
In 1990, we adopted the "just-in-time" cellular manufacturing concept as a
major program to lower costs and improve efficiency. The main thrust of cellular
manufacturing is the reduction of work-in-process and finished goods inventory,
and its implementation reduces inefficient
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<PAGE> 51
operations that burden many manufacturing processes. We originally implemented
"just-in-time" cellular manufacturing on a limited scale to test the concept and
its impact on the cost of production. To date, we have substantially implemented
the just-in-time manufacturing program at the majority of our manufacturing
facilities and plan to convert the remaining facilities to cellular production
over the next few years.
EMPLOYEES
At March 31, 1999, we employed approximately 3,850 people at 35 offices,
factories and distribution centers located in the United States, Canada, Mexico,
Puerto Rico, Europe and Hong Kong. In addition, we have joint venture operations
in Canada and France. Of these, approximately 2,450 were production employees.
Long Island City, New York production employees are unionized. On October 1,
1998, the hourly workers at the Long Island City facility, which produces
products for our Engine Management Division, initiated a work stoppage. Our
labor contract with the workers expired on that date and we did not reach
agreement with the workers on the terms of a new contract at that time. The
workers returned to work on November 13, 1998 and on June 21, 1999 we signed a
three-year labor contract, retroactively effective as of October 2, 1998, with
the workers. Production operated satisfactorily while the workers worked without
a contract. We now have binding labor agreements with the workers at all of our
unionized facilities.
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MANAGEMENT
The following table sets forth certain information concerning our executive
officers and directors as of June 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Nathaniel L. Sills..... 92 Chairman, Director
Lawrence I. Sills...... 59 President, Chief Operating Officer and Director
Michael J. Bailey...... 46 Senior Vice President of Finance and Administration, Chief
Financial Officer
John P. Gethin......... 51 Senior Vice President of Operations and General Manager,
the Four Seasons Division
Joseph G. Forlenza..... 56 Vice President and General Manager, Standard Division
Donald E. Herring...... 57 Vice President of Aftermarket Sales
Sanford Kay............ 56 Vice President of Human Resources, Secretary
Nitin Parikh........... 59 Vice President of Information Systems
James J. Burke......... 43 Director of Finance, Chief Accounting Officer
David Kerner........... 62 Treasurer and Assistant Secretary
Marilyn F. Cragin...... 47 Director
Arthur D. Davis........ 51 Director
Susan F. Davis......... 50 Director
Robert M. Gerrity...... 61 Director
John L. Kelsey......... 74 Director
Andrew M. Massimilla... 58 Director
Arthur S. Sills........ 56 Director
Robert J. Swartz....... 73 Director
William H. Turner...... 59 Director
</TABLE>
NATHANIEL L. SILLS has been our sole Chairman of the Board since May 1998
and served as Co-Chairman of the Board from May 1987 to May 1998. Mr. Sills has
served as a director of Standard Motor Products since 1946.
LAWRENCE I. SILLS has been our President, Chief Operating Officer and a
director since 1986. From 1983 to 1986, Mr. Sills served as our Vice President
of Operations. Mr. Sills is the son of Nathaniel L. Sills and brother of Arthur
S. Sills. Mr. Sills serves as Chairman of Seedco, a non-profit corporation.
JOSEPH G. FORLENZA has served as Vice President and General Manager of our
Standard Division since July 1993. Prior to that time Mr. Forlenza served as
Vice President and General Manager of the Champ Service Line, a Division of
Standard Motor Products, from May 1988 to June 1993.
MICHAEL J. BAILEY has served as our Senior Vice President of Finance and
Administration since December 1997 and as our Chief Financial Officer since June
1993. Prior to becoming Senior Vice President of Finance, Mr. Bailey was our
Vice President of Finance from June 1993 to December 1997. From June 1990 to
June 1993, Mr. Bailey was Executive Vice President and Chief Financial Officer
of Breed Technologies, Inc., an automotive component supplier.
JOHN P. GETHIN has served as our Senior Vice President of Operations since
December 1997 and as General Manager of the Four Seasons Division since October
1998. Prior to his present position, Mr. Gethin was Vice President and General
Manager of our EIS Brake Parts division, from October 1995 to December 1997.
From 1989 to 1994, Mr. Gethin was President of Wagner Electric, a division of
Cooper Industries that supplies automotive electrical components.
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<PAGE> 53
DONALD E. HERRING has served as our Vice President of Aftermarket Sales
since January 1993. Prior to that time, Mr. Herring served as our National Sales
Manager from January 1990 to December 1992.
SANFORD KAY has served as our Vice President of Human Resources since June
1988 and as our Secretary since May 1993. Prior to becoming Vice President of
Human Resources, Mr. Kay served as our Director of Labor Relations from January
1987 to June 1988.
NITIN PARIKH has served as our Vice President of Information Systems since
June 1985. Prior to that time, Mr. Parikh served as our Manager of Information
Systems from June 1978 to June 1985. From 1973 to 1978, Mr. Parikh served as a
Systems and Program Manager at Standard Motor Products.
JAMES J. BURKE has served as our Director of Finance and Chief Accounting
Officer since December 1997. Prior to his present position, Mr. Burke served as
our Corporate Controller from March 1993 to December 1997 and before that as our
Assistant Corporate Controller from June 1987 to March 1993.
DAVID KERNER has served as our Treasurer since February 1993. Prior to that
time, Mr. Kerner served as our Corporate Controller from December 1982 to
February 1993.
MARILYN F. CRAGIN has served as a director of Standard Motor Products since
October 1995. Ms. Cragin is currently the co-owner of an art gallery. Prior to
opening the art gallery, Ms. Cragin was a practicing psychotherapist for more
than 10 years. Ms. Cragin is the daughter of Bernard Fife and the sister of
Susan F. Davis.
ARTHUR D. DAVIS has served as a director of Standard Motor Products since
May 1986. Mr. Davis is currently retired. Mr. Davis served as our Vice President
of Materials Management from May 1986 to January 1989. Mr. Davis is the
son-in-law of Bernard Fife and the husband of Susan F. Davis.
SUSAN F. DAVIS has served as a director of Standard Motor Products since
May 1998. Ms. Davis is the daughter of Bernard Fife and the wife of Arthur D.
Davis and sister of Marilyn F. Cragin.
ROBERT M. GERRITY has served as a director of Standard Motor Products since
July 1996. Mr. Gerrity has served as Chairman and Chief Executive Officer of
Antrium Group, Inc., a venture capital company, since February 1996. Prior to
February 1996, Mr. Gerrity served as Vice Chairman of New Holland, n.v. from
January 1990 to December 1994. Mr. Gerrity has also been a director of
Harnischfeger Industries, Inc. since June 1994 and Libralter Engineering
Systems, Inc. since February 1993.
JOHN L. KELSEY has served as director of Standard Motor Products since
1964. Mr. Kelsey is currently retired. From January 1989 to March 1991 Mr.
Kelsey served as Advisory Director at PaineWebber Inc. Prior to that time, Mr.
Kelsey served as Managing Director of PaineWebber Inc. (and its predecessor
firms) for more than 30 years.
ANDREW M. MASSIMILLA has served as director of Standard Motor Products
since October 1996. Mr. Massimilla has been a business consultant since December
1991. From October 1988 to June 1995, Mr. Massimilla held positions of
Consultant and Managing Director of the Henley Group and Affiliated Companies.
Mr. Massimilla is also a director of Amtrol, Inc.
ARTHUR S. SILLS has served as a director of Standard Motor Products since
October 1995. Mr. Sills has been an educator and administrator in Cambridge,
Massachusetts for more than the past twenty years. Mr. Sills is a son of
Nathaniel L. Sills and a brother of Lawrence I. Sills.
ROBERT J. SWARTZ has served as a director of Standard Motor Products since
May 1992. Mr. Swartz has been an independent financial consultant since March
1991. Prior to March 1991,
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<PAGE> 54
Mr. Swartz was a senior partner in the predecessor firm of KPMG LLP for more
than 30 years. Mr. Swartz is a director of ALCO Capital Group, Inc. and Bed Bath
& Beyond, Inc.
WILLIAM H. TURNER has served as director of Standard Motor Products since
May 1990. Mr. Turner is currently the President of PNC Bank N.A. New Jersey, a
position he has held since August 1997. Prior to August 1997, Mr. Turner served
as President and Co-Chief Executive Officer of Franklin Electronic Publishers,
Inc. from October 1996 to July 1997. Prior to holding that position, Mr. Turner
was Vice Chairman of the Board at Chase Manhattan Bank from March 1996 to
October 1996. Prior to that time, Mr. Turner served as Senior Executive Vice
President of Chemical Banking Corporation from January 1992 to March 1996. Mr.
Turner is also a director of Franklin Electronic Publishers, Inc. and Volt
Information Services Inc.
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<PAGE> 55
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of April 30, 1999,
with respect to the beneficial ownership of our common stock, by (a) each person
known by us to be the beneficial owner of more than five percent of the
outstanding shares of common stock, (b) our principal executive officer during
1998 and each of our other five most highly compensated executive officers
during 1998, (c) each of our directors, and (d) all of our executive officers
and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) PERCENTAGE OF CLASS
- ---------------- ----------------------- -------------------
<S> <C> <C>
Gabelli Funds, Inc............... 2,136,150(2) 16.3%
One Corporate Center
Rye, New York
Bernard Fife..................... 1,090,364(3)(5)(10)(13) 8.3
37-18 Northern Boulevard
Long Island City, New York
Nathaniel L. Sills............... 630,077(3)(5)(6)(7)(11) 4.8
37-18 Northern Boulevard
Long Island City, New York
Lawrence I. Sills................ 561,385(3)(5)(6) 4.3
37-18 Northern Boulevard
Long Island City, New York
Joseph G. Forlenza............... 25,750(5) *
37-18 Northern Boulevard
Long Island City, New York
John P. Gethin................... 27,150(5) *
37-18 Northern Boulevard
Long Island City, New York
Michael J. Bailey................ 25,750(5) *
37-18 Northern Boulevard
Long Island City, New York
Stanley Davidow(9)............... 60,300(5) *
37-18 Northern Boulevard
Long Island City, New York
Marilyn F. Cragin................ 1,222,525(3)(4)(13) 9.3
37-18 Northern Boulevard
Long Island City, New York
Arthur D. Davis.................. 1,418,622(3)(6)(8)(12)(13) 10.8
37-18 Northern Boulevard
Long Island City, New York
Robert M. Gerrity................ 3,873(5) *
114 Division Street
Bellaire, Michigan
John L. Kelsey................... 4,998(5) *
460 Coconut Palm Road
Vero Beach, Florida
Andrew M. Massimilla............. 3,873(5) *
One Peninsula Dr.
Stratham, New Hampshire
Arthur S. Sills.................. 519,471(4) 4.0
37-18 Northern Boulevard
Long Island City, New York
Robert J. Swartz................. 3,873(5) *
1500 Palisade Avenue
Ft. Lee, New Jersey
</TABLE>
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<PAGE> 56
<TABLE>
William H. Turner. (5) 4,873 *
<S> <C> <C>
2 Tower Center Blvd.
East Brunswick, New Jersey
Susan F. Davis................... 1,223,740(3)(4)(8)(13) 9.3
37-18 Northern Boulevard
Long Island City, New York
Executive officers and directors
as a group (19 persons)........ 4,126,291(6) 30.9
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options and warrants held by that person
that are currently exercisable or exercisable within 60 days of April 30,
1999 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table, the
shareholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such shareholder's name.
(2) We have based the information relating to the number of shares of common
stock for such shareholders on information contained in Reports on Schedule
13-D, as amended, filed by Gabelli Funds, Inc. on May 5, 1999.
(3) Includes shares of common stock deemed beneficially owned by the following
persons, who act as trustees of trusts that hold shares of common stock, as
follows: Bernard Fife: 625,194 shares, including 335,507 shares held as
co-trustee with Nathaniel L. Sills; Nathaniel L. Sills: 335,507 shares all
of which are held as co-trustee with Bernard Fife; Marilyn F. Cragin:
642,069 shares all of which are held as co-trustee with Arthur D. Davis and
Susan F. Davis; Arthur D. Davis: 819,855 shares, of which 642,069 shares
are held as co-trustee with Susan D. Davis and Marilyn F. Cragin; and Susan
F. Davis: 819,855 shares, including 642,069 shares held as co-trustee with
Arthur D. Davis and Marilyn F. Cragin and 177,786 shares are held by her
spouse, Arthur D. Davis, as trustee. Each of the foregoing individuals
disclaims beneficial ownership of the shares so deemed beneficially owned
by such person within the meaning of Rule 13d-3 of the Exchange Act.
(4) Includes shares of common stock held by these individuals as custodians for
minor children, as follows: Marilyn F. Cragin: 26,387 shares; Arthur S.
Sills: 36,324 shares; Arthur D. Davis (through his spouse, Susan F. Davis):
43,562 shares; and Susan F. Davis: 43,562 shares.
(5) Includes shares of common stock which these individuals have the right to
acquire through the exercise of options within 60 days of April 30, 1999,
as follows: Bernard Fife: 30,000 shares; Nathaniel L. Sills: 30,000 shares;
Lawrence I. Sills: 51,000 shares; Joseph G. Forlenza: 17,750 shares;
Stanley Davidow: 54,000 shares; John Gethin: 20,750 shares; Michael J.
Bailey: 19,250 shares; Robert M. Gerrity: 3,000 shares; John L. Kelsey:
3,000 shares; Andrew M. Massimilla: 3,000 shares; Robert J. Swartz: 3,000
shares; and William H. Turner: 3,000 shares.
(6) Excludes shares allocated to such persons under our Employee Stock
Ownership Plan but held by the trustee thereof.
(7) Excludes 143,062 shares of common stock held in the Sills Family
Foundation, Inc.
(8) Excludes 114,063 shares of common stock held in the Fife Family Foundation,
Inc.
(9) In October 1998, Mr. Davidow resigned from Standard Motor Products.
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<PAGE> 57
(10) Mr. Bernard Fife is the father of Marilyn F. Cragin and Susan F. Davis, the
father-in-law of Arthur D. Davis, the brother-in-law of Nathaniel L. Sills,
and the uncle of Lawrence I. Sills and Arthur S. Sills.
(11) Mr. Nathaniel L. Sills is the father of Lawrence I. Sills and Arthur S.
Sills, the brother-in-law of Bernard Fife and the uncle of Marilyn F.
Cragin and Susan F. Davis.
(12) Arthur Davis is the spouse of Susan F. Davis.
(13) Includes shares of common stock deemed beneficially owned by the following
persons through direct ownership by their spouse: Bernard Fife: 193,958
shares; Marilyn F. Cragin: 9,307 shares; Arthur D. Davis: 467,836 shares
owned by his spouse Susan F. Davis; and Susan F. Davis: 87,369 shares owned
by her spouse, Arthur D. Davis.
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<PAGE> 58
DESCRIPTION OF CONVERTIBLE DEBENTURES
The Convertible Debentures will be issued under an Indenture, to be dated
as of , 1999, between Standard Motor Products and HSBC Bank USA,
as Trustee, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part. Wherever particular defined terms of the
Indenture are referred to, such defined terms are incorporated herein by
reference. The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the detailed provisions of the Convertible Debentures and the
Indenture, including the definitions therein of certain terms.
GENERAL
The Convertible Debentures will be our general unsecured subordinated
obligations, will be limited to $86.25 million aggregate principal amount and
will mature on , 2009.
The Convertible Debentures will bear interest at the rate per annum set
forth on the front cover of this Prospectus from , 1999 or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semi-annually on and of each year,
commencing until the principal thereof is paid or made available
for payment, to the Person in whose name the Convertible Debenture (or any
Predecessor Debenture) is registered at the close of business on the preceding
. Interest on the Convertible Debentures at such rate will be
computed on the basis of a 360-day year, comprised of twelve 30-day months.
You may convert the Convertible Debentures into shares of common stock
initially at the conversion rate stated on the front cover of this Prospectus,
subject to adjustment upon the occurrence of certain events described under
"-- Conversion Rights," at any time prior to the close of business on
and , unless previously redeemed or repurchased.
We may redeem the Convertible Debentures at our option, at any time on or
after , 2004, in whole or in part, at the redemption prices set
forth below under "-- Optional Redemption," plus accrued interest to the
redemption date. We also may repurchase the Convertible Debentures at the option
of the Holders, as described below under "-- Repurchase at Option of Holders
Upon a Change of Control."
The principal of, premium, if any, and interest on the Convertible
Debentures will be payable, and the Convertible Debentures may be surrendered
for registration of transfer, exchange and conversion, at the office or agency
of the Trustee. In addition, we may at our option pay interest by check mailed
to the address of the Person entitled thereto as it appears in the Security
Register. See "-- Payment and Conversion." Payments, transfers, exchanges and
conversions relating to beneficial interests in Convertible Debentures issued in
book-entry form will be subject to the procedures applicable to Global
Debentures described below.
We initially will appoint the Trustee at its Corporate Trust Office as our
paying agent, transfer agent, registrar and conversion agent for the Convertible
Debentures. In such capacities, the Trustee will be responsible for, among other
things, (i) maintaining a record of the aggregate holdings of Convertible
Debentures represented by the Global Debenture (as defined below) and accepting
Convertible Debentures for exchange and registration of transfer, (ii) ensuring
that payments of principal, premium, if any, and interest received from us by
the Trustee in respect of the Convertible Debentures are duly paid to The
Depository Trust Company ("DTC") or its nominees, (iii) transmitting to us any
notices from Holders of the Convertible Debentures, (iv) accepting conversion
notices and related documents and transmitting the relevant items to us and (v)
delivering certificates for common stock issued upon conversion of the
Convertible Debentures.
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<PAGE> 59
We will cause each transfer agent to act as a registrar and will cause to
be kept at the office of such transfer agent a register in which, subject to
such reasonable regulations as the transfer agent may prescribe, we will provide
for registration of transfers of the Convertible Debentures. We may vary or
terminate the appointment of any paying agent, transfer agent or conversion
agent, or appoint additional or other such agents or approve any change in the
office through which any such agent acts, provided that there shall at all times
be maintained by us, a paying agent, a transfer agent and a conversion agent in
the Borough of Manhattan, The City of New York. We will cause notice of any
resignation, termination or appointment of the Trustee or any paying agent,
transfer agent or conversion agent, and of any change in the office through
which any such agent will act, to be provided to Holders of the Convertible
Debentures.
We will not charge a service charge for registration of transfer or
exchange of Convertible Debentures, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
Convertible Debentures will be issued only in fully registered form,
without interest coupons, in minimum denominations of $1,000 and integral
multiples in excess thereof. Convertible Debentures sold in the offering will be
issued only against payment therefor in immediately available funds.
The Convertible Debentures initially will be represented by one or more
Convertible Debentures in registered, global form without interest coupons
(collectively, the "Global Convertible Debentures" or "Global Convertible
Debenture"). The Global Convertible Debentures will be deposited upon issuance
with the Trustee as custodian for DTC, in New York, New York, and registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Transfers of beneficial interests in the Global Convertible Debentures will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time.
Except as set forth below, the Global Convertible Debentures may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. You may not exchange beneficial interests in
the Global Convertible Debentures for Convertible Debentures in certificated
form except in the limited circumstances described below under "-- Exchanges of
Book-Entry Convertible Debentures for Certificated Convertible Debentures."
EXCHANGES OF BOOK-ENTRY CONVERTIBLE DEBENTURES FOR CERTIFICATED CONVERTIBLE
DEBENTURES.
You may not exchange a beneficial interest in a Global Convertible
Debenture for a Convertible Debenture in certificated form unless (i) DTC (x)
notifies us that it is unwilling or unable to continue as depositary for the
Global Convertible Debenture or (y) has ceased to be a clearing agency
registered under the Securities Exchange Act of 1934, and in either case we then
fail to appoint a successor depositary, (ii) we, at our option, notify the
Trustee in writing that we elect to cause the issuance of the Convertible
Debentures in certificated form or (iii) there shall have occurred and be
continuing an event of default or any event which after notice or lapse of time
or both would be an event of default with respect to the Convertible Debentures.
In all cases, certificated Convertible Debentures delivered in exchange for any
Global Convertible Debenture or beneficial interests therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of the depositary (in accordance with its customary procedures).
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<PAGE> 60
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL CONVERTIBLE DEBENTURES.
The descriptions of the operations and procedures of DTC that follow are
provided solely as a matter of convenience. These operations and procedures are
solely within DTC's control and are subject to changes by DTC from time to time.
We take no responsibility for these operations and procedures and urge investors
to contact DTC or its participants directly to discuss these matters.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised us that its current practice, upon the issuance of a Global
Convertible Debenture, is to credit, on its internal system, the respective
principal amount of the individual beneficial interests represented by such
Global Convertible Debenture to the accounts with DTC of the participants
through which such interests are to be held. Ownership of beneficial interests
in the Global Convertible Debenture will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominees (with respect to interests of participants) and the records of
participants and indirect participants (with respect to interests of persons
other than participants).
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL
CONVERTIBLE DEBENTURE, DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE
CONSIDERED THE SOLE OWNER AND HOLDER OF THE CONVERTIBLE DEBENTURES REPRESENTED
BY SUCH GLOBAL CONVERTIBLE DEBENTURE FOR ALL PURPOSES UNDER THE INDENTURE AND
THE CONVERTIBLE DEBENTURES. Except in the limited circumstances described above
under "-- Exchanges of Book-Entry Convertible Debentures for Certificated
Convertible Debentures," owners of beneficial interests in a Global Convertible
Debenture will not be entitled to have any portions of such Global Convertible
Debenture registered in their names, will not receive or be entitled to receive
physical delivery of Convertible Debentures in definitive form and will not be
considered the owners or Holders of the Global Convertible Debenture (or any
Convertible Debentures represented thereby) under the Indenture or the
Convertible Debentures.
Investors may hold their interests in the Global Convertible Debenture
directly through DTC, if they are participants in such system, or indirectly
through organizations that are participants in such system. All interests in a
Global Convertible Debenture will be subject to the procedures and requirements
of DTC.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Convertible Debenture to such persons
may be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a Global
Convertible Debenture to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests.
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Payments of the principal of, premium, if any, and interest on the
Convertible Debenture will be made to DTC or its nominee, as the case may be, as
the registered owner of the Global Convertible Debenture. We, the Trustee and
our agents will not have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Convertible Debenture or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Convertible Debenture representing any
Convertible Debentures held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Convertible Debenture for such Convertible Debentures as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in such Global Convertible Debenture held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name." Such payments will be the responsibility of such participants.
Interests in the Global Convertible Debentures will trade in DTC's Same-Day
Funds Settlement System, and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of Convertible Debentures (including the presentation of Convertible
Debentures for exchange as described below and the conversion of Convertible
Debentures) only at the direction of one or more participants to whose account
with DTC interests in the Global Debentures are credited and only in respect of
such portion of the aggregate principal amount of the Convertible Debentures as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default (as defined below) under the
Convertible Debentures, DTC reserves the right to exchange the Global
Convertible Debentures for Convertible Debentures in certificated form, and to
distribute such Convertible Debentures to its participants.
We, the Trustee and our agents will not have any responsibility for the
performance by DTC, its participants or indirect participants of its respective
obligations under the rules and procedures governing its operations, including
maintaining, supervising or reviewing the records relating to, or payments made
on account of, beneficial ownership interests in Global Convertible Debentures.
PAYMENT AND CONVERSION
The principal of the Convertible Debentures will be payable in U.S.
dollars, against surrender thereof at the office or agency of the Trustee, in
U.S. currency by dollar check or by transfer to a dollar account (such a
transfer to be made only to a Holder of an aggregate principal amount of
Convertible Debentures of at least $2,000,000 and only if such Holder shall have
furnished wire instructions to the Trustee in writing no later than 15 days
prior to the relevant payment date) maintained by the Holder with a bank in the
United States. Payment of interest on a Convertible Debenture may be made by
dollar check mailed to the address of the person entitled thereto as such
address shall appear in the Security Register, or, upon written application by
the Holder to the Security Registrar setting forth instructions not later than
the relevant Record Date, by transfer to a dollar account (such a transfer to be
made only to a Holder of an aggregate principal amount of Convertible Debentures
of at least $2,000,000 and only if such Holder shall have furnished wire
instructions in writing to the Trustee no later than 15 days prior to the
relevant payment date) maintained by the Holder with a bank in the United
States.
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Any payment on a Convertible Debenture due on any day that is not a
Business Day need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made on such due
date, and no interest shall accrue on such payment for the period from and after
such date. "Business Day," when used with respect to any place of payment, place
of conversion or any other place, as the case may be, means each Monday,
Tuesday, Wednesday, Thursday and Friday that is not a day on which banking
institutions in such place of payment, place of conversion or other place, as
the case may be, are authorized or obligated by law or executive order to close.
Convertible Debentures may be surrendered for conversion at our office or
agency in the Borough of Manhattan, The City of New York, at any other office or
agency we maintain for such purpose. In the case of Global Convertible
Debentures, DTC will effect conversion upon notice from the holder of a
beneficial interest in a Global Convertible Debenture in accordance with its
rules and procedures. Convertible Debentures surrendered for conversion must be
accompanied by a conversion notice and any payments in respect of interest, as
applicable, as described below under "-- Conversion Rights."
CONVERSION RIGHTS
The Holder of any Convertible Debenture will have the right, at the
Holder's option, to convert any portion of the principal amount of a Convertible
Debenture that is an integral multiple of $1,000,000 into shares of common
stock, unless previously redeemed or repurchased, at a conversion rate equal to
the number of shares per $1,000 principal amount of Convertible Debentures shown
on the front cover of this Prospectus (the "Conversion Rate"), subject to
adjustment as described below. The right to convert a Convertible Debenture
called for redemption or delivered for repurchase will terminate at the close of
business on the Redemption Date or Repurchase Date for such Convertible
Debenture, unless we default in making the payment due upon redemption or
repurchase, as the case may be.
The right of conversion attaching to any Convertible Debenture may be
exercised by the Holder by delivering the Convertible Debenture at our office or
agency in the Borough of Manhattan, The City of New York, at any other office or
agency we maintain for such purpose and at the office or agency of any
additional conversion agent appointed by us, accompanied by a duly signed and
completed notice of conversion. The Trustee or any conversion agent will provide
you with a copy of the notice of conversion. The conversion date will be the
date on which the Convertible Debenture and the duly signed and completed notice
of conversion are so delivered. As promptly as practicable on or after the
conversion date, we will issue and deliver to the Trustee a certificate or
certificates for the number of full shares of common stock issuable upon
conversion, together with payment in lieu of any fraction of a share or, at our
option, rounded up to the next whole number of shares. The Trustee will send
such certificate to the Conversion Agent for delivery to the Holder. Such shares
of common stock issuable upon conversion of the Convertible Debentures, in
accordance with the provisions of the Indenture, will be fully paid and
nonassessable and will also rank pari passu with the other shares of common
stock outstanding from time to time.
Holders that surrender Convertible Debentures for conversion on a date that
is not an interest Payment Date are not entitled to receive any interest for the
period from the next preceding Interest Payment Date to the date of conversion,
except as described below. However, Holders of Convertible Debentures on a
Regular Record Date, including Convertible Debentures surrendered for conversion
after the Regular Record Date, will receive the interest payable on such
Convertible Debentures on the next succeeding Interest Payment Date.
Accordingly, any Convertible Debenture surrendered for conversion during the
period from the close of business on a Regular Record Date to the opening of
business on the next succeeding Interest Payment Date must be accompanied by
payment of an amount equal to the interest payable on such Interest Payment Date
on the principal amount of Convertible Debentures being surrendered for
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conversion; provided, however, that no such payment will be required upon the
conversion of any Convertible Debenture (or portion thereof) that has been
called for redemption or that is eligible to be delivered for repurchase if, as
a result, the right to convert such Convertible Debenture would terminate during
the period between such Regular Record Date and the close of business on the
next succeeding Interest Payment Date.
No other payment or adjustment for interest, or for any dividends in
respect of common stock, will be made upon conversion. Holders of common stock
issued upon conversion will not be entitled to receive any dividends payable to
holders of common stock as of any record date before the close of business on
the conversion date. No fractional shares will be issued upon conversion but, in
lieu thereof, we will calculate an appropriate amount to be paid in cash on the
basis set forth in the Indenture or, at our option, round up to the next whole
number of shares.
A Holder delivering a Convertible Debenture for conversion will not be
required to pay any taxes or duties in respect of the issue or delivery of
common stock on conversion. However, we shall not be required to pay any tax or
duty that may be payable in respect of any transfer involved in the issue or
delivery of the common stock in a name other than that of the Holder of the
Convertible Debenture. Certificates representing shares of common stock will not
be issued or delivered unless the person requesting such issue has paid to us
the amount of any such tax or duty or has established to our satisfaction that
such tax or duty has been paid.
The Conversion Rate is subject to adjustment in certain events, including:
(a) dividends (and other distributions) payable in common stock on shares
of our capital stock;
(b) the issuance to all holders of our common stock of certain rights,
options or warrants entitling them to subscribe for or purchase common stock at
less than the then current market price (determined as provided in the
Indenture) of common stock as of the record date for holders entitled to receive
such rights, options or warrants;
(c) subdivisions, combinations and reclassifications of our common stock;
(d) distributions to all holders of our common stock of evidences of our
indebtedness, shares of capital stock or other property (including securities,
but excluding those dividends, rights, options, warrants and distributions
referred to in clauses (a) and (b) above, dividends and distributions paid
exclusively in cash and distributions upon mergers or consolidations to which
the next succeeding paragraph applies);
(e) distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in clause (d) above, or cash distributed
upon a merger or consolidation to which the next succeeding paragraph applies)
to all holders of common stock in an aggregate amount that, combined together
with (i) other such all-cash distributions made within the preceding 12 months
in respect of which no adjustment has been made and (ii) any cash and the fair
market value of other consideration payable in respect of any tender offer by us
or any of our subsidiaries for common stock, to the extent that the cash and
value of any other consideration included in such payment per share of common
stock exceeds the current market price per share of common stock on the Trading
Day next succeeding the date of payment (the "Current Market Price"), concluded
within the preceding 12 months in respect of which no adjustment has been made,
exceeds 10% of our market capitalization (being the product of the then current
market price of the common stock and the number of shares of common stock then
outstanding) on the record date for such distribution; and
(f) the successful completion of a tender offer made by us or any of our
subsidiaries for common stock, to the extent that the cash and value of any
other consideration included in such payment per share of common stock exceeds
the Current Market Price at such time, the aggregate amount of which, together
with (i) any cash and other consideration in excess of the
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then current market price paid in a tender offer by us or any of our
subsidiaries for common stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been made
and (ii) the aggregate amount of any such all-cash distributions referred to in
(a) above to all holders of common stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of our market capitalization on the expiration of such tender
offer.
We reserve the right to make such increases in the conversion rate in
addition to those required in the foregoing provisions as we consider to be
advisable in order that any event treated for income tax purposes as a dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock will not be taxable to the recipients. No adjustment of the
conversion rate will be required to be made until the cumulative adjustments
amount to 1.0% or more of the conversion rate. We shall compute any adjustments
to the conversion price and will give notice to the Holders of any such
adjustments.
In case we consolidate or merge with or into another Person or another
Person merges into us (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the common stock), or
in the case of any conveyance, sale, transfer or lease of all or substantially
all of our properties and assets, each Convertible Debenture then outstanding
will, without the consent of the Holder of any Convertible Debenture, become
convertible only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale, conveyance, lease or other
transfer by a holder of the number of shares of common stock into which such
Convertible Debenture was convertible immediately prior thereto (assuming such
holder of Common Stock failed to exercise any rights of election and that such
Convertible Debenture was then convertible).
We from time to time may increase the Conversion Rate by any amount for any
period of at least 20 days, in which case we shall give at least 15 days' notice
of such increase, if our Board of Directors has made a determination that such
increase would be in our best interests, which determination shall be
conclusive. No such increase shall be taken into account for purposes of
determining whether the closing price of the common stock exceeds the Conversion
Price (as defined below) by 105% in connection with an event which otherwise
would be a Change of Control.
If at any time we make a distribution of property to our shareholders that
would be taxable to such shareholders as a dividend for federal income tax
purposes (e.g., distributions of evidences of our indebtedness or assets, but
generally not stock dividends on common stock or rights to subscribe for common
stock) and, pursuant to the anti-dilution provisions of the Indenture, the
number of shares into which Convertible Debentures are convertible is increased,
such increase may be deemed for federal income tax purposes to be the payment of
a taxable dividend to Holders of Convertible Debentures. See "Certain Federal
Tax Considerations."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Convertible Debentures (including amounts payable on any redemption or
repurchase) will be subordinated in right of payment to the extent set forth in
the Indenture to the prior full and final payment of all of our Senior Debt.
"Senior Debt" means the principal of (and premium, if any) and interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and all fees and
other amounts (including collection expenses, attorney's fees and late charges)
owing with respect to, the following, whether direct or indirect, absolute or
contingent,
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secured or unsecured, due or to become due, outstanding at the date of execution
of the Indenture or thereafter incurred, created or assumed:
(a) our indebtedness for money borrowed or evidenced by bonds,
Convertible Debentures or similar instruments;
(b) our reimbursement obligations with respect to letters of credit,
bankers' acceptances and similar facilities issued for our account;
(c) every obligation we issue or assume as the deferred purchase price
of property or services purchased by us, excluding any trade payables and
other accrued current liabilities incurred in the ordinary course of
business;
(d) our obligations as lessee under leases required to be capitalized
on the balance sheet of the lessee under United States generally accepted
accounting principles;
(e) our obligations under interest rate and currency swaps, caps,
floors, collars or similar arrangements intended to protect us against
fluctuations in interest or currency exchange rates;
(f) others' indebtedness of the kinds described in the preceding
clauses (a) through (e) that we have assumed, guaranteed or otherwise
assured the payment thereof, directly or indirectly; and
(g) deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness or obligation described
in the preceding clauses (a) through (f) whether or not there is any notice
to or consent of the Holders of Convertible Debentures.
Despite the above, the following shall not constitute Senior Debt: (i) any
particular indebtedness or obligation that the Company owes to any of its direct
and indirect subsidiaries and (ii) any particular indebtedness, deferral,
renewal, extension or refunding if it is expressly stated in the governing terms
or in the assumption thereof that the indebtedness involved is not senior in
right of payment to the Convertible Debentures or that such indebtedness is pari
passu with or junior to the Convertible Debentures.
No payment on account of principal of or premium, if any, or interest on
the Convertible Debentures may be made if (a) there shall have occurred and be
continuing (i) a default in the payment of any Senior Debt or (ii) any other
default with respect to any Senior Debt permitting the holders thereof to
accelerate the maturity thereof, provided that, in the case of this clause (ii),
such default shall not have been cured or waived or ceased to exist after
written notice of such default shall have been given to us and the Trustee by
any holder of Senior Debt, or (b) in the event any judicial proceeding shall be
pending with respect to any such default in payment or event of default. Upon
any acceleration of the principal due on the Convertible Debentures or payment
or distribution of our assets to creditors upon any dissolution, winding up,
liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due on
all Senior Debt must be paid in full before the Holders of the Convertible
Debentures are entitled to receive any payment. By reason of such subordination,
in the event of our insolvency, our creditors who are holders of Senior Debt may
recover more, ratably, than the Holders of the Convertible Debentures, and such
subordination may result in a reduction or elimination of payments to the
Holders of the Convertible Debentures. As of March 31, 1999, the Company had
approximately $156 million of Senior Debt, excluding trade payables,
outstanding, and its subsidiaries had approximately $30 million of debt,
including trade payables of approximately $10 million, outstanding.
In addition, the Convertible Debentures will be effectively subordinated to
all indebtedness and other liabilities (including trade payables and lease
obligations) of the Company's subsidiaries.
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The Indenture does not limit the Company's ability or the ability of any of
its subsidiaries to incur indebtedness, including Senior Debt.
OPTIONAL REDEMPTION
The Convertible Debentures may not be redeemed prior to the close of
business on , 2004. Thereafter, we may redeem the Convertible
Debentures, in whole or in part at our option, upon not less than 30 nor more
than 60 days' prior notice as provided under "Notices" below, at the redemption
prices set forth below. Such redemption prices (expressed as a percentage of
principal amount) are as follows for the 12-month period beginning on
of the following years:
REDEMPTION
<TABLE>
<CAPTION>
YEAR PRICE
---- -----
<S> <C>
2004 ................................................. %
2005 .................................................
2006 .................................................
2007 .................................................
</TABLE>
and 100% of the principal amount on , 200 and thereafter, in each
case together with accrued interest to the redemption date.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control (as defined below) occurs, each Holder of
Convertible Debentures shall have the right, at the Holder's option, to require
us to repurchase all of such Holder's Convertible Debentures, or any portion of
the principal amount thereof that is equal to $1,000 or an integral multiple of
$1,000 in excess thereof, on the date (the "Repurchase Date") that is 45 days
after the date of the Company Notice (as defined below), at a price in cash
equal to 101% of the principal amount of the Convertible Debentures to be
repurchased, together with interest accrued to the Repurchase Date (the
"Repurchase Price").
We may, at our option, in lieu of paying the Repurchase Price in cash, pay
the Repurchase Price by issuing shares of common stock. The number of shares of
common stock tendered in payment shall be determined by dividing the Repurchase
Price by the value of the common stock, which for this purpose shall be equal to
% of the average of the closing sale prices of the common stock for the
five consecutive Trading Days ending on and including the third Trading Day
preceding the Repurchase Date. Such payment may not be made in common stock
unless we satisfy certain conditions with respect thereto prior to the
Repurchase Date as provided in the Indenture.
On or before the 30th day after the occurrence of a Change of Control, we
are obligated to give to all Holders of the Convertible Debentures notice, as
provided in the Indenture (the "Company Notice"), of the occurrence of such
Change of Control and of the repurchase right arising as a result thereof. To
exercise the repurchase right, a Holder of Convertible Debentures must deliver
on or before the fifth day prior to the Repurchase Date irrevocable written
notice to the Trustee of the Holder's exercise of such right, together with the
Convertible Debentures with respect to which the right is being exercised.
After the Convertible Debentures are issued, the following events will be
deemed to be Changes in Control:
(i) any Person's acquisition of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of our capital stock entitling such
Person to exercise 50% or more of the total voting power of all
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shares of our capital stock entitled to vote generally in elections of
directors, other than any such acquisition by us or any of our employee
benefit plans; or
(ii) our consolidation or merger with or into any other Person, any
merger of another Person into us, or any conveyance, transfer, sale, lease
or other disposition of all or substantially all of our properties and
assets to another Person (other than (a) any such transaction (x) that does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of our common stock and (y) pursuant to which holders of
our common stock immediately prior to the transaction have the entitlement
to exercise, directly or indirectly, 50% or more of the total voting power
of all shares of capital stock entitled to vote generally in the election
of directors of the continuing or surviving person immediately after such
transaction and (b) any merger which is effected solely to change our
jurisdiction of incorporation and results in a reclassification, conversion
or exchange of outstanding shares of common stock solely into shares of
common stock of the surviving entity).
A Change of Control will not be deemed to have occurred if the closing sale
price per share of our common stock for any five Trading Days within the period
of 10 consecutive Trading Days ending immediately after the later of the date of
the Change of Control or the date of public announcement of the Change of
Control (in the case of a Change of Control under clause (i) above) or ending
immediately before the Change of Control (in the case of a Change of Control
under clause (ii) above) equals or exceeds 105% of the Conversion Price of the
Convertible Debentures in effect on each such Trading Day.
We may, to the extent permitted by applicable law, at any time purchase
Convertible Debentures in the open market or by tender at any price or by
private agreement. Subject to certain limitations imposed by the Underwriting
Agreement with the Underwriters, any Convertible Debenture so purchased by us
may be reissued or resold or may, at our option, be surrendered to the Trustee
for cancellation. Any Convertible Debentures surrendered as aforesaid may not be
reissued or resold and will be cancelled promptly.
The foregoing provisions would not necessarily afford Holders of the
Convertible Debentures protection in the event of highly leveraged or other
transactions involving us that may adversely affect Holders.
MERGERS AND SALES OF ASSETS
We may not consolidate with or merge into any other Person or, directly or
indirectly, convey, transfer, sell or lease all or substantially all of our
properties and assets to any Person, and we may not permit any Person to
consolidate with or merge into us or convey, transfer, sell or lease all or
substantially all of its properties and assets to us, unless:
(a) the Person formed by such consolidation or into or with which we
are merged or the Person to which our properties and assets are so
conveyed, transferred, sold or leased, is a corporation, limited liability
company, partnership or trust organized and existing under the laws of the
United States, any State thereof or the District of Columbia and expressly
assumes the due and punctual payment of the principal of and, premium, if
any, and interest on the Convertible Debentures and the performance of our
other covenants under the Indenture and has provided for conversion rights
as described above under "-- Conversion Rights";
(b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, has occurred and is continuing; and
(c) we have provided to the Trustee an Officer's Certificate and
Opinion of Counsel as provided in the Indenture.
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EVENTS OF DEFAULT
The following will be Events of Default under the Indenture:
(a) our failure to pay principal of or premium, if any, on any
Convertible Debenture when due, whether or not the subordination provisions
of the Indenture prohibit such payment;
(b) our failure to pay any interest on any Convertible Debenture when
due, continuing for 30 days, whether or not the subordination provisions of
the Indenture prohibit such payment;
(c) our default in our obligation to provide notice of a Change of
Control;
(d) our failure to perform any of our other material covenants or
warranties in the Indenture, continuing for 60 days after the Trustee or
the Holders of at least 25% in aggregate principal amount of outstanding
Convertible Debentures give us written notice;
(e) our failure to pay when due the principal of, or acceleration of,
any indebtedness for money borrowed by us in excess of $10 million if we
have not discharged such indebtedness, or such acceleration is not
annulled, within 30 days after the Trustee or the Holders of at least 25%
in aggregate principal amount of outstanding Convertible Debentures give us
written notice; and
(f) certain events of our bankruptcy, insolvency or reorganization.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered the Trustee reasonable indemnity. Subject to such provisions
for the indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Convertible Debentures will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
If an Event of Default (other than an Event of Default specified in clause
(f) above) occurs and is continuing, either the Trustee or the Holders of not
less than 25% in aggregate principal amount of the outstanding Convertible
Debentures may accelerate the maturity of all Convertible Debentures. If an
Event of Default specified in clause (f) occurs and is continuing, the principal
of and any accrued interest on all of the Convertible Debentures then
outstanding shall ipso facto become due and payable immediately without any
declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration has been issued, the Holders of a
majority in aggregate principal amount of outstanding Convertible Debentures
may, under certain circumstances as set forth in the Indenture, rescind and
annul such acceleration if all Events of Default, other than the nonpayment of
accelerated principal and interest, have been cured or waived as provided in the
Indenture. For information as to waiver of defaults, See "-- Modification and
Waiver."
No Holder of any Convertible Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless also the Holders of at least 25% in
aggregate principal amount of the outstanding Convertible Debentures shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the Holders of a majority in aggregate principal amount of the outstanding
Convertible Debentures a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days. However,
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such limitations do not apply to a suit instituted by a Holder of a Convertible
Debenture for the enforcement of payment of the principal of or premium, if any,
or interest on such Convertible Debenture on or after the respective due dates
expressed in such Convertible Debenture or of the right to convert such
Convertible Debenture in accordance with the Indenture.
We will be required to furnish to the Trustee annually a statement as to
our performance of certain of our obligations under the Indenture and as to any
default in such performance.
MODIFICATION AND WAIVER
The Indenture will contain provisions permitting Standard Motor Products
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. Generally, modifications and
amendments of the Indenture can only be made with the written consent of the
Holders of not less than a majority in principal amount of the Convertible
Debentures at the time outstanding. However, no such modification or amendment
may, without the consent of the Holder of each outstanding Convertible Debenture
affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest on, any Convertible Debenture,
(b) reduce the principal amount of, or the premium, if any, or rate of
interest on, any Convertible Debenture,
(c) modify the provisions with respect to the repurchase right of the
Holders in a manner adverse to the Holders,
(d) change the place or currency of payment of principal of, premium, if
any, or interest on any Convertible Debenture,
(e) impair the right to institute suit for the enforcement of any payment
on or with respect to, or the right to convert, any Convertible Debenture,
(f) except as otherwise permitted or contemplated by provisions concerning
consolidation, merger, conveyance, transfer, sale or lease of all or
substantially all of our property and assets, adversely affect the right to
convert Convertible Debentures,
(g) modify the subordination provisions in a manner adverse to the Holders
of the Convertible Debentures or
(h) reduce the above-stated percentage of aggregate principal amount of
Outstanding Convertible Debentures necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults.
The Holders of a majority in aggregate principal amount of outstanding
Convertible Debentures may waive our compliance with certain restrictive
provisions of the Indenture. The Holders of a majority in aggregate principal
amount of the outstanding Convertible Debentures may waive any past default by
us under the Indenture, except a default in the payment of principal, premium,
if any, or interest or a default in any covenant or provision which under the
Indenture cannot be modified or amended without the consent of each Holder of
outstanding Convertible Debentures.
NOTICES
Notice to Holders of the Convertible Debentures will be given by mail to
the addresses of such Holders as they appear in the Security Register. Such
notices will be deemed to have been given on the date of mailing of the notice.
Notice of a redemption of Convertible Debentures will be given at least
once not less than 30 nor more than 60 days prior to the Redemption Date (which
notice shall be irrevocable) and will specify the Redemption Date and the
Redemption Price.
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PAYMENT OF STAMP AND OTHER TAXES
We shall pay all stamp and other duties, if any, which may be imposed by
the United States or any political subdivision thereof or taxing authority
thereof or therein with respect to the issuance of the Convertible Debentures.
We will not be required to make any payment with respect to any other tax,
assessment or governmental charge imposed by any government or any political
subdivision thereof or taxing authority therein.
GOVERNING LAW
The Indenture and the Convertible Debentures will be governed by and
construed in accordance with the laws of the State of New York without regard to
conflict of laws provisions.
THE TRUSTEE
The Trustee for the holders of Convertible Debentures issued under the
Indenture will be HSBC Bank USA.
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DESCRIPTION OF CAPITAL STOCK
We are currently authorized by our Restated Certificate of Incorporation,
as amended, to issue up to 30,000,000 shares of common stock and 500,000 shares
of preferred stock, of which 30,000 shares of preferred stock have been
designated as Series A Preferred Stock and reserved for future issuance upon
exercise of Series A Preferred Stock purchase rights. As of June 30, 1999, there
were 13,145,080 shares of common stock outstanding held of record by 673 holders
of record, and no shares of preferred stock outstanding.
The statements under this caption are brief summaries of certain material
provisions of our Certificate of Incorporation, our Restated By-laws and the
Rights Agreement between Standard Motor Products and Registrar and Transfer Co.,
as Rights Agent. Such summaries do not purport to be complete, and are subject
to, and are qualified in their entirety by reference to, such documents.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
on which holders of common stock are entitled to vote. The holders of shares of
common stock do not have cumulative voting rights. Therefore, the holders of
more than 50% of the shares of common stock voting for the election of directors
can elect all of the directors, and the remaining holders will not be able to
elect any directors. Subject to the rights of the holders of any shares of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may from time to time be declared by our Board of Directors out of
funds legally available therefor. See "Price Range of Common Stock and Dividend
Policy." Holders of common stock have no pre-emptive, conversion, redemption,
subscription or similar rights. In the event of our liquidation, dissolution or
winding up, whether voluntary or involuntary, holders of shares of common stock
are entitled to share ratably in our assets which are legally available for
distribution, if any, remaining after the payment or provision for the payment
of all of our debts and other liabilities and the payment of any preferential
amount due to the holders of shares of any series of preferred stock. All of the
outstanding shares of common stock are fully paid and non-assessable. See
"-- Certificate of Incorporation and By-laws" below for a discussion of
supermajority voting requirements contained in the Restated Certificate of
Incorporation and Restated By-laws.
The transfer agent for the common stock is Registrar and Transfer Co.
PREFERRED STOCK
Our Restated Certificate of Incorporation authorizes our Board of Directors
to issue from time to time up to 500,000 shares of preferred stock in one or
more series and to establish and fix the number of shares of such series and the
relative rights, preferences and limitations of each series. Preferred stock, if
issued, will rank senior to the common stock as to dividends and as to
liquidation preference and could decrease the amount of earnings and assets
available for distribution to holders of common stock. The issuance of the
preferred stock may have the effect of delaying, deterring, or preventing a
change in control of Standard Motor Products and may adversely affect the rights
of holders of common stock. Preferred stock, upon issuance, against full payment
of the purchase price therefor, will be fully paid and non-assessable. As of the
date of this Prospectus, no shares of preferred stock are outstanding; however,
30,000 shares of preferred stock have been reserved for issuance of Series A
Preferred Stock upon exercise of the Series A Preferred Stock purchase rights.
See "-- Rights Agreement."
RIGHTS AGREEMENT
On January 17, 1996, our Board of Directors declared a dividend of one
Series A Preferred Stock purchase right for each outstanding share of our common
stock. The dividend was payable on March 1, 1996 to the shareholders of record
as of February 15, 1996 (the "Record Date").
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All shares of common stock issued subsequently also include these purchase
rights. Under certain conditions, each purchase right may be exercised to
purchase from us one one-thousandth of a share of Series A Preferred Stock at a
price of $80.00 per one one-thousandth of a share of Series A Preferred Stock,
subject to adjustment.
Our Restated Certificate of Incorporation provides that holders of Series A
Preferred Stock will be entitled to 1,000 votes per share of Series A Preferred
Stock, to a minimum preferential quarterly dividend payment of $10.00 per share
and to an aggregate dividend of 1,000 times the dividend declared per share of
common stock. Further, holders of Series A Preferred Stock will be entitled to a
minimum preferential liquidation payment of $1,000 per share but will be
entitled to an aggregate payment of 1,000 times the payment made per share of
common stock. In addition, whenever dividends payable on Series A Preferred are
in default, holders of Series A Preferred Stock will be entitled to vote
together as a class to elect two directors to our Board of Directors.
The purchase rights are exercisable only if, without the prior written
consent of our Board of Directors, a person or group acquires, or announces a
tender offer to acquire, 20% or more of the shares of common stock (a "20%
acquisition"). In addition, if we are acquired in a merger or other business
combination, or if 50% or more of our consolidated assets or earning power is
sold after a person or group of affiliated or associated persons have acquired
beneficial ownership of 20% or more of the outstanding shares of common stock,
each purchase right (other than purchase rights beneficially owned by the
acquiring person, which will thereafter be void) will entitle its holder to
purchase, at the purchase right's then current exercise price, a number of
shares of equity securities of the acquiring company having a market value of
two times the exercise price of the purchase right. Moreover, if a person, or
group of affiliated or associated persons have acquired beneficial ownership of
20% or more of the outstanding shares of common stock, each holder of a purchase
right, other than the acquiring person, will have the right to receive, upon
exercise, that number of one-thousandths of a share having a market value of two
times the exercise price of the purchase right. We may redeem the purchase
rights at our option at any time prior to a 20% acquisition at a purchase price
of $.001 or one-tenth of one cent per purchase right, and we may exchange the
purchase rights, in whole or in part, at any time after a 20% acquisition but
before a person or group acquires 50% or more of the outstanding common stock at
an exchange ratio of one share of common stock, or one one-thousandth of a share
of preferred stock, per purchase right. Until a purchase right is exercised, the
holder thereof, as such, has no rights as a shareholder of Standard Motor
Products, including, without limitation, the right to vote or to receive
dividends. The purchase rights expire on February 28, 2006, unless we extend
them or unless they have been earlier redeemed or exchanged.
The purchase rights are designed to protect and maximize the value of the
outstanding shares of common stock in the event of an unsolicited attempt by an
acquiror to take over Standard Motor Products, in a manner or on terms not
approved by the Board of Directors. The purchase rights may have the effect of
rendering more difficult or discouraging an acquisition of us deemed undesirable
by our Board of Directors. The purchase rights may cause substantial dilution to
a person or group that attempts to acquire us on terms or in a manner not
approved by the Board of Directors, except an offer conditioned upon the
negation, purchase or redemption of the purchase rights.
NEW YORK BUSINESS CORPORATION LAW
We are subject to Section 912 of the New York Business Corporation Law,
which prohibits certain "business combinations" (as defined in Section 912
generally to include mergers, sales and leases of assets, issuances of
securities and similar transactions) by us or one of our subsidiaries with an
"interested shareholder" (as defined in Section 912 generally to mean any
person, other than us or any of our subsidiaries, that beneficially owns,
directly or indirectly, 20%
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<PAGE> 73
or more of our outstanding voting stock or is one of such person's affiliates or
associates) for five years after the person or entity becomes an interested
shareholder unless (1) our Board of Directors shall have approved the
transaction before the person became an interested shareholder, or (2) the
business combination is approved by the holders of our outstanding voting stock,
excluding shares held by the interested shareholder, at a meeting called for
such purpose not earlier than five years after such interested shareholder's
acquisition.
In addition, Article 16 of the New York Business Corporation Law requires
that any offeror making a takeover bid for a New York corporation file with the
New York Attorney General, as soon as practicable on the date of commencement of
the takeover bid, a registration statement containing specified details
regarding the proposed takeover. The New York Business Corporation Law also
contains provisions permitting directors in taking action (including taking
action relating to a change in control) to consider employees, retirees,
customers, creditors and the community, and preventing New York corporations
from paying "greenmail" without a shareholder vote. These statutory provisions
may have the effect of delaying, deterring or preventing a future takeover or
change in control of Standard Motor Products, unless such takeover or change in
control is approved by our Board of Directors.
CERTIFICATE OF INCORPORATION AND BY-LAWS
In addition to the purchase rights discussed above, our Restated
Certificate of Incorporation and Restated By-laws include certain other
provisions which are intended to enhance the likelihood of continuity and
stability in our ownership and which may have the effect of delaying, deterring
or preventing a future takeover or change in control of Standard Motor Products,
unless such takeover or change in control is approved by our Board of Directors.
Specifically, our Restated Certificate of Incorporation requires that, absent
Board approval, any merger or consolidation of us or any of our subsidiaries
with or into any other corporation; any sale, lease, exchange or other
disposition by us or any of our subsidiaries of all or substantially all of our
or any of our subsidiaries' assets to any other corporation, person or entity;
or any purchase, lease or other acquisition by us or any of our subsidiaries, of
any assets and/or securities from any other corporation, person or entity in
exchange for our voting securities (or securities convertible thereinto, or
options, warrants or rights to purchase any such securities) or those of any of
our subsidiaries, requires the affirmative vote of the holders of (a) at least
75% of the outstanding shares of each class of our capital stock entitled to
vote in an election of directors and (b) at least a majority of the remaining
outstanding shares, which are not directly or indirectly beneficially owned by
such other corporation, person or entity to the transaction, of each such class
of our capital stock entitled to vote in elections of directors, if, as of the
record date for the determination of shareholders entitled to notice thereof and
to vote thereon, such other party to the transaction is the beneficial owner,
directly or indirectly, of 5% or more of the outstanding shares of any class
entitled to so vote. Repeal or amendment of the foregoing provisions of the
Restated Certificate of Incorporation requires a vote of the holders of at least
75% of the outstanding shares of each class of our stock entitled to vote on
such repeal or amendment.
Our Restated Certificate of Incorporation and Restated By-laws also provide
that any director may be removed at any time, without cause, by the affirmative
vote, at any shareholders' meeting, of the holders of at least 75% of the
outstanding shares of each class of our capital stock entitled to vote at such
meeting.
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<PAGE> 74
CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences, as of the date hereof, relating to the purchase, ownership and
disposition of the Convertible Debentures and of the common stock into which the
Convertible Debentures may be converted, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This summary
is based on current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Regulations, judicial authority, and current
administrative rulings and pronouncements of the Internal Revenue Service (the
"Service"), all of which are subject to change, possibly with retroactive
effect. We have not sought any ruling from the Service with respect to the
statements made and the conclusions reached in the following summary, and there
can be no assurance that the Service will agree with such statements and
conclusions.
This summary deals only with holders that will hold the Convertible
Debentures and the common stock into which the Convertible Debentures may be
converted as "capital assets" (within the meaning of Section 1221 of the Code),
and does not address all tax aspects that may be relevant to particular holders
of the Convertible Debentures and the common stock into which the Convertible
Debentures may be converted in light of their personal investment or tax
circumstances, or to certain types of investors (including, individual
retirement accounts and other tax-deferred accounts, insurance companies,
financial institutions, broker-dealers, tax-exempt organizations, holders
holding the Convertible Debentures as part of a hedge, straddle or conversation
transaction, holders whose functional currency is not the United States dollar,
or holders who are not United States Holders) subject to special treatment under
the United States federal income tax laws. This summary discusses the tax
considerations applicable to an initial purchaser of the Convertible Debentures
who purchases the Convertible Debentures at their issue price in this offering
and does not discuss the tax considerations applicable to subsequent purchasers
of the Convertible Debentures. Moreover, the effect of any applicable state,
local or foreign tax law is not discussed.
As used herein, the term "United States Holder" means a beneficial holder
of Convertible Debentures or common stock received on conversion of the
Convertible Debentures that is for United States federal income tax purposes a
citizen or resident of the United States, a corporation, limited liability
company or partnership organized under the laws of the United States or any
political subsidiaries thereof, an estate the income of which is includable in
gross income for United States federal income tax purposes regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all of the substantial decisions of
the trust.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
MAY VARY DEPENDING UPON AN INVESTOR'S PARTICULAR SITUATION. INVESTORS
CONSIDERING THE PURCHASE OF CONVERTIBLE DEBENTURES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
PAYMENT OF INTEREST
Interest on a Convertible Debenture generally will be includable in the
income of a United States Holder as ordinary income at the time such interest is
received or accrued, in accordance with such holder's method of accounting for
United States federal income tax purposes.
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<PAGE> 75
MANDATORY AND OPTIONAL REDEMPTION
In the event of a change of control, we will be required to offer to redeem
all of the Convertible Debentures at a redemption price equal to 101% of their
aggregate principal amount on the date of purchase. Under Treasury Regulations
issued under provisions of the Code relating to original issue discount (the
"OID Regulations"), computation of yield and maturity of the Convertible
Debentures is not affected by such redemption rights and obligations if, based
on all the facts and circumstances as of the issue date, payments on the
Convertible Debentures are significantly more likely than not to occur in
accordance with the stated payment schedule of the Convertible Debentures (which
does not reflect a change in control). We believe, based on all the facts and
circumstances as of the issue date, it is significantly more likely than not
that the Convertible Debentures will be paid according to their stated schedule.
Therefore, we will not take the redemption rights and obligations into account
in determining the yield and maturity of the Convertible Debentures.
Standard Motor Products may redeem the Convertible Debentures, in whole or
in part, at any time after , 2004, at prices specified elsewhere
herein, plus accrued and unpaid interest to the date of redemption. The OID
Regulations contain rules for determining yield and maturity of any instrument
that may be redeemed prior to its stated maturity date at the option of the
issuer. Under the OID Regulations, solely for purposes of the accrual of OID, it
is assumed that the issuer will exercise any option to redeem a debt instrument
if such exercise will lower the yield-to-maturity of the debt instrument. We
believe that Standard Motor Products will not be presumed to redeem the
Convertible Debentures prior to their stated maturity under the foregoing rules
because the exercise of such option would not lower the yield-to-maturity of the
Convertible Debentures.
SALE, EXCHANGE OR REDEMPTION OF THE CONVERTIBLE DEBENTURES
Upon the sale, exchange or redemption of a Convertible Debenture (other
than the conversion of a Convertible Debenture into common stock), a United
States Holder generally will recognize capital gain or loss equal to the
difference between (i) the amount of cash and the fair market value of any other
property received on the sale, exchange or redemption (except to the extent such
amount is attributable to accrued interest income not previously included in
income, which is taxable as ordinary income) and (ii) such holder's adjusted tax
basis in the Convertible Debenture. A United States Holder's adjusted tax basis
in a Convertible Debenture generally will equal the cost of the Convertible
Debenture to such holder. Generally, such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if the United States Holder's
holding period in the Convertible Debenture is more than one year at the time of
sale, exchange or redemption. Long-term capital gain of a non-corporate United
States Holder is generally subject to a maximum tax rate of 20%. The
characterization of income as capital gain or loss is also relevant for purposes
of, among other things, limitations with respect to the deductibility of capital
losses.
CONSTRUCTIVE DISTRIBUTIONS
The conversion price of the Convertible Debentures may change under certain
circumstances. Section 305 of the Code and applicable Treasury Regulations
provide that under certain circumstances, adjustments in the conversion price of
convertible securities (including the failure to adjust the conversion rate) may
be treated as a constructive distribution of stock taxable as a dividend (to the
extent of Standard Motor Products' current or accumulated earnings and profits)
if, as a result of such adjustment, the proportionate interest of the holder of
such convertible security in the assets or earnings and profits of the issuer is
increased. Adjustments in the conversion price (or the failure to make such
adjustments) of the Convertible Debentures may result in constructive
distributions to United States Holders if, and to the extent that, the
adjustment in the conversion price increases any such holder's proportionate
interest in the
75
<PAGE> 76
assets or earnings and profits of Standard Motor Products. Any such constructive
distribution will be taxed as ordinary income (subject to a possible
dividends-received deduction for corporate holders) to the extent of our current
or accumulated earnings and profits.
CONVERSION OF THE CONVERTIBLE DEBENTURES
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Convertible Debenture into common stock except to the
extent of cash, if any, received in lieu of a fractional share of common stock
and for shares of common stock that are attributable to accrued interest not
previously included in income. A holder's tax basis in the common stock received
on conversion of a Convertible Debenture will be the same as such holder's
adjusted tax basis in the Convertible Debenture at the time of conversion
(reduced by any basis allocable to a fractional share interest for which cash is
received), and the holding period for the common stock received on conversion
will generally include the holding period of the Convertible Debenture
converted. However, a holder's tax basis in shares of common stock considered
attributable to any accrued interest generally will equal the amount of such
accrued interest included in income, and the holding period for such shares will
begin on the day following the date of conversion.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share. Accordingly,
cash received in lieu of a fractional share of common stock generally will
result in capital gain or loss (measured by the difference between the cash
received for the fractional share and the holder's adjusted tax basis in the
fractional share).
DISTRIBUTIONS ON COMMON STOCK
The gross amount of a distribution with respect to the common stock
received upon a conversion of Convertible Debentures will be treated as a
dividend taxable as ordinary income on the date of receipt, to the extent of our
current or accumulated earnings and profits as determined for United States
federal income tax purposes. Distributions in excess of such current or
accumulated earnings and profits will first constitute a non-taxable return of
capital to the extent of a holder's adjusted tax basis in the common stock and
then will be treated as a capital gain realized on the disposition of the common
stock. The portion of any distribution treated as a non-taxable return of
capital will reduce such United States Holder's tax basis in such common stock.
Subject to numerous limitations, to the extent distributions made by
Standard Motor Products are treated as dividends, a United States Holder that is
taxed as a domestic corporation and that meets the applicable holding period and
taxable income requirements of the Code may be entitled to a deduction under
Section 243 of the Code in an amount equal to 70% of such dividend (the
"Dividends-Received-Deduction"). With respect to common stock considered to be
"portfolio stock," as defined in Section 246A of the Code, the
Dividends-Received-Deduction will be reduced to the extent that the common stock
constitutes "debt financed portfolio stock." In addition, under certain
circumstances, the receipt of a dividend on the common stock determined to be an
"extraordinary dividend" may cause the holder's tax basis in the common stock to
be reduced by the "untaxed portion" of the dividend and could result in gain
recognition pursuant to Section 1059 of the Code.
SALE OF COMMON STOCK
Upon the sale or exchange of common stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any other property received upon the
sale or exchange and (ii) such holder's adjusted tax basis in the common stock.
Such capital gain or loss will be subject to the rules relating to
76
<PAGE> 77
tax rates and holding periods discussed above under "-- Sale, Exchange or
Redemption of the Convertible Debentures." A United States Holder's basis and
holding period in common stock received upon conversion of a Convertible
Debenture are determined as discussed above under "-- Conversion of the
Convertible Debentures."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments to
certain non-corporate United States Holders of (i) principal and interest on a
Convertible Debenture, (ii) dividends on Common Stock, (iii) proceeds of the
sale of a Convertible Debenture and (iv) proceeds of the sale of Common Stock.
In addition, a 31% backup withholding tax may apply to such payments if the
United States Holder (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner required, or (ii) does not
otherwise establish his entitlement to an exemption. Any amounts withheld under
the backup withholding rules from a payment to a United States Holder will be
allowed as a credit against such holder's United States federal income tax and
may entitle the United States Holder to a refund, provided that the required
information is furnished to the Service.
LEGAL MATTERS
The validity of the Convertible Debentures offered hereby has been passed
upon for us by Kelley Drye & Warren LLP, New York, New York. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Latham & Watkins, New York, New York.
EXPERTS
The consolidated financial statements of Standard Motor Products as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, have been included herein and incorporated by reference
in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere and incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed with the Securities and Exchange
Commission (the "Commission") by us pursuant to the Exchange Act are
incorporated herein by reference:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998; and
2. Our Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1999.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and to be part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained therein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. We will provide without charge to each
person, including any beneficial owner of the securities, to whom a copy of this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents incorporated by reference in this Prospectus (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents). Written requests for such copies should be
directed to Standard Motor Products, Inc., 37-18 Northern Boulevard, Long Island
City, New York, 11101 (telephone (718) 392-0200).
We are subject to the informational requirements of the Securities Exchange
Act of 1934, and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be read and copied at the Public Reference Room maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's following Regional Offices: 7 World Trade Center, Suite 1300, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1300,
Chicago, Illinois 60661-2511. Copies of such material also may be obtained from
the Public Reference Section of the Commission, at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Information regarding the operation
of the Commission's Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. The Commission also maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov. The common stock is listed
on the New York Stock Exchange and reports, proxy statements and other
information concerning us can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005. Information regarding us may also be obtained
from our website at http://www.smpcorp.com.
This Prospectus does not contain all of the information set forth in the
Registration Statement filed with the Commission by us, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Reference is made to the Registration Statement and the exhibits thereto for
further information. Exhibits to the Registration Statement that are omitted
from this Prospectus may also be obtained at the Commission's Web site described
above. Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and readers are referred to the copy so filed for more
detailed information, each such statement being qualified in its entirety by
such reference.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
CONSOLIDATED FINANCIAL STATEMENTS --------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996...... F-6
Notes to Consolidated Financial Statements.................. F-7
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERS ENDED
MARCH 31, 1999 AND 1998 (Unaudited)
Consolidated Statements of Operations and Retained Earnings
for the three months ended March 31, 1999 and 1998........ F-28
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998......................................... F-29
Consolidated Statements of Cash Flows for the quarters ended
March 31, 1999 and 1998................................... F-30
Notes to Consolidated Financial Statements.................. F-31
</TABLE>
F-1
<PAGE> 80
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, 1998 and 1997, and the related
consolidated statements of operations, changes in Stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
New York, New York
March 2, 1999
F-2
<PAGE> 81
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales.......................................... $ 649,420 $ 559,823 $ 513,407
Cost of sales...................................... 443,798 380,335 335,112
---------- ---------- ----------
Gross profit..................................... 205,622 179,488 178,295
Selling, general and administrative expenses....... 161,691 170,033 133,561
---------- ---------- ----------
Operating income................................. 43,931 9,455 44,734
Other income (expense), net (Note 14).............. (1,422) 998 1,710
---------- ---------- ----------
Earnings from continuing operations before
interest, taxes and minority interest............ 42,509 10,453 46,444
Interest expense (Note 3)........................ 16,419 14,158 13,091
---------- ---------- ----------
Earnings (loss) from continuing operations before
taxes and minority interest................... 26,090 (3,705) 33,353
---------- ---------- ----------
Minority interest.................................. (256) (332) (87)
---------- ---------- ----------
Taxes based on earnings (Note 15)
Current:
Federal.......................................... 308 (276) 8,403
State and local.................................. 280 260 560
---------- ---------- ----------
588 (16) 8,963
Deferred......................................... 2,989 (2,401) 437
---------- ---------- ----------
Total taxes based on earnings............ 3,577 (2,417) 9,400
---------- ---------- ----------
Earnings (loss) from continuing operations......... 22,257 (1,620) 23,866
---------- ---------- ----------
Discontinued operations (Note 3)
Loss from operations of discontinued Brake
Group......................................... -- (568) (7,506)
Estimated loss on disposal of Brake Group........ -- (14,500) --
Loss from operations of discontinued Service Line
Group......................................... -- (5,336) (1,702)
Estimated loss on disposal of Service Line
Group......................................... -- (12,500) --
---------- ---------- ----------
Loss from discontinued operations................ -- (32,904) (9,208)
---------- ---------- ----------
Net earnings (loss).............................. $ 22,257 $ (34,524) $ 14,658
========== ========== ==========
Net earnings (loss) from continuing operations per
common share:
Basic......................................... $ 1.70 $ (0.12) $ 1.82
Diluted....................................... 1.69 (0.12) 1.82
Net earnings (loss) per common share:
Basic......................................... $ 1.70 $ (2.63) $ 1.12
Diluted....................................... 1.69 (2.63) 1.12
Average number of common shares.................... 13,077,392 13,119,404 13,130,849
Average number of common shares and dilutive common
shares........................................... 13,167,842 13,119,404 13,130,849
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 82
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,457 $ 16,809
Accounts receivable, less allowances for discounts and
doubtful accounts of $4,525 (1997 -- $18,654) (Note
4)..................................................... 122,008 151,026
Inventories (Note 5)...................................... 174,092 189,006
Deferred income taxes (Note 15)........................... 11,723 22,005
Prepaid expenses and other current assets................. 11,231 11,630
-------- --------
Total current assets.............................. 342,511 390,476
-------- --------
Property, plant and equipment, net (Notes 6 and 9).......... 109,404 126,024
-------- --------
Goodwill, net............................................... 39,232 30,674
-------- --------
Other assets (Note 7)....................................... 30,409 29,963
-------- --------
Total assets...................................... $521,556 $577,137
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable -- banks (Note 8)........................... $ 3,555 $ 55,897
Current portion of long-term debt (Note 9)................ 22,404 24,373
Accounts payable.......................................... 48,414 36,421
Sundry payables and accrued expenses...................... 60,905 67,224
Accrued customer returns.................................. 16,296 17,955
Payroll and commissions................................... 12,613 11,180
-------- --------
Total current liabilities......................... 164,187 213,050
-------- --------
Long-term debt (Note 9)..................................... 133,749 159,109
-------- --------
Deferred income taxes (Note 15)............................. -- 3,124
-------- --------
Postretirement benefits other than pensions and other
accrued liabilities (Note 13)............................. 18,595 18,072
-------- --------
Commitments and contingencies (Notes 9, 10, and 18)
Stockholders' equity (Notes 9, 10, and 11):
Common Stock -- par value $2.00 per share:
Authorized 30,000,000 shares, issued 13,324,476 shares in
1998 and 1997 (including 268,126 and 247,781 shares
held as treasury shares in 1998 and 1997,
respectively).......................................... 26,649 26,649
Capital in excess of par value.............................. 2,951 2,763
Loan to Employee Stock Ownership Plan (ESOP)................ 0 (1,665)
Retained earnings........................................... 181,679 161,514
Accumulated other comprehensive income (loss)............... (516) (454)
-------- --------
210,763 188,807
Less: Treasury stock -- at cost............................. 5,738 5,025
-------- --------
Total stockholders' equity........................ 205,025 183,782
-------- --------
Total liabilities and stockholders' equity........ $521,556 $577,137
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 83
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net earnings (loss)..................................... $ 22,257 $(34,524) $ 14,658
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization......................... 17,274 18,980 16,326
Provision for loss on disposal of assets of
discontinued operations............................ -- 27,000 --
Loss on sale of business.............................. 1,500 -- --
(Gain) loss on disposal of property, plant &
equipment.......................................... 226 64 (509)
Proceeds from sales of trading securities............. -- -- 7,646
Purchases of trading securities....................... -- -- (6,803)
(Increase) in deferred income taxes................... 2,992 (2,393) (68)
Change in assets and liabilities, net of effects from
acquisitions and disposals:
(Increase) decrease in accounts receivable, net....... 27,534 10,210 (26,025)
(Increase) decrease in inventories.................... 27,733 42,478 (13,303)
(Increase) decrease in other assets................... 2,209 11,031 (6,396)
Increase (decrease) in accounts payable............... 12,833 1,899 784
Increase (decrease) in other current assets and
liabilities........................................ 742 (4,808) (251)
Increase (decrease) in sundry payables and accrued
expenses........................................... (6,589) 1,755 (7,212)
-------- -------- --------
Net cash provided by (used in) operating activities..... 108,711 71,692 (21,153)
-------- -------- --------
Proceeds from held-to-maturity securities............... -- -- 6,252
Purchases of held-to-maturity securities................ -- -- (163)
Proceeds from the sale of property, plant and
equipment............................................. 702 -- --
Capital expenditures, net of effects from
acquisitions.......................................... (15,325) (15,597) (21,389)
Payments for acquisitions, net of cash acquired......... (13,997) (16,313) (45,060)
Proceeds from sale of business.......................... 6,808 -- --
-------- -------- --------
Net cash (used in) investing activities................. (21,812) (31,910) (60,360)
-------- -------- --------
Net (repayments) borrowings under line-of-credit
agreements............................................ (52,333) (18,671) 58,625
Proceeds from issuance of long-term debt................ 700 13,096 35,469
Principal payments of long-term debt.................... (27,046) (17,924) (16,104)
Reduction of loan to ESOP............................... 1,665 1,680 1,680
Proceeds from exercise of employee stock options........ 1,579 192 184
Purchase of treasury stock.............................. (2,614) (1,528) (147)
Dividends paid.......................................... (2,092) (4,197) (4,260)
-------- -------- --------
Net cash provided by (used in) financing activities..... (80,141) (27,352) 75,447
-------- -------- --------
Effect of exchange rate changes on cash................. (110) (287) (126)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 6,648 12,143 (6,192)
Cash and cash equivalents at beginning of year.......... 16,809 4,666 10,858
-------- -------- --------
Cash and cash equivalents at end of year................ $ 23,457 $ 16,809 $ 4,666
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 17,840 $ 20,154 $ 17,136
Income taxes....................................... $ 1,799 $ 3,391 $ 5,436
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 84
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
ACCUMULATED
CAPITAL IN LOAN OTHER
COMMON EXCESS OF TO RETAINED COMPREHENSIVE TREASURY
STOCK PAR VALUE ESOP EARNINGS INCOME (LOSS) STOCK TOTAL
------ ---------- ---- -------- ------------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................... $26,649 $2,651 $(5,025) $189,837 $ 123 $(3,835) $210,400
Comprehensive income
Net earnings.................................. 14,658 14,658
Minimum pension liability adjustment.......... 27 27
Foreign currency translation adjustment....... (79) (79)
--------
Total comprehensive income..................... 14,606
Cash dividends paid............................ (4,260) (4,260)
Exercise of employee stock options............. (59) 243 184
Tax benefits applicable to Employee Stock
Ownership Plan................................ 113 113
Employee Stock Ownership Plan.................. 1,680 1,680
Purchase of treasury stock..................... (147) (147)
------- ------ ------- -------- ----- ------- --------
BALANCE AT DECEMBER 31, 1996................... 26,649 2,705 (3,345) 200,235 71 (3,739) 222,576
Comprehensive income
Net loss...................................... (34,524) (34,524)
Foreign currency translation adjustment....... (525) (525)
--------
Total comprehensive income (loss).............. (35,049)
Cash dividends paid............................ (4,197) (4,197)
Exercise of employee stock options............. (50) 242 192
Tax benefits applicable to Employee Stock
Ownership Plan................................ 108 108
Employee Stock Ownership Plan.................. 1,680 1,680
Purchase of treasury stock..................... (1,528) (1,528)
------- ------ ------- -------- ----- ------- --------
BALANCE AT DECEMBER 31, 1997................... 26,649 2,763 (1,665) 161,514 (454) (5,025) 183,782
Comprehensive income
Net earnings.................................. 22,257 22,257
Foreign currency translation adjustment....... (62) (62)
--------
Total comprehensive income..................... 22,195
Cash dividends paid............................ (2,092) (2,092)
Exercise of employee stock options............. (322) 1,901 1,579
Tax benefits applicable to exercise of
employee stock options........................ 510 510
Employee Stock Ownership Plan.................. 1,665 1,665
Purchase of treasury stock..................... (2,614) (2,614)
------- ------ ------- -------- ----- ------- --------
BALANCE AT DECEMBER 31, 1998................... $26,649 $2,951 $ -- $181,679 $(516) $(5,738) $205,025
======= ====== ======= ======== ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 85
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. Standard Motor Products, Inc. (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 subsidiaries in which we have more than a 50% equity ownership. Our
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 1996 and 1997
have been reclassified to conform with the 1998 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, 1998 and 1997, held-to-maturity
securities amounted to $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, 1998, the
held-to-maturity securities mature within five 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:
<TABLE>
<CAPTION>
ESTIMATED LIFE
--------------
<S> <C>
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
</TABLE>
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, 1998 and 1997, was $5,906,000 and $4,402,000,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF. Long-lived assets and certain identifiable intangibles are 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
F-7
<PAGE> 86
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (see note 3).
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 accumulated other comprehensive income.
REVENUE RECOGNITION. The Company recognizes revenues from product sales
upon shipment to customers. The Company estimates and records provisions for
cash discounts, quantity rebates, sales returns and warranties, in the period
the sale is recorded, based upon its prior experience.
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 15).
NET EARNINGS PER COMMON SHARE. The Company presents two calculations of
earnings per common share. "Basic" earnings per common share shall equal net
income divided by weighted average common shares outstanding during the period.
"Dilutive" earnings per common share shall equal net income divided by the sum
of weighted average common shares outstanding during the period plus common
stock equivalents. Common stock equivalents that are anti-dilutive are excluded
from net income per common share.
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share (net income as reported is the numerator in
each calculation):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding..... 13,077,392 13,119,404 13,130,849
Effect of dilutive securities -- options....... 90,450 -- --
---------- ---------- ----------
Weighted average common equivalent shares
outstanding -- assuming dilution............. 13,167,842 13,119,404 13,130,849
========== ========== ==========
</TABLE>
COMPREHENSIVE INCOME. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income," on
January 1, 1998. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and foreign
currency translation adjustments and is presented in the Consolidated Statements
of Changes in Stockholders' Equity. This statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
SEGMENT REPORTING. During 1998 the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for reporting information about operating
segments and for related disclosures about products, geographic areas and major
customers. (See Note 16.)
PENSION AND OTHER POSTRETIREMENT PLANS. On January 1, 1998, the Company
adopted SFAS No. 132, "Employers Disclosures about Pension and Other
Postretirement Benefits." This statement revises employers disclosures about
pensions and other postretirement benefit plans.
F-8
<PAGE> 87
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 132 does not change the method of accounting for such plans. (See Notes
12 and 13.)
STOCK OPTION PLANS. The Company accounts for its stock option plans in
accordance with the provisions of SFAS No. 123 "Accounting for Stock Based
Compensation." As permitted by this statement, the Company has chosen to
continue to apply the intrinsic value-based method of accounting as prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense has been recognized for options
granted. As required, the Company provides pro forma net income and pro forma
earnings per share disclosures for stock option grants, as if the fair value
based method defined in SFAS No. 123 had been applied. (See Note 11.)
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 and major retailers
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 13%, 14% and 16% of consolidated net
sales (including sales of discontinued operations) for the years ended December
31, 1998, 1997 and 1996, respectively. One individual member of this marketing
group accounted for 10%, 9% and 11% of net sales for the years ended December
31, 1998, 1997 and 1996, respectively. The Company's five largest individual
customers, including the members of this marketing group, accounted for 30%, 32%
and 34% of net sales in 1998, 1997 and 1996, respectively.
2. ACQUISITIONS
During 1998 and 1997, the Company acquired and accounted for as a purchase,
three businesses as follows:
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 headquarters were located in Des Plaines,
Illinois, when acquired but have been subsequently merged into the Standard
Division by the end of 1997. The acquisition increased consolidated net
sales by approximately $14,200,000 in 1998 and $19,000,000 in 1997 and had
an immaterial effect on consolidated net earnings, from continuing
operations, for the same period.
In September 1997, the Company acquired the oxygen sensor
manufacturing business of AlliedSignal for approximately $10,200,000 and
has relocated the manufacturing assets from the AlliedSignal's plant to a
new facility in North Carolina. The acquisition had an immaterial effect on
consolidated net sales and consolidated net earnings, from continuing
operations, for the years ended December 31, 1998 and 1997.
In March 1998, the Company completed the exchange of its brake
business for the Moog Automotive temperature control business of Cooper
Industries. The total acquisition price amounted to $79,200,000, which
included the exchange of certain net assets, principally inventory and
property, plant and equipment and a cash payment of $13,997,000.
F-9
<PAGE> 88
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On the basis of a pro forma consolidation, as if the Moog Automotive
temperature control business had been acquired at the beginning of 1997, the
Company's consolidated results would have been as follows:
<TABLE>
<CAPTION>
PRO FORMA RESULTS
----------------------
1998 1997
-------- --------
(Dollars in thousands
except per share data)
<S> <C> <C>
Net sales.................................................. $671,891 $685,570
Net earnings (loss) from continuing operations............. $ 21,464 $ (4,840)
Net earnings (loss) from continuing operations
per common share......................................... $ 1.64 $ (0.37)
</TABLE>
Such pro forma information does not purport to be indicative of the results
of operations that would have actually been attained if the acquisition had been
consummated as of January 1, 1997. In addition, the pro forma financial
information does not purport to be indicative of future results of operations.
The Company's acquisitions, with the exception of the exchange for the Moog
Automotive temperature control business, were funded from cash and short term
borrowings. Assets acquired in all of the acquisitions consisted primarily of
inventory and property, plant and equipment. The purchase prices have been
allocated to the assets acquired and liabilities assumed based on the fair value
at the dates of acquisition. In aggregate, the excess of the purchase prices
over the fair value of the net assets acquired during 1998 and 1997 were
approximately $11,650,000 and $8,500,000 respectively. The operating results of
these acquired businesses have been included in the consolidated financial
statements from the time of each respective acquisition.
3. DISCONTINUED OPERATIONS
BRAKE BUSINESS. In connection with the exchange transaction described in
note 2, during the fourth quarter of 1997 the Company recorded a provision of
$14,500,000, consisting of an estimated loss on the disposal of the business of
$14,000,000 and a provision of $500,000 for anticipated operating losses until
the completion of the disposal. The income (loss) from operations of the
discontinued Brake Business includes an allocation of consolidated interest
based upon the ratio of net assets of the discontinued Brake Business to the
total net assets of the Company, which are applicable to interest bearing
expenses. The interest allocated to the discontinued Brake Business amounted to
$1,112,000, $5,183,000 and $4,594,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
F-10
<PAGE> 89
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The operating results of the discontinued Brake Business are summarized as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net Sales......................................... $34,088 $164,202 $165,800
------- -------- --------
Income (loss) from operations before income
taxes........................................... -- (568) (10,573)
Income taxes...................................... -- -- (3,067)
------- -------- --------
Income (loss) from operations..................... -- (568) (7,506)
------- -------- --------
Estimated loss on disposal........................ -- (14,500) --
Income taxes...................................... -- -- --
------- -------- --------
Net loss on disposal.............................. -- (14,500) --
------- -------- --------
Total loss on discontinued operation.... $ -- $(15,068) $ (7,506)
======= ======== ========
</TABLE>
The $14,500,000 loss associated with the disposal of the Brake business
reflects no income tax benefit.
As of December 31, 1998, substantially all of the assets of the
discontinued Brake business were either sold or disposed of. The net assets
retained and held for sale at December 31, 1997, of the discontinued Brake
Business are summarized as follows:
<TABLE>
<CAPTION>
HELD
TOTAL RETAINED FOR SALE
----- -------- --------
(In thousands)
<S> <C> <C> <C>
Current Assets............................................ $ 77,266 $ 32,161 $45,105
Property, plant and equipment, net........................ 28,952 465 28,487
Other non-current assets net of amortization.............. 1,202 -- 1,202
Current Liabilities....................................... (22,253) (18,167) (4,086)
Other Liabilities......................................... (12,447) (12,447) --
-------- -------- -------
Net assets of the discontinued Brake business............. $ 72,720 $ 2,012 $70,708
======== ======== =======
</TABLE>
SERVICE LINE BUSINESS. In the fourth quarter of 1998, the Company
completed the two largest phases of its agreement to sell its Service Line
business to R&B, Inc. This transaction involved the sale of selected assets of
Champ and APS Service Lines and the Pik-A-Nut Fastener Line. The third and final
phase, involving the sale of the Everco Brass & Brake Line, acquired in the Moog
automotive exchange, was completed in early 1999.
In the fourth quarter of 1997, the Company recorded a provision of
$12,500,000, consisting of an estimated loss on the sale of the business of
$12,000,000 and a provision of $500,000 for anticipated operating losses until
the closing of the sale. The loss from operations of the discontinued Service
Line business included an allocation of consolidated interest based upon the
ratio of net assets of the discontinued Service Line business to the total net
assets of the Company which are applicable to interest bearing expenses. The
interest allocated to the discontinued Service Line Business amounted to
$629,000, $975,000, and $1,110,000 for the years ended December 31, 1998, 1997,
and 1996 respectively. The Company's 1998 results do not include any income or
loss from the discontinued Service Line business as these anticipated losses
were included in the 1997 provision.
F-11
<PAGE> 90
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The operating results of the discontinued Service Line Business are
summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net Sales.......................................... $23,254 $ 39,147 $42,598
------- -------- -------
Income (loss) from operations before income
taxes............................................ -- (5,336) (2,935)
Income taxes....................................... -- -- (1,233)
------- -------- -------
Loss from operations............................... -- (5,336) (1,702)
------- -------- -------
Estimated loss on disposal......................... -- (12,500) --
Income taxes....................................... -- -- --
------- -------- -------
Net loss on disposal............................... -- (12,500) --
------- -------- -------
Total loss on discontinued operation..... $ -- $(17,836) $(1,702)
======= ======== =======
</TABLE>
The $12,500,000 loss associated with the disposal of the Service Line
Business reflects no income tax benefit.
As of December 31, 1998, substantially all of the assets of the
discontinued Service Line business were either sold or disposed of. The net
assets of the discontinued Service Line Business retained and held for sale at
December 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
HELD
TOTAL RETAINED FOR SALE
----- -------- --------
(In thousands)
<S> <C> <C> <C>
Current Assets....................................... $12,933 $ 5,196 $7,737
Property, plant and equipment, net................... 662 -- 662
Other non-current assets net of amortization....... 184 184 --
Current Liabilities.................................. (8,020) (8,020) --
Other Liabilities.................................... -- -- --
------- ------- ------
Net assets of the discontinued Service Line
Business........................................... $ 5,759 $(2,640) $8,399
======= ======= ======
</TABLE>
4. SALE OF ACCOUNTS RECEIVABLE
The Company sells certain accounts receivable to its wholly-owned
subsidiary, Standard Motor Products Credit Corp., a qualifying special-purpose
corporation. On March 19, 1997, Standard Motor Products Credit Corp., entered
into a two year agreement whereby it can sell up to a $25,000,000 undivided
ownership interest in a designated pool of certain of these eligible
receivables. At December 31, 1998 and 1997, net accounts receivables amounting
to $25,000,000 had been sold under this agreement. These sales were reflected as
reductions of trade accounts receivable in 1998 and 1997 and the related fees
and discounting expense were recorded as other expense. The Company has received
an extension of this agreement until April 30, 1999 while it completes
negotiations on a three year renewal with similar terms and conditions.
F-12
<PAGE> 91
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Inventories consist of:
Finished goods............................................ $120,108 $124,224
Work in process........................................... 4,867 5,392
Raw materials............................................. 49,117 59,390
-------- --------
Total inventories................................. $174,092 $189,006
======== ========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Property, plant and equipment consist of the following:
Land, buildings and improvements.......................... $ 64,080 $ 75,752
Machinery and equipment................................... 88,282 104,178
Tools, dies and auxiliary equipment....................... 8,412 10,029
Furniture and fixtures.................................... 21,542 22,841
Leasehold improvements.................................... 5,130 7,213
Construction in progress.................................. 18,068 8,840
-------- --------
205,514 228,853
Less accumulated depreciation and amortization.............. 96,110 102,829
-------- --------
Total property, plant and equipment, net.......... $109,404 $126,024
======== ========
</TABLE>
7. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Other assets consist of the following:
Marketable securities..................................... $ 7,200 $ 7,200
Unamortized customer supply agreements.................... 3,311 537
Equity in joint ventures.................................. 4,698 7,434
Deferred income taxes..................................... 4,169 --
Other..................................................... 11,031 14,792
------- -------
Total other assets................................ $30,409 $29,963
======= =======
</TABLE>
Included in Other is a preferred stock investment in a customer of the
Company. Net sales to such customer amounted to $72,754,000, $72,529,000 and
$76,283,000 in 1998, 1997 and 1996, respectively.
8. NOTES PAYABLE -- BANKS
During 1997 and the first quarter of 1998, the Company's short-term
facilities consisted primarily of one year uncommitted demand revolving credit
agreements negotiated separately with each of its six lending institutions. The
amount of short-term bank borrowings outstanding
F-13
<PAGE> 92
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under those facilities was $52,900,000 at December 31, 1997. The weighted
average interest rate at December 31, 1997 on those borrowings was 9.1%.
On March 30, 1998, the Company entered into an eight-month committed
revolving credit facility with its then existing banking group and incurred
commitment fees of approximately 1.25% of the facility. This facility provided
for unsecured lines of credit in the aggregate amount of $108,500,000. On
November 30, 1998, the Company entered into a new three year revolving credit
facility. The new facility, with eight lending institutions, provides a
$110,000,000 unsecured line of credit, subject to a borrowing base as defined.
This facility consists primarily of two borrowing options, one a function of
LIBOR and the other a function of the prime rate. The spread above each
borrowing option rate is determined by the Company's ratio of consolidated debt
to Earnings Before Interest, Taxes, Depreciation and Amortization. The terms of
this revolving credit facility include, among other provisions, the requirement
for a clean-down to $10,000,000 or less, for any consecutive 30 days during each
12 month period of the facility, maintenance of defined levels of tangible net
worth, various financial performance ratios and restrictions on capital
expenditures, dividend payments, acquisitions and additional indebtedness. There
were no outstanding borrowings under this facility at December 31, 1998. The
Company incurred commitment fees of approximately .70% of the total facility.
A foreign subsidiary of the Company had a revolving credit facility during
1998 and 1997. The amount of short-term bank borrowings outstanding under that
facility was $3,555,000 at December 31, 1998, and $2,997,000 at December 31,
1997. The weighted average interest rate on these borrowings at December 31,
1998 and 1997 was 8.4% and 7.7%, respectively.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Long-term debt consists of:
7.56% senior note payable................................. $ 73,000 $ 73,000
8.60% senior note payable................................. 37,143 46,429
10.22% senior note payable................................ 21,500 30,000
Credit Facility ($17 million Canadian).................... 10,960 13,935
7.50%-10.50% purchase obligations......................... 2,833 4,840
5.0%-8.8% Facilities...................................... 6,411 7,524
5.0% Notes Payable -- AlliedSignal........................ 3,000 5,000
Credit Agreement (ESOP)................................... 0 1,674
Other..................................................... 1,306 1,080
-------- --------
156,153 183,482
Less current portion........................................ 22,404 24,373
-------- --------
Total noncurrent portion of long-term debt........ $133,749 $159,109
======== ========
</TABLE>
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 $37,143,000 senior note agreement, the Company is
required to repay the remaining loan in four equal annual installments from 1999
through 2002.
F-14
<PAGE> 93
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the $21,500,000 senior note agreement, the Company is
required to repay the loan in five varying annual installments beginning in
1999. Subject to certain restrictions, the Company may make prepayments without
premium.
Under the terms of the $17,000,000 CDN credit agreement, the Company is
required to repay the loan as follows: $7,000,000 CDN in 1999, $2,000,000 CDN in
2000, and 2001, and a final payment of $6,000,000 CDN in 2002. Subject to
certain restrictions, the Company can make prepayments without premium. The
credit agreement has various interest rate options which averaged 4.9% for 1998.
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 $13,390,000 at December 31, 1998.
The Company holds a 73.4% equity interest in Standard Motor Products
Holdings Limited, formerly Intermotor Holdings Limited, which has various
existing credit facilities that mature by 2003.
Under the terms of the unsecured note agreement with AlliedSignal, the
Company is required to repay $2,000,000 in September 1999 with a final payment
of $1,000,000 due in 2000.
The proceeds of the Credit Agreement 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 12). In January 1998, the Company made the final required payment
and as such the credit agreement has been paid in full.
Maturities of long-term debt during the five years ending December 31, 1999
through 2003, are $22,404,000, $28,421,000, $27,282,000, $29,815,000 and
$16,416,000 respectively.
The senior note payable agreements contain restrictive covenants which
require the maintenance of defined levels of working capital, tangible net worth
and earnings and limit, among other items, investments, indebtedness and
distributions for the payment of dividends and the acquisition of capital stock.
At December 31, 1997, the Company did not comply with certain covenant
requirements for which the Company received waivers and amendments on March 27,
1998. These amendments contained provisions for the payment of up front fees of
1.5% and an increase in the interest rate on each senior note by 1.25%. The
increased interest rate was reduced by 0.50% based upon the refinancing of our
revolving credit facility on November 30, 1998 (see Note 8).
10. 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 is 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, 1998.
F-15
<PAGE> 94
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 December 22, 1998, the Company announced that the Board of Directors has
authorized the repurchase by the Company of up to an additional 300,000 shares
of its common stock at a cost of up to $7,000,000, to be used to meet present
and future requirements of its stock option program. As of December 31, 1998,
78,400 shares were repurchased at a cost of $1,881,000.
11. STOCK OPTIONS
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. The 1994
Omnibus Stock Option Plan was amended during 1997 to increase the number of
shares authorized for issuance to 1,000,000 shares. 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,
1998, in aggregate 969,000 shares of authorized but unissued common stock were
reserved for issuance under our stock option plans.
As permitted under SFAS 123, the Company continues to apply the provisions
of APB Opinion No. 25 for stock-based awards granted to employees. Accordingly,
no compensation cost has been recognized for the fixed stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value method of SFAS No. 123, the Company's net
earnings (loss) per share would have changed to the pro forma amounts as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Net Earnings As reported............... $22,257 $(34,524) $14,658
(loss) Pro forma................. $21,610 $(34,849) $14,544
Basic Earnings As reported............... $ 1.70 $ (2.63) $ 1.12
(loss) per share Pro forma................. $ 1.65 $ (2.66) $ 1.11
</TABLE>
For pro forma calculations, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average
F-16
<PAGE> 95
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions used for grants in 1998, 1997 and 1996 respectively: expected
volatility of 33.5%, 33.5% and 25.5%, expected life of 4.3 years, 4.4 years and
4.4 years, dividend yield of 1.5%, 1.5% and 2.0%, and risk free interest rate of
5.2%, 5.6% and 6.0% for issued options.
A summary of the status of the Company's option plans follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(Shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 636 $18.45 424 $16.50 281 $16.54
Granted............................ 263 21.54 231 21.87 157 16.27
Exercised.......................... (91) 17.08 (10) 16.39 (11) 14.40
Forfeited.......................... (15) 21.50 (9) 16.36 (3) 16.39
--- --- ---
Outstanding at end of year......... 793 $19.58 636 $18.45 424 $16.50
=== === ===
Options exercisable at end of
year............................. 335 230 142
=== === ===
Weighted-average fair value of
options granted during the
year............................. $ 6.30 $ 6.11 $ 4.28
</TABLE>
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
--------------- ----------- ------------------------ ----------------
<S> <C> <C> <C>
$13.63 - $14.50 6,000 8.3 $13.77
$16.00 - $16.94 314,000 3.9 $16.34
$20.50 - $23.72 473,000 6.2 $21.80
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
RANGE OF NUMBER EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 EXERCISE PRICE
--------------- ------------------ ----------------
<S> <C> <C> <C>
$13.63 - $23.59 334,500 $17.34
</TABLE>
12. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering certain former
employees of the Company's discontinued Brake business. (see Note 3).
F-17
<PAGE> 96
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table represents a reconciliation of the beginning and ending
benefit obligation, the fair value of plan assets and the funded status of the
plan.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year..................... $10,109 $10,036
Service cost................................................ 97 188
Interest cost............................................... 665 672
Actuarial gain.............................................. (121) (33)
Benefits paid............................................... (835) (754)
------- -------
Benefit obligation at end of year........................... 9,915 10,109
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 11,120 10,418
Actual return on plan assets................................ 1,399 1,456
Employer contributions...................................... -- --
Benefits paid............................................... (835) (754)
------- -------
Fair value of plan assets at end of year.................... 11,684 11,120
------- -------
Funded status............................................... 1,769 1,011
Unrecognized prior service cost............................. -- 263
Unrecognized net actuarial gain............................. (2,083) (1,452)
Unrecognized transition cost................................ -- 72
------- -------
(Accrued)/prepaid benefit cost.............................. $ (314) $ (106)
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rates.............................................. 6.75% 7.00% 7.00%
Expected long-term rate of return on assets................. 8.00% 8.00% 8.00%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.......................................... $ 97 $ 188 $ 219
Interest cost......................................... 665 672 653
Return on assets...................................... (816) (1,456) (1,135)
Amortization of prior service cost.................... 19 70 70
Recognized actuarial (gain)/loss...................... (72) 655 373
----- ------ ------
Net periodic (benefit) cost........................... $(107) $ 129 $ 180
===== ====== ======
</TABLE>
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.
F-18
<PAGE> 97
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
MULTI-EMPLOYER DEFINED CONTRIBUTION
YEAR-END DECEMBER 31, PLANS AND OTHER PLANS
--------------------- -------------- --------------------
<S> <C> <C>
1998....................................... $302,000 $4,350,000
1997....................................... $365,000 $2,840,000
1996....................................... $383,000 $2,175,000
</TABLE>
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 9), 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. In January 1998, the Company made the final required
payment and as such, the credit agreement has been paid in full.
During 1998, 1997 and 1996, 106,900, 98,000 and 96,800 shares were
allocated to the employees, leaving no unallocated shares in the ESOP trust at
December 31, 1998.
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 $1,664,000
in 1998, $1,406,000 in 1997 and $1,391,000 in 1996. The expense was calculated
by subtracting dividend and interest income earned by the ESOP, which amounted
to approximately $1,000, $274,000 and $289,000 for the years ended December 31,
1998, 1997 and 1996, respectively, from the principal repayment on the
outstanding bank loan. Interest costs amounted to approximately $56,000,
$208,000 and $360,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
At December 31, 1997, indebtedness of the ESOP to the Company in the
amounts of $1,665,000 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 1998, 1997 and 1996.
13. POSTRETIREMENT BENEFITS
The Company provides certain medical and dental care benefits to eligible
retired employees. The Company's current policy is to fund the cost of the
health care plans on a pay-as-you-go basis.
F-19
<PAGE> 98
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table represents a reconciliation of the beginning and ending
benefit obligation and the funded status of the plan.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 15,783 $ 20,888
Service cost................................................ 975 671
Interest cost............................................... 1,082 1,139
Amendments.................................................. 1,410 --
Curtailments................................................ -- (2,120)
Actuarial (gain)/loss....................................... (844) (4,319)
Benefits paid............................................... (778) (476)
-------- --------
Benefit obligation at end of year........................... $ 17,628 $ 15,783
======== ========
Funded status............................................... $(17,628) $(15,783)
Unrecognized prior service cost............................. 1,286 --
Unrecognized net actuarial (gain)/loss...................... (766) --
-------- --------
(Accrued)/prepaid benefit cost.............................. $(17,108) $(15,783)
======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rates.............................................. 6.75% 7.0%
</TABLE>
For measurement purposes, an 8% and 9% annual rate of increase in the per
capita cost of covered medical benefits was assumed for 1998 and 1997
respectively. The rate was assumed to decrease gradually to 5% in 2002 and
remain at that level thereafter. A 6.5% annual rate of increase in the per
capita cost of covered dental benefits was assumed for 1998. The rate was
assumed to decrease gradually to 5% in 2001 and remain at that level thereafter.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ $ 975 $ 671 $ 837
Interest cost............................................... 1,082 1,139 1,419
Amortization of prior service cost.......................... 124 0 0
Recognized actuarial gain/(loss)............................ (78) (235) 408
------ ------- ------
Net periodic benefit cost................................... 2,103 1,575 2,664
Curtailment (gain).......................................... 0 (1,492) 0
------ ------- ------
Total benefit cost.......................................... $2,103 $ 83 $2,664
====== ======= ======
</TABLE>
F-20
<PAGE> 99
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects for 1998:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(In thousands)
<S> <C> <C>
Effect on total of service and interest cost
components........................................... $ 327 $ (274)
Effect on postretirement benefit obligation............ $2,209 $(1,882)
</TABLE>
14. OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Other income (expense), net consists of:
Interest and dividend income........................ $ 1,856 $ 898 $ 1,668
(Loss) on sale of accounts receivable (Note 4)...... (1,410) (1,358) (1,266)
Income (loss) from joint ventures................... (2,078) 1,335 1,336
Other -- net........................................ 210 123 (28)
------- ------- -------
Total other income (expense), net................... $(1,422) $ 998 $ 1,710
======= ======= =======
</TABLE>
15. TAXES BASED ON EARNINGS
Reconciliations between the U.S. federal income tax rate and the Company's
effective income tax rate as a percentage of earnings from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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............................................... 0.7 4.6 1.1
Non-deductible items, net................................... 0.6 2.3 0.1
Benefits of income subject to taxes at lower than the U.S.
federal rate.............................................. (18.3) (87.8) (7.4)
(Decrease) increase in valuation allowance.................. (4.2) 50.7 --
Other....................................................... -- -- (0.6)
----- ----- ----
Effective tax rate.......................................... 13.8% (65.2)% 28.2%
===== ===== ====
</TABLE>
F-21
<PAGE> 100
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the components of the net deferred tax assets
and liabilities recognized in the accompanying consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accrued costs related to disposal of discontinued
operations............................................. $ 983 $ 7,584
Inventories............................................... 8,495 11,647
Allowance for customer returns............................ 6,023 6,733
Postretirement benefits................................... 6,725 6,825
Allowance for doubtful accounts........................... 1,545 7,070
Accrued salaries and benefits............................. 3,347 4,125
Other..................................................... 12,361 8,540
Valuation allowance....................................... (14,171) (15,271)
-------- --------
Total..................................................... $ 25,308 $ 37,253
-------- --------
Deferred tax liabilities:
Depreciation.............................................. $ 4,032 $ 10,796
Promotional costs......................................... 1,054 1,610
Other..................................................... 4,330 5,966
-------- --------
Total............................................. 9,416 18,372
-------- --------
Net deferred tax assets................................... $ 15,892 $ 18,881
======== ========
</TABLE>
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. However, if the Company is unable to generate sufficient
taxable income in the future through its operations, increases in the valuation
allowance may be required.
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 $12,159,000 at the
end of 1998, $17,562,000 at the end of 1997 and $11,858,000 at the end of 1996.
Earnings from continuing operations, before income taxes, for foreign
operations (including Puerto Rico) amounted to approximately $19,000,000,
$16,000,000 and $14,000,000 in 1998, 1997 and 1996 respectively. Earnings of the
Puerto Rico subsidiary are not subject to United States income taxes, and 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 $.20 per share in 1998
(1997 -- $.26; 1996 -- $.27).
Foreign income taxes amounted to approximately $2,525,000, $2,136,000 and
$1,639,000 for 1998, 1997 and 1996, respectively.
16. INDUSTRY SEGMENT AND GEOGRAPHIC DATA
Under the provisions of SFAS No. 131, the Company has two reportable
operating segments which are the major product areas of the automotive
aftermarket in which the Company competes.
F-22
<PAGE> 101
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Engine Management Division consists primarily of ignition and
electrical parts, emission and engine controls, on-board computers, sensors,
ignition wires, battery cables, carburetor and fuel system parts. The
Temperature Control Division consists primarily of air conditioning compressors,
clutches, accumulators, filter/driers, blower motors, heater valves, heater
cores, evaporators, condensers, hoses and fittings. The accounting policies of
each segment are the same as those described in the summary of significant
accounting policies (see Note 1). The following tables contain financial
information for each reportable segment:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31, 1998
-----------------------------------------------------
ENGINE TEMPERATURE OTHER
MANAGEMENT CONTROL ADJUSTMENTS CONSOLIDATED
---------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales......................... $348,664 $297,144 $ 3,612 $649,420
Depreciation and amortization..... 10,068 4,473 2,733 17,274
Operating income.................. 32,243 19,672 (7,984) 43,931
Investment in equity affiliates... 105 516 4,077 4,698
Capital expenditures.............. 10,597 4,598 130 15,325
Total Assets...................... $311,716 $183,197 $26,643 $521,556
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31, 1997
-----------------------------------------------------
ENGINE TEMPERATURE OTHER
MANAGEMENT CONTROL ADJUSTMENTS CONSOLIDATED
---------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales......................... $365,824 $187,918 $ 6,081 $559,823
Depreciation and amortization..... 9,948 3,284 5,748 18,980
Operating income.................. 28,179 7,302 (26,026) 9,455
Investment in equity affiliates... 1,105 396 5,933 7,434
Capital expenditures.............. 9,679 3,138 2,780 15,597
Total Assets...................... $317,162 $107,406 $152,569 $577,137
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31, 1996
-----------------------------------------------------
ENGINE TEMPERATURE OTHER
MANAGEMENT CONTROL ADJUSTMENTS CONSOLIDATED
---------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales......................... $353,409 $156,423 $ 3,575 $513,407
Depreciation and amortization..... 7,960 2,160 6,206 16,326
Operating income.................. 43,149 13,712 (12,127) 44,734
Investment in equity affiliates... 1,144 -- 5,009 6,153
Capital expenditures.............. 12,024 6,461 2,904 21,389
Total Assets...................... $317,761 $120,912 $186,133 $624,806
-------- -------- -------- --------
</TABLE>
Other Adjustments consists of items pertaining to the corporate
headquarters function, a Canadian business unit that does not meet the criteria
of a reportable operating segment under SFAS No. 131 and businesses that have
been sold.
F-23
<PAGE> 102
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles the measure of profit used in the previous
disclosure to the Company's consolidated Earnings (loss) from continuing
operations before taxes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Operating income.................................... $43,931 $ 9,455 $44,734
Other income (expense).............................. (1,422) 998 1,710
Interest expense.................................... 16,419 14,158 13,091
------- ------- -------
Earnings (loss) from continuing operations before
taxes and minority interest....................... $26,090 $(3,705) $33,353
======= ======= =======
</TABLE>
GEOGRAPHIC INFORMATION FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
REVENUES
--------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
United States................................... $586,044 $493,823 $474,711
Canada.......................................... 25,513 25,748 24,470
Other Foreign................................... 37,863 40,252 14,226
-------- -------- --------
Total........................................... $649,420 $559,823 $513,407
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
LONG LIVED ASSETS
--------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
United States................................... $125,627 $126,854 $121,126
Canada.......................................... 3,719 8,615 17,377
Other Foreign................................... 19,290 21,229 22,833
-------- -------- --------
Total........................................... $148,636 $156,698 $161,336
======== ======== ========
</TABLE>
Revenues are attributed to countries based on the location of customer.
17. 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.
F-24
<PAGE> 103
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 CARRYING AMOUNT FAIR VALUE
- ----------------- --------------- ----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 23,457 $ 23,457
Marketable securities.................................. 7,200 7,200
Long-term debt......................................... (156,153) (143,938)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 CARRYING AMOUNT FAIR VALUE
- ----------------- --------------- ----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 16,809 $ 16,809
Marketable securities.................................. 7,200 7,200
Long-term debt......................................... (183,482) (175,053)
</TABLE>
18. COMMITMENTS AND CONTINGENCIES
Total rent expense for the three years ended December 31, 1998 was as
follows:
<TABLE>
<CAPTION>
TOTAL REAL ESTATE OTHER
----- ----------- -----
(In thousands)
<S> <C> <C> <C>
1998................................................. $5,747 $3,619 $2,128
1997................................................. $7,437 $4,593 $2,844
1996................................................. $6,568 $3,244 $3,324
</TABLE>
At December 31, 1998, 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:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1999........................................................ $ 4,525
2000........................................................ 3,288
2001........................................................ 3,233
2002........................................................ 2,407
2003........................................................ 1,844
Thereafter.................................................. 3,644
-------
$18,941
=======
</TABLE>
At December 31, 1998, the Company had outstanding letters of credit
aggregating approximately $2,300,000. 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.
F-25
<PAGE> 104
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
QUARTER ENDED 1998 1998 1998 1998
------------- -------- --------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net Sales................................... $113,316 $201,293 $208,766 $126,045
Gross Profit................................ 36,352 62,408 63,072 43,790
Earnings from continuing operations......... 1,391 9,574 8,639 2,653
Earnings (loss) from discontinued
operations................................ -- -- -- --
Net Earnings................................ 1,391 9,574 8,639 2,653
Net Earnings from continuing operations per
common share:
Basic....................................... $ .11 $ .73 $ .66 $ .20
Diluted..................................... .11 .72 .65 .20
Net Earnings per common share:
Basic....................................... $ .11 $ .73 $ .66 $ .20
Diluted..................................... .11 .72 .65 .20
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
QUARTER ENDED 1997 1997 1997 1997
------------- -------- --------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net Sales................................... $103,662 $155,246 $163,181 $137,734
Gross Profit................................ 32,512 49,938 53,458 43,580
Earnings (loss) from continuing
operations................................ (13,967) 6,917 5,571 (141)
Earnings (loss) from discontinued
operations................................ (34,057) 1,000 947 (794)
Net Earnings (loss)......................... $(48,024) $ 7,917 $ 6,518 $ (935)
======== ======== ======== ========
Net Earnings (loss) from continuing
operations per common share:
Basic....................................... $ (1.07) $ .53 $ .42 $ (.01)
Diluted..................................... (1.07) .53 .42 (.01)
Net Earnings (loss) per common share:
Basic....................................... $ (3.67) $ .60 $ .50 $ (.07)
Diluted..................................... (3.67) .60 .50 (.07)
</TABLE>
The fourth quarter of 1997 reflects several unfavorable year-end
adjustments including a $10,500,000 increase in bad debt expense for continuing
operations and a $2,500,000 increase in bad debt expense for discontinued
operations related to the bankruptcy filing of a significant customer, APS,
Inc., a $3,000,000 provision for severance payments related to personnel
reductions, and the estimated loss on disposal of $27,000,000 associated with
the Brake and Service Line businesses (see Note 3).
F-26
<PAGE> 105
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUBSEQUENT EVENTS (UNAUDITED)
In January 1999, the Company acquired through its European subsidiary
Standard Motor Products Holding Ltd., 85% of the stock of Webcon UK Ltd., and
acquired through its United Kingdom-based joint venture Blue Streak Europe Ltd.,
Webcon's affiliate Injection Correction UK Ltd. The total acquisition price
amounted to approximately $3,500,000 and was funded from the Company's operating
cash flow.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $13,400,000. Located in Fort Worth, Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket. The acquisition was funded from operating cash and
short term borrowings.
F-27
<PAGE> 106
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED MARCH 31,
------------------------------------
1999 1998
---- ----
(Dollars in thousands, except share
and per share data)
<S> <C> <C>
Net sales................................................... $ 176,789 $ 126,045
Cost of sales............................................... 123,569 82,255
----------- -----------
Gross profit.............................................. 53,220 43,790
Selling, general and administrative expenses................ 44,432 37,505
----------- -----------
Operating income.......................................... 8,788 6,285
Other income (expense) -- net............................... (313) 232
----------- -----------
Earnings before interest, taxes and minority interest..... 8,475 6,517
Interest expense............................................ 3,441 3,375
----------- -----------
Earnings before taxes and minority interest................. 5,034 3,142
Minority interest........................................... (138) (118)
Income taxes (Note 4)....................................... 1,248 371
----------- -----------
Net earnings................................................ 3,648 2,653
----------- -----------
Retained earnings at beginning of period.................... 181,679 161,514
----------- -----------
185,327 164,167
Less: cash dividends for period............................. 1,051 --
----------- -----------
Retained earnings at end of period.......................... $ 184,276 $ 164,167
=========== ===========
PER SHARE DATA:
- ------------------------------------------------------------
Net earnings per common share:
Basic..................................................... $ 0.28 $ 0.20
Diluted................................................... 0.28 0.20
Dividends per common share.................................. $ 0.08 --
Average number of common shares............................. 13,087,650 13,076,695
Average number of common and dilutive common shares......... 13,183,235 13,139,017
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 107
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
ASSETS (Unaudited)
------ (Dollars in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,266 $ 23,457
Accounts and notes receivable -- net of allowance for
doubtful accounts and discounts of $6,586
(1998 -- $4,525) (Note 10)............................. 205,604 122,008
Inventories (Note 2)...................................... 193,247 174,092
Deferred income taxes..................................... 11,723 11,723
Prepaid expenses and other current assets................. 13,110 11,231
-------- --------
Total current assets.............................. 424,950 342,511
-------- --------
Property, plant and equipment, net of accumulated
depreciation (Note 3)..................................... 111,596 109,404
-------- --------
Goodwill, net............................................... 42,507 39,232
-------- --------
Other assets (Note 8)....................................... 31,124 30,409
-------- --------
Total assets...................................... $610,177 $521,556
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 60,350 $ 3,555
Current portion of long-term debt (Note 6)................ 32,705 22,404
Accounts payable.......................................... 65,803 48,414
Sundry payables and accrued expenses...................... 65,127 60,905
Accrued customer returns.................................. 23,673 16,296
Payroll and commissions................................... 11,126 12,613
-------- --------
Total current liabilities......................... 258,784 164,187
-------- --------
Long-term debt (Note 6)..................................... 123,091 133,749
-------- --------
Postretirement benefits other than pensions and other
accrued liabilities....................................... 18,806 18,595
-------- --------
Total liabilities................................. $400,681 $316,531
-------- --------
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 5 and 6):
Common stock -- par value $2.00 per share
Authorized -- 30,000,000 shares
Issued -- 13,324,476 shares in 1999 and 1998 (including
196,458 and 268,126 shares held as treasury shares in
1999 and 1998, respectively).......................... 26,649 26,649
Capital in excess of par value......................... 2,712 2,951
Retained earnings...................................... 184,276 181,679
Accumulated other comprehensive income (loss).......... 25 (516)
-------- --------
213,662 210,763
Less: treasury stock-at cost................................ 4,166 5,738
-------- --------
Total stockholders' equity........................ 209,496 205,025
-------- --------
Total liabilities and stockholders' equity........ $610,177 $521,556
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 108
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31,
-----------------------
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 3,648 $ 2,653
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization........................... 4,473 4,984
Change in assets and liabilities, net of effects from
acquisitions:
(Increase) decrease in accounts receivable, net......... (76,540) (13,710)
(Increase) decrease in inventories...................... (11,704) (317)
(Increase) decrease in other assets..................... (662) (705)
Increase (decrease) in accounts payable................. 14,203 5,375
Increase (decrease) in other current assets and
liabilities............................................ (1,857) (1,459)
Increase (decrease) in sundry payables and accrued
expenses............................................... 10,268 (2,920)
-------- --------
Net cash provided by (used in) operating activities....... (58,171) (6,099)
Cash flows from investing activities:
Capital expenditures, net of effects from acquisitions.... 3,764 (1,709)
-------- --------
Payments for acquisitions, net of cash acquired........... (15,499) --
-------- --------
Net cash provided by (used in) investing activities....... (19,263) (1,709)
Cash flows from financing activities:
Net borrowings under line-of-credit agreements............ 56,891 116
Principal payments of long-term debt...................... (416) (3,322)
Reduction of loan to ESOP................................. -- 1,665
Proceeds from exercise of employee stock options.......... 1,089 --
Purchase of treasury stock................................ (1,495) --
Dividends paid............................................ (1,051) --
-------- --------
Net cash provided by (used in) financing activities....... 55,018 (1,541)
Effect of exchange rate changes on cash..................... 225 88
-------- --------
Net increase (decrease) in cash............................. (22,191) (9,261)
Cash and cash equivalents at beginning of the period........ 23,457 16,809
-------- --------
Cash and cash equivalents at end of the period.............. $ 1,266 $ 7,548
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 3,733 $ 2,925
Income taxes............................................ $ (340) $ 1,131
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 109
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited financial information should be read in
conjunction with the consolidated financial statements, including the notes
thereto, for the year ended December 31, 1998.
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. The Company's investments in unconsolidated affiliates
are accounted for on the equity method. All significant inter-company items have
been eliminated.
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the entire year.
NOTE 2
INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Finished goods.............................................. $123,384 $120,108
Work in process............................................. 4,402 4,867
Raw materials............................................... 65,461 49,117
-------- --------
Total inventories......................................... $193,247 $174,092
======== ========
</TABLE>
NOTE 3
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Land, buildings and improvements............................ $ 64,042 $ 64,080
Machinery and equipment..................................... 88,926 88,282
Tools, dies and auxiliary equipment......................... 8,484 8,412
Furniture and fixtures...................................... 23,167 21,542
Leasehold improvements...................................... 5,682 5,130
Construction in progress.................................... 21,148 18,068
-------- --------
211,449 205,514
Less accumulated depreciation............................... 99,853 96,110
-------- --------
Total property, plant and equipment -- net................ $111,596 $109,404
======== ========
</TABLE>
F-31
<PAGE> 110
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4
The provision for taxes is less than the normal statutory rate primarily
because earnings of a subsidiary operating in Puerto Rico, amounting to
approximately $2,573,000 and $1,972,000 for the three months ended March 31,
1999 and 1998, respectively, are exempt from United States income taxes and are
partially exempt from Puerto Rican income taxes.
NOTE 5
The Company granted an option to purchase 1,000 shares of common stock in
February 1999, at the stock's fair market value at the time of issuance.
At March 31, 1999, 903,000 shares of authorized but unissued common stock
were reserved for issuance under the Company's stock option plans, of which
725,000 shares were subject to outstanding options. 349,000 of these outstanding
options were vested at March 31, 1999.
NOTE 6
LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Long-term debt consists of:
7.56% senior note payable................................... $ 73,000 $ 73,000
8.60% senior note payable................................... 37,143 37,143
10.22% senior note payable.................................. 21,500 21,500
Credit Facility ($17 Million Canadian)...................... 11,230 10,960
5.0% Notes Payable -- AlliedSignal.......................... 3,000 3,000
5.00% -- 8.8% Facilities.................................... 6,008 6,411
5.00% -- 10.5% Purchase Obligations......................... 2,666 2,833
Other....................................................... 1,249 1,306
-------- --------
155,796 156,153
Less current portion........................................ 32,705 22,404
-------- --------
Total noncurrent portion of long-term debt.................. $123,091 $133,749
======== ========
</TABLE>
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 $37,143,000 senior note agreement, the Company is
required to repay the loan in four equal annual installments from 1999 through
2002.
Under the terms of the $21,500,000 senior note agreement, the Company is
required to repay the loan in five varying annual installments beginning in
1999. Subject to certain restrictions, the Company may make prepayments without
premium.
Under the terms of the $17,000,000 CDN credit agreement, the Company is
required to repay the loan as follows: $7,000,000 CDN in 1999, $2,000,000 CDN in
2000 and 2001 and a final payment of $6,000,000 CDN in 2002. Subject to certain
restrictions, the Company can make prepayments without premium. The credit
agreement has various interest rate options.
F-32
<PAGE> 111
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the unsecured note agreement with AlliedSignal, the
Company is required to repay $2,000,000 in September 1999 with a final payment
of $1,000,000 due in 2000.
The Company holds a 73.4% equity interest in Standard Motor Products
Holdings Limited, formerly Intermotor Holdings Limited, which has various
existing credit facilities which mature by 2003.
The purchase obligations, due under agreements with municipalities, mature
in annual installments through 2003, and are secured by certain property, plant,
and equipment.
The senior note agreements contain restrictive covenants which require the
maintenance of defined levels of working capital, tangible net worth and
earnings and limit, among other items, investments, indebtedness and
distributions for the payment of dividends and the acquisition of capital stock.
NOTE 7
In January 1999, the Company acquired through its European subsidiary
Standard Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited,
and through its UK joint venture Blue Streak Europe Limited, Webcon's affiliate
Injection Correction UK Limited. The total acquisition price amounted to
approximately $3,500,000 and was funded from the Company's operating cash flow.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $13,400,000. Located in Fort Worth, Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket. The acquisition was funded from short term
borrowings.
These acquisitions have been accounted for as purchases, and resulted in
goodwill of $4,041,000 which is being amortized over its estimated useful life
of 15 years.
NOTE 8
Other assets primarily consist of certain held-to-maturity securities,
unamortized customer supply agreements, equity in joint ventures and pension
assets.
NOTE 9
Total comprehensive income was $4,189,000 and $2,419,000 for the three
month periods ended March 31, 1999 and 1998, respectively.
NOTE 10
The Company sells certain accounts receivable to its wholly-owned
subsidiary, SMP Credit Corp., a qualifying special-purpose corporation. On March
19, 1997, SMP Credit Corp., entered into a two year agreement whereby it can
sell up to a $25,000,000 undivided ownership interest in a designated pool of
certain of these eligible receivables. The Company has received an extension of
this agreement until June 30, 1999 while it completes negotiations on a three
year renewal with similar terms and conditions.
F-33
<PAGE> 112
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Weighted average common shares outstanding................ 13,087,650 13,076,695
Effect of dilutive securities -- options.................. 95,585 62,322
---------- ----------
Weighted average common equivalent shares outstanding
assuming dilution....................................... 13,183,235 13,139,017
========== ==========
</TABLE>
NOTE 12
The Company's two reportable operating segments, Engine Management and
Temperature Control, are the areas within the automotive aftermarket in which
the Company operates. The following tables contain financial information for
each reportable segment.
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------
1999 1998
---------------------- ----------------------
Operating Operating
Net Sales Income Net Sales Income
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Engine Management............................. $ 87,423 $ 7,572 $ 90,279 $10,798
Temperature Control........................... 91,304 7,385 37,008 2,435
Other Adjustments............................. (1,938) (6,169) (1,242) (6,948)
-------- ------- -------- -------
Consolidated................................ $176,789 $ 8,788 $126,045 $ 6,285
======== ======= ======== =======
</TABLE>
Other adjustments consist of items pertaining to the corporate headquarters
function and a Canadian business unit that does not meet the criteria of a
reportable segment.
The following table reconciles the measure of profit used in the previous
disclosure to the Company's consolidated Earnings Before Taxes:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating Income............................................ $8,788 $6,285
Other income (expense)...................................... (313) 232
Interest expense............................................ 3,441 3,375
------ ------
Earnings before taxes and minority interest............... $5,034 $3,142
====== ======
</TABLE>
F-34
<PAGE> 113
UNDERWRITING
The Company and the Underwriters named below have entered into an
Underwriting Agreement with respect to the Convertible Debentures being offered.
Subject to certain conditions, each Underwriter has severally agreed to purchase
the aggregate principal amount of Convertible Debentures indicated in the
following table:
<TABLE>
<CAPTION>
Principal
Amount
Underwriters of Debentures
------------ -------------
<S> <C>
Goldman, Sachs & Co. .......................................
Morgan Stanley & Co. Incorporated...........................
-----------
Total............................................. $75,000,000
===========
</TABLE>
If the Underwriters sell more Convertible Debentures than the total number
set forth in the table above, the Underwriters have an option exercisable for 30
days after the date of this Prospectus to buy up to an additional $11,250,000
principal amount of Convertible Debentures from the Company to cover such sales.
If any Convertible Debentures are purchased pursuant to this option, the
Underwriters will severally purchase the Convertible Debentures in approximately
the same proportion as set forth in the table above.
The Convertible Debentures sold by the Underwriters to the public will
initially be offered at the initial public offering price set forth on the cover
page of this Prospectus. Any Convertible Debentures sold by the Underwriters to
securities dealers may be sold at a discount from the initial public offering
price of up to % of the principal amount of the Convertible Debentures. Any
such securities dealers may resell any Convertible Debentures purchased from the
Underwriters to certain other brokers or dealers at a discount from the initial
public offering price of up to % of the principal amount of the Convertible
Debentures. If all of the Convertible Debentures are not sold at the initial
public offering price, the Underwriters may change the offering price and the
other selling terms.
The Company, its directors and its executive officers have agreed with the
Underwriters not to dispose of or hedge any securities of the Company which are
substantially similar to the shares of common stock or any securities which are
convertible or exchangeable into securities which are substantially similar to
the shares of common stock, except with the prior written consent of Goldman,
Sachs & Co. This agreement covers the period from the date of this Prospectus
through the date 90 days after the date of this Prospectus. This agreement does
not apply to any of our existing employee benefit plans.
The Convertible Debentures are a new issue of securities with no
established trading market. The Underwriters have advised the Company that the
Underwriters intend to make a market in the Convertible Debentures but are not
obligated to do so and may discontinue market making at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
Convertible Debentures.
In connection with the offering, the Underwriters may purchase and sell the
Convertible Debentures in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
aggregate principal amount of Convertible Debentures than they are required to
purchase in the offering by the Company. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the Convertible Debentures while the offering is
in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the
U-1
<PAGE> 114
Underwriters have repurchased Convertible Debentures sold by or for the account
of such Underwriter in stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Convertible Debentures and the Company's common
stock. As a result, the price of the Convertible Debentures and the Company's
common stock may be higher than the price that might otherwise exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected in the over-
the-counter market or otherwise.
Standard Motor Products estimates that its share of the total expenses of
the offering, excluding underwriting discounts and commissions, will be
approximately $ .
Standard Motor Products has agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
U-2
<PAGE> 115
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this Prospectus. You must
not rely on any unauthorized information or representations. This Prospectus is
an offer to sell or to buy only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this Prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 19
Price Range of Common Stock and
Dividend Policy..................... 20
Capitalization........................ 21
Selected Consolidated Financial
Data................................ 22
Ratio of Earnings to Fixed Charges.... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Industry.............................. 33
Business.............................. 38
Management............................ 52
Principal Shareholders................ 55
Description of Convertible
Debentures.......................... 58
Description of Capital Stock.......... 71
Certain Federal Tax Considerations.... 74
Legal Matters......................... 77
Experts............................... 77
Documents Incorporated by Reference... 78
Index to Consolidated Financial
Statements.......................... F-1
Underwriting.......................... U-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$75,000,000
STANDARD MOTOR PRODUCTS, INC.
% Convertible Subordinated
Debentures due 2009
------------------
LOGO
------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
------------------------------------------------------
------------------------------------------------------
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting compensation, are as
follows. All of such expenses will be paid for by the Company.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 23,978
Legal Fees and Expenses..................................... 125,000
Accounting Fees and Expenses................................ 150,000
Printing Fees............................................... 100,000
Miscellaneous............................................... 15,000
--------
Total............................................. $413,978
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In 1986 various Sections of Article 7 of the New York Business Corporation
Law (the "BCL") were amended to broaden the indemnification rights of directors,
officers and employees. In 1987, BCL Section 402(b) was further amended to
permit a provision to be included in a certificate of incorporation shielding
directors from personal liability for breach of their duties as directors. In
order to protect its directors, officers and employees, as applicable, to the
fullest extent permitted by these statutory amendments, the Company amended the
By-laws and Restated Certificate of Incorporation.
In general, the Company's Restated By-laws provide that, except to the
extent expressly prohibited by the BCL, the Company shall indemnify each person
made or threatened to be made a party to, or called as a witness in, or asked to
submit information in, any action or proceeding by reason of the fact that such
person is or was a director or officer of the Company, or serves or served, at
the request of the Company, any other entity 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. This indemnification requirement covers 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 shareholders' derivative action brought by
or on behalf of the Company or any other corporation or enterprise which the
director or officer of the Company serves or has served at the Company's
request. The By-laws prohibit indemnification 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 or 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. The By-laws further provide that no
indemnification shall be required with respect to any settlement or other
non-adjudicated disposition of any threatened or pending action or proceeding
unless the Company has given its prior consent to such settlement or other
disposition. The By-laws require the Company to advance or promptly reimburse
upon request any person entitled to indemnification 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 such
person to repay such amount if such person is ultimately not to be entitled to
indemnification; provided, however, that such person cooperates with any request
by the Company that counsel be utilized by the parties to an action or
proceeding similarly situated unless to do so would be inappropriate due to
actual or potential conflicts of interest.
II-1
<PAGE> 117
The Restated Certificate of Incorporation provides that the personal
liability of the directors of the Company be eliminated to the fullest extent
permitted by the provisions of BCL Section 402(b). It also provides that the
Company shall, to the fullest extent permitted by Article 7 of the BCL,
indemnify under that statute from and against any and all of the expenses,
liabilities or other matters covered by the statute. The By-Laws, summarized
above, contain the detailed terms and conditions under which this
indemnification requirement of the Restated Certificate of Incorporation is to
be effected.
The Company maintains an officers' and directors' liability insurance
policy insuring Company's officers and directors against certain liabilities and
expenses incurred by them in their capacities as such. The policy does not
reimburse the Company for indemnification obligations to its officers and
directors.
Additionally, the Underwriting Agreement provides that each Underwriter
shall indemnify each director of the Company, each officer of the Company who
signed the Registration Statement, and each person who controls the Company for
certain liabilities, including certain liabilities under the Securities Act of
1933.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
1 Form of Underwriting Agreement among Standard Motor
Products, Inc. and Goldman Sachs & Co. and Morgan Stanley &
Co. Incorporated as representatives of the several
underwriters
2.1 Asset Exchange Agreement dated as of March 28, 1998 among
SMP Motor Products, LTD., Standard Motor Products, Inc.,
Cooper Industries (Canada) Inc., Moog Automotive Company and
Moog Automotive Products, Inc. (incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K dated
March 28, 1998)
3.1 Restated Certificate of Incorporation, dated July 31, 1990
(incorporated by reference to Exhibit 4.2 of Registrant's
Report on Form S-8 dated May 1, 1998 (333-51565))
3.2 Certificate of Amendment to the Certificate of
Incorporation, dated February 15, 1996 (incorporated by
reference to Exhibit 4.3 of Registrant's Report on Form S-8
dated May 1, 1998 (333-51565))
3.3 Restated By-Laws dated May 23, 1996 (incorporated by
reference to Exhibit 3.4 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996)
4.1 Form of Subordinated Debenture Indenture (including form of
convertible debenture)
4.2 Registration of Preferred Share Purchase Rights
(incorporated by reference to Registrant's Report on Form
8-A dated February 29, 1996)
5 Opinion of Kelley Drye & Warren LLP, special counsel to
Standard Motor Products, Inc.
10.1** 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
</TABLE>
II-2
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
10.2** 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
10.3 Employee Stock Ownership Plan and Trust dated January 1,
1989
10.4 Supplemental Executive Retirement Plan dated August 15, 1994
(incorporated by reference to Exhibit A of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994)
10.5 1994 Omnibus Stock Option Plan of Standard Motor Products,
Inc., as amended (incorporated by reference to Exhibit 4.1
of Registrant's Registration Statement on Form S-8 dated May
1, 1998 (333-51565))
10.6 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 (incorporated by reference to Exhibit 10
of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995)
10.7 Limited Waiver and First Amendment to Note Agreement, dated
as of September 30, 1996, amending the Note Agreement
between the Registrant and Principal 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
(incorporated by reference to Exhibit 10.15 of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.8 Limited Waiver and Second Amendment to Note Agreement, dated
as of November 22, 1996, amending the Note Agreement between
the Registrant and Principal 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 (incorporated by
reference to Exhibit 10.16 of Registrant's annual report on
Form 10-K for the year ended December 31, 1996)
10.9 Independent Directors', Stock Option Plan of Standard Motors
Products, Inc. (incorporated by reference to Exhibit 10.17
of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.10 Override and Amendment Agreement of March 27, 1998 amending
the Note Agreement between the Registrant and the American
United Life Insurance Company, the Great American Life
Insurance Company, the Jefferson-Pilot Life Insurance
Company, the Ohio National Life Insurance Company, the Crown
Insurance Company, the Great-West Life Insurance Company,
the Security Mutual Life Insurance Company, Woodmen Accident
and Life Insurance Company and Nomura Holding America, Inc.
dated October 15, 1989 (incorporated by reference to Exhibit
10.17 of Registrant's Current Report on Form 8-K dated March
28, 1998)
10.11 Override and Amendment Agreement of March 27, 1998 amending
the Note Agreement 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 dated November 15, 1992 (incorporated by
reference to Exhibit 10.18 of Registrant's Current Report on
Form 8-K dated March 28, 1998)
</TABLE>
II-3
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
10.12 Override and Amendment Agreement of March 27, 1998 amending
the Note Agreement 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 dated
December 1, 1995 (incorporated by reference to Exhibit 10.19
of Registrant's Current Report on Form 8-K dated March 28,
1998)
10.13 Credit Agreement dated November 30, 1998 among Registrant,
Chase Manhattan Bank and Canadian Imperial Bank of Commerce
(incorporated by reference to Exhibit 10.17 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1998)
10.14 Form of First Amendment dated as of December 8, 1998, to the
Credit Agreement, dated as of November 30, 1998, among
Standard Motor Products, Inc., the Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce
10.15 Form of Second Amendment dated as of July 16, 1999, to the
Credit Agreement, dated as of November 30, 1998, among
Standard Motor Products, Inc., the Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce
12* Statement relating to Computation of Ratios
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Kelley Drye & Warren LLP (contained in their
opinion filed as Exhibit 5 hereto)
24* Powers of Attorney of Directors and Certain Officers of
Standard Motor Products, Inc.
25 Statement of Eligibility of the Trustee
27 Financial Data Schedule for 1998 (incorporated by reference
to Exhibit 27 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998)
</TABLE>
- ---------------
* Filed on May 24, 1999 as the same numbered exhibit to the initial filing of
the Registration Statement on Form S-3 (333-79177).
** Filed on July 9, 1999 as the same numbered exhibit to Amendment No. 1 to the
Registration Statement on Form S-3 (333-79177).
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act reliance upon
Rule 430A and contained in a form of prospectus filed by the
II-4
<PAGE> 120
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
C. The Registrant hereby undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report, to security holders that is incorporated by reference in
the prospectus is sent or given, that latest annual report, to security holders
that is incorporated by reference in the prospectus and furnished pursuant to an
meeting the requirements or Rule 14a-3 or Rule 14c-3 under the Exchange Act;
and, where interim financial information required to be presented by Article 3
or Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
directors, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Long Island City, State
of New York, on July 20, 1999.
STANDARD MOTOR PRODUCTS, INC.
By: /s/ LAWRENCE I. SILLS
------------------------------------
Lawrence I. Sills
President, Director and Chief
Operating Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ LAWRENCE I. SILLS President, Director and Chief Operating July 20, 1999
- ------------------------------------------ Officer (Principal Executive Officer)
Lawrence I. Sills
* Senior Vice President, Administration July 20, 1999
- ------------------------------------------ and Finance, Chief Financial Officer
Michael J. Bailey (Principal Financial Officer)
* Director of Finance (Chief Accounting July 20, 1999
- ------------------------------------------ Officer)
James J. Burke
* Chairman, Director July 20, 1999
- ------------------------------------------
Nathaniel L. Sills
* Director July 20, 1999
- ------------------------------------------
Marilyn F. Cragin
* Director July 20, 1999
- ------------------------------------------
Arthur D. Davis
* Director July 20, 1999
- ------------------------------------------
Robert J. Swartz
* Director July 20, 1999
- ------------------------------------------
William H. Turner
* Director July 20, 1999
- ------------------------------------------
Susan F. Davis
* Director July 20, 1999
- ------------------------------------------
Robert M. Gerrity
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Director July 20, 1999
- ------------------------------------------
John L. Kelsey
* Director July 20, 1999
- ------------------------------------------
Andrew M. Massimilla
* Director July 20, 1999
- ------------------------------------------
Arthur S. Sills
By: /s/ LAWRENCE I. SILLS
- -----------------------------------------
Lawrence I. Sills,
Attorney-in-Fact
</TABLE>
<PAGE> 123
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement among Standard Motor
Products, Inc. and Goldman Sachs & Co. and Morgan Stanley &
Co. Incorporated as representatives of the several
underwriters
2.1 Asset Exchange Agreement dated as of March 28, 1998 among
SMP Motor Products, LTD., Standard Motor Products, Inc.,
Cooper Industries (Canada) Inc., Moog Automotive Company and
Moog Automotive Products, Inc. (incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K dated
March 28, 1998)
3.1 Restated Certificate of Incorporation, dated July 31, 1990
(incorporated by reference to Exhibit 4.2 of Registrant's
Report on Form S-8 dated May 1, 1998 (333-51565))
3.2 Certificate of Amendment to the Certificate of
Incorporation, dated February 15, 1996 (incorporated by
reference to Exhibit 4.3 of Registrant's Report on Form S-8
dated May 1, 1998 (333-51565))
3.3 Restated By-Laws dated May 23, 1996 (incorporated by
reference to Exhibit 3.4 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996)
4.1 Form of Subordinated Debenture Indenture (including form of
convertible debenture)
4.2 Registration of Preferred Share Purchase Rights
(incorporated by reference to Registrant's Report on Form
8-A dated February 29, 1996)
5 Opinion of Kelley Drye & Warren LLP, special counsel to
Standard Motor Products, Inc.
10.1** 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
10.2** 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
10.3 Employee Stock Ownership Plan and Trust dated January 1,
1989
10.4 Supplemental Executive Retirement Plan dated August 15, 1994
(incorporated by reference to Exhibit A of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994)
10.5 1994 Omnibus Stock Option Plan of Standard Motor Products,
Inc., as amended (incorporated by reference to Exhibit 4.1
of Registrant's Registration Statement on Form S-8 dated May
1, 1998 (333-51565))
10.6 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 (incorporated by reference to Exhibit 10
of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995)
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.7 Limited Waiver and First Amendment to Note Agreement, dated
as of September 30, 1996, amending the Note Agreement
between the Registrant and Principal 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
(incorporated by reference to Exhibit 10.15 of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.8 Limited Waiver and Second Amendment to Note Agreement, dated
as of November 22, 1996, amending the Note Agreement between
the Registrant and Principal 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 (incorporated by reference to
Exhibit 10.16 of Registrant's annual report on Form 10-K for
the year ended December 31, 1996)
10.9 Independent Directors' Stock Option Plan of Standard Motors
Products, Inc. (incorporated by reference to Exhibit 10.17
of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.10 Override and Amendment Agreement of March 27, 1998 amending
the Note Agreement between the Registrant and the American
United Life Insurance Company, the Great American Life
Insurance Company, the Jefferson-Pilot Life Insurance
Company, the Ohio National Life Insurance Company, the Crown
Insurance Company, the Great-West Life Insurance Company,
the Security Mutual Life Insurance Company, Woodmen Accident
and Life Insurance Company and Nomura Holding America, Inc.
dated October 15, 1989 (incorporated by reference to Exhibit
10.17 of Registrant's Current Report on Form 8-K dated March
28, 1998)
10.11 Override and Amendment Agreement of March 27, 1998 amending
the Note Agreement 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 dated November 15, 1992 (incorporated by
reference to Exhibit 10.18 of Registrant's Current Report on
Form 8-K dated March 28, 1998)
10.12 Override and Amendment Agreement of March 27, 1998 amending
the Note Agreement 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 dated
December 1, 1995 (incorporated by reference to Exhibit 10.19
of Registrant's Current Report on Form 8-K dated March 28,
1998)
10.13 Credit Agreement dated November 30, 1998 among Registrant,
Chase Manhattan Bank and Canadian Imperial Bank of Commerce
(incorporated by reference to Exhibit 10.17 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1998)
10.14 Form of First Amendment, dated as of December 8, 1998, to
the Credit Agreement, dated as of November 30, 1998, among
Standard Motor Products, Inc., the Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce.
10.15 Form of Second Amendment, dated as of July 16, 1999, to the
Credit Agreement, dated as of November 30, 1998, among
Standard Motor Products, Inc., the Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce.
12* Statement relating to Computation of Ratios
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Kelley Drye & Warren LLP (contained in their
opinion filed as Exhibit 5 hereto)
24* Powers of Attorney of Directors and Certain Officers of
Standard Motor Products, Inc.
25 Statement of Eligibility of the Trustee
27 Financial Data Schedule for 1998 (incorporated by reference
to Exhibit 27 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998).
</TABLE>
- ---------------
* Filed on May 24, 1999 as the same numbered exhibit to the initial filing of
the Registration Statement on Form S-3 (333-79177).
** Filed on July 9, 1999 as the same numbered exhibit to Amendment No. 1 to the
Registration Statement on Form S-3 (333-79177).
<PAGE> 1
================================================================================
UNDERWRITING AGREEMENT
BY and AMONG
STANDARD MOTOR PRODUCTS, INC.
and
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO. INCORPORATED
DATED
July __, 1999
================================================================================
<PAGE> 2
STANDARD MOTOR PRODUCTS, INC.
__ % CONVERTIBLE SUBORDINATED DEBENTURES DUE 2009
----------
UNDERWRITING AGREEMENT
July __, 1999
Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Standard Motor Products, Inc., a New York corporation (the "COMPANY"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "UNDERWRITERS") an aggregate
of $75,000,000.00 principal amount of the _____% Convertible Subordinated
Debentures due 2009, convertible into common stock, par value $2.00 per share
("STOCK"), of the Company, specified above (the "FIRM SECURITIES") and, at the
election of the Underwriters, up to an aggregate of $11,250,000.00 additional
aggregate principal amount (the "OPTIONAL SECURITIES") (the Firm Securities and
the Optional Securities which the Underwriters elect to purchase pursuant to
Section 2 hereof are herein collectively called the "SECURITIES").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-79177) (the
"INITIAL REGISTRATION STATEMENT") in respect of the Securities and shares
of the Stock issuable upon conversion thereof has been filed with the
Securities and Exchange Commission (the "COMMISSION"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto but
including all documents incorporated by reference in the prospectus
contained therein, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size of
the offering (a "RULE 462(B) REGISTRATION STATEMENT"), filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended (the "ACT"),
which became effective upon filing, no other document with respect to the
Initial Registration Statement or document incorporated by reference
therein has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "PRELIMINARY
PROSPECTUS"; the various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any, including all exhibits
thereto but excluding Form T-1 and including (i) the information contained
in the form of final prospectus filed with the Commission
1
<PAGE> 3
pursuant to Rule 424(b) under the Act in accordance with Section 5(a)
hereof and deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective and
(ii) the documents incorporated by reference in the prospectus contained
in the Initial Registration Statement at the time such part of the Initial
Registration Statement became effective, each as amended at the time such
part of the Initial Registration Statement became effective or such part
of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "REGISTRATION
STATEMENT"; such final prospectus, in the form first filed pursuant to
Rule 424(b) under the Act, is hereinafter called the "PROSPECTUS"; and any
reference herein to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Act, as of the date of
such Preliminary Prospectus or Prospectus, as the case may be; any
reference to any amendment or supplement to any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include any documents filed
after the date of such Preliminary Prospectus or Prospectus, as the case
may be, under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section 13(a)
or 15(d) of the Exchange Act after the effective date of the Initial
Registration Statement that is incorporated by reference in the
Registration Statement);
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the Trust Indenture Act of
1939, as amended (the "TRUST INDENTURE ACT"), and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement
thereto, when such documents become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(d) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all
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<PAGE> 4
material respects to the requirements of the Act and the Trust Indenture
Act and the rules and regulations of the Commission thereunder and do not
and will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto and as of the applicable filing date
as to the Prospectus and any amendment or supplement thereto, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(e) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or change
in excess of $__ million of long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general
affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus;
(f) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any material real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(g) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of New York,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(h) The Company and its subsidiaries are qualified to do business
and in good standing in each of the jurisdictions listed under their
respective names on Schedule II attached hereto. The jurisdictions listed
on Schedule II attached hereto are the jurisdictions in which failure to
be so qualified or in good standing would have a material adverse effect
on the financial condition, business or results of operations of the
Company and its subsidiaries taken as a whole;
(i) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(j) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable; the shares of Stock initially issuable upon
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<PAGE> 5
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture referred to below, will
be duly and validly issued, fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus; and all of
the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares and except as
otherwise set forth in the Prospectus) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(k) The Securities have been duly authorized and, when issued and
delivered, against payment therefor, pursuant to this Agreement, will have
been duly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of the Company entitled
to the benefits provided by the indenture to be dated as of __________,
1999 (the "INDENTURE") between the Company and HSBC Bank USA, as Trustee
(the "TRUSTEE"), under which they are to be issued, which will be
substantially in the form filed as an exhibit to the Registration
Statement; the Indenture has been duly authorized and duly qualified under
the Trust Indenture Act and, when executed and delivered by the Company
and the Trustee, will constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; and the Securities and the Indenture will conform to
the descriptions thereof in the Prospectus;
(l) The issue and sale of the Securities and the compliance by the
Company with all of the provisions of the Securities, the Indenture and
this Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other material
agreement or material instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any
of its subsidiaries is subject, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws
of the Company or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or with
any such court or governmental agency or body is required for the issue
and sale of the Securities or the consummation by the Company of the
transactions contemplated by this Agreement or the Indenture, except the
registration under the Act of the Securities and the shares of Stock
issuable upon conversion thereof, such as have been obtained under the
Trust Indenture Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriters;
(m) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws. Neither the Company nor
any of its subsidiaries is in default in the performance or observance of
any material obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties
may be bound, except for any such violations as would not have a material
adverse effect on the financial condition, business or results of
operations of the Company and its subsidiaries taken as a whole;
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<PAGE> 6
(n) The statements set forth in the Prospectus under the caption
"Description of Convertible Debentures", "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Certain Federal Tax
Considerations" and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair in all material respects;
provided, however, that this representation and warranty shall not apply
to any statements made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(o) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(p) The Company is not and, after giving effect to the offering and
sale of the Securities, will not be an "investment company," as such term
is defined in the Investment Company Act of 1940, as amended (the
"INVESTMENT COMPANY ACT");
(q) Each subsidiary listed on Schedule III attached hereto is
material to the financial condition, business or results of operation of
the Company (each, a "MATERIAL SUBSIDIARY");
(r) The agreements set forth on Schedule IV attached hereto are the
agreements that are material to the financial condition, business or
results of operation of the Company and its Subsidiaries, taken as a whole
(each, a "MATERIAL CONTRACT");
(s) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(t) KPMG LLP, who have certified certain financial statements of the
Company and its subsidiaries are independent public accountants as
required by the Act and the rules and regulations of the Commission
thereunder; and
(u) The Company has reviewed its operations and that of its
subsidiaries and has spoken with any third parties with which the Company
or any of its subsidiaries has a material relationship to evaluate the
extent to which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of
such review to date and except as described in or contemplated by the
Prospectus, the Company has no reason to believe, and does not believe,
that the Year 2000 Problem will have a material adverse effect on the
general affairs, management, the current or future consolidated financial
position, business prospects, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT"), or result in any material loss or interference
with the Company's business or operations, taken as a whole. The "Year
2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of
data or in the operation of mechanical or electrical systems will not, in
the case of dates or time periods
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<PAGE> 7
occurring after December 31, 1999, function at least as effectively as in
the case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price of ____% of the principal amount thereof, plus accrued
interest, if any, from __________, 1999 to the Time of Delivery hereunder, the
principal amount of Securities set forth opposite the name of such Underwriter
in Schedule I hereto, and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Securities as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the same purchase price set forth in clause (a) of
this Section 2, that portion of the aggregate principal amount of the Optional
Securities as to which such election shall have been exercised (to be adjusted
by you so as to eliminate fractions of $_________; determined by multiplying
such aggregate principal amount of Optional Securities by a fraction, the
numerator of which is the maximum aggregate principal amount of Optional
Securities which such Underwriter is entitled to purchase as set forth opposite
the name of such Underwriter in Schedule I hereto and the denominator of which
is the maximum aggregate principal amount of Optional Securities which all of
the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to $11,250,000.00 aggregate principal amount of Optional
Securities, at the purchase price of ___% of the principal amount thereof, for
the sole purpose of covering overallotments in the sale of Firm Securities. Any
such election to purchase Optional Securities may be exercised by written notice
from you to the Company, given within a period of 30 calendar days after the
date of this Agreement, setting forth the aggregate principal amount of Optional
Securities to be purchased and the date on which such Optional Securities are to
be delivered, as determined by you but in no event earlier than the First Time
of Delivery (as defined in Section (4) hereof) or, unless you and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
3. Upon the authorization by you of the release of the Firm Securities,
the Underwriters propose to offer the Firm Securities for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Securities to be purchased by each Underwriter hereunder
will be represented by one or more definitive global Securities in book-entry
form which will be deposited by or on behalf of the Company with The Depository
Trust Company ("DTC") or its designated custodian. The Company will deliver the
Securities to Goldman, Sachs & Co., for the account of each Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer of Federal (same-day) funds to the account specified by the
Company to Goldman, Sachs & Co. at least forty-eight hours in advance, by
causing DTC to credit the Securities to the account of Goldman, Sachs & Co. at
DTC. The Company will cause the certificate(s) representing the Securities to be
made available to Goldman, Sachs & Co. for checking at least twenty-four hours
prior to the Time of Delivery (as defined below) at the office of Latham &
Watkins, 885 Third Avenue, 10th Floor, New York, New York 10022 (the "CLOSING
LOCATION"). The time and date of such delivery and payment shall be, with
respect to the Firm Securities, 9:30 a.m., New York City time, on __________,
1999 or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing, and, with respect to the Optional Securities, 9:30 a.m.,
New York City time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase
such Optional Securities, or such other time and date as Goldman, Sachs & Co.
and the Company may agree upon in writing. Such time and date for delivery of
the Firm Securities is herein called the "FIRST TIME OF DELIVERY", such time and
date for delivery of the Optional Securities, if not the First Time of Delivery,
is
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<PAGE> 8
herein called the "SECOND TIME OF Delivery", and each such time and date for
delivery is herein called a "TIME OF DELIVERY".
(b) The documents and Securities to be delivered at the Time of Delivery
by or on behalf of the parties hereto pursuant to Section 7 hereof, including
the cross-receipt for the Securities and any additional documents requested by
the Underwriters pursuant to Section 7(j) hereof, will be delivered at the
offices of Latham & Watkins. A meeting will be held at the Closing Location at
5:00 p.m., New York City time, on the New York Business Day next preceding the
Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "NEW YORK BUSINESS DAY"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York City are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to such Time of
Delivery which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you with copies thereof; to file promptly all reports and
any definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or sale of
the Securities; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Securities or the shares of Stock
issuable upon conversion of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, to promptly use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Securities and the shares of Stock issuable upon
conversion of the Securities for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Securities,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine (9) months after the time of issue
of the Prospectus in connection with the offering or sale of the Securities and
the shares of Stock issuable upon conversion of the Securities and if at such
time any event shall have occurred as a result of which
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<PAGE> 9
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such same period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Act, the Exchange Act or
the Trust Indenture Act, to notify you and upon your request to file such
document and to prepare and furnish without charge to each Underwriter and to
any dealer in securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance; and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Securities and the shares of Stock issuable upon conversion of the
Securities at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c)), an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to and
including the date ninety (90) days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to the
Securities or the Stock, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans, employee stock ownership plans or other employee
plans of a similar nature existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement, [or up to [100,000] shares of stock, or securities convertible into
or exchangeable for up to [100,000] shares of stock, issued in condition with
any merger or acquisition announced after the date of the Prospectus)], without
your prior written consent;
(f) To furnish to the holders of the Securities as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders generally as such,
and to deliver to you (i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or any
national securities exchange on which the Securities or any class of securities
of the Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to time
reasonably request (such financial statements to be on a consolidated basis to
the extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission), except to
the extent such additional information is of a confidential nature, as
reasonably determined by the Company;
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<PAGE> 10
(h) To use the net proceeds received by it from the sale of the Securities
pursuant to this Agreement substantially in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act;
(j) To reserve and keep available at all times, free of preemptive rights,
shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Stock upon conversion of the Securities; and
(k) To use its best efforts to list, subject to notice of issuance, the
shares of Stock issuable upon conversion of the Securities on the New York Stock
Exchange (the "EXCHANGE").
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Securities and the shares of Stock issuable upon conversion
of the Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriters and dealers; (ii)
the cost of printing or producing any Agreement among Underwriters, this
Agreement, the Indenture, the Blue Sky Memoranda, closing documents (including
any compilations thereof) and any other documents in connection with the
offering, purchase, sale and delivery of the Securities; (iii) all expenses in
connection with the qualification of the Securities and the shares of Stock
issuable upon conversion of the Securities for offering and sale under state
securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky surveys provided that such
fees, exclusive of disbursements, shall not exceed $10,000; (iv) if applicable,
any fees charged by securities rating services for rating the Securities; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, any required review by the National Association
of Securities Dealers, Inc. of the terms of the sale of the Securities; (vi) the
cost of preparing the Securities; (vii) the fees and expenses of the Trustee and
any agent of the Trustee and the fees and disbursements of counsel for the
Trustee in connection with the Indenture and the Securities; and (viii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 8
and 11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the
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<PAGE> 11
date of this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction;
(b) Latham & Watkins, counsel for the Underwriters, shall have furnished
to you such written opinion or opinions, dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (vii), (viii), (ix),
(x), (xiii) (xvi) and (xvii) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Kelley Drye & Warren LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(a) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of New York,
with corporate power and authority to own and/or lease its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; and the shares of Stock initially issuable upon
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture, will be duly and
validly issued and fully paid and non-assessable, and will conform in all
material respects to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of
each jurisdiction listed with respect to the Company on Schedule II (such
counsel being entitled to rely in respect of the opinion in this clause
upon opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company, provided that such counsel shall
state that they believe that both you and they are justified in relying
upon such opinions and certificates);
(iv) Each Material Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such Material Subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares and except as otherwise set forth
in the Prospectus) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries, provided that
such counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(v) To such counsel's knowledge and other than as set forth in the
Prospectus (including any documents incorporated by reference therein),
there are no legal or governmental proceedings pending against the Company
or any of its subsidiaries or of which any property of the Company or any
of its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, could reasonably be expected to,
individually or in the
10
<PAGE> 12
aggregate, have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and, to
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The Securities delivered by the Company at the Time of
Delivery have been duly authorized, and will be, when issued and delivered
against payment therefor in accordance with this Agreement, validly
issued, and authenticated and constitute valid and legally binding
obligations of the Company entitled to the benefits provided by the
Indenture; and the Securities and the Indenture conform in all material
respects to the descriptions thereof in the Prospectus;
(viii) The Indenture has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution
and delivery thereof by the Trustee) constitutes a valid and legally
binding instrument, enforceable against the Company in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and the
Indenture has been duly qualified under the Trust Indenture Act;
(ix) The issue and sale of the Securities being issued at such Time
of Delivery and the compliance by the Company with the provisions of the
Securities, the Indenture and this Agreement and the consummation of the
transactions herein and therein contemplated will not, to such counsel's
knowledge, conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any Material
Contract listed on Schedule IV attached hereto, nor will such actions
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties;
(x) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities being issued at such
Time of Delivery or the consummation by the Company of the transactions
contemplated by this Agreement or the Indenture, except such as have been
obtained under the Act and the Trust Indenture Act, such as may be
required under the Act or by the National Association of Securities
Dealers, Inc. in connection with the shares of Stock issuable upon
conversion of the Securities and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Securities by the Underwriters;
(xi) Neither the Company nor any of its Material Subsidiaries is
in violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, covenant or
condition contained in any Material Contract to which it is a party or by
which it or any of its properties may be bound;
(xii) The statements set forth in the Prospectus under the caption
"Description of Convertible Debentures" "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Certain Federal Tax
Considerations", and under the caption "Underwriting", insofar as they
purport to describe the
11
<PAGE> 13
provisions of the laws and documents referred to therein, are accurate and
complete in all material respects;
(xiii) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(xiv) The documents incorporated by reference in the Prospectus or
any further amendment or supplement thereto made by the Company prior to
the Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion), when
they became effective or were filed with the Commission, as the case may
be, complied as to form in all material respects with the requirements of
the Act or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder; and they have no reason to believe that any
of such documents, when such documents became effective or were so filed,
as the case may be, contained, in the case of a registration statement
which became effective under the Act, an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or, in the case
of other documents which were filed under the Act or the Exchange Act with
the Commission, an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such documents
were so filed, not misleading;
(xv) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act and the
Trust Indenture Act and the rules and regulations thereunder; and
(xvii) To such counsel's knowledge, there are no amendments to the
Registration Statement required to be filed or any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be incorporated by reference into
the Prospectus or required to be described in the Registration Statement
or the Prospectus which are not filed or incorporated by reference or
described as required (it being understood that such counsel expresses no
opinion as to the financial statements and related schedules and other
financial data therein);
In rendering such opinion, such counsel shall state further that
although they do not assume any responsibility for the accuracy or
completeness of the statements contained in the Registration Statement or
the Prospectus, except for those referred to in the opinion in subsection
(xiii) of this Section 7(c), nothing has come to their attention that
leads them to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and other financial data therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as of its
date, the Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the Registration
Statement or the Prospectus or any further amendment or supplement
12
<PAGE> 14
thereto made by the Company prior to such Time of Delivery (other than the
financial statements and related schedules and other financial data
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
In rendering such opinion, Kelley Dry & Warren LLP may rely as to factual
matters upon certificates of officers of the Company and its subsidiaries; and
as to matters involving good standing, authorization to do business and other
matters within their knowledge, upon certificates of public officials and as to
all matters governed by laws other than the State of New York, the General
Corporation Law of Delaware and the federal laws of the United States, on
opinions satisfactory to you.
(d) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG LLP shall have
furnished to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto (the executed copy of the letter delivered prior to the execution
of this Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective amendment to
the Registration Statement and as of each Time of Delivery is attached as Annex
I(b) hereto");
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or change
in excess of $__ million of long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities being issued at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities by any "nationally recognized
statistical rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the New York Stock
Exchange; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York State authorities; (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this Clause; (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities being issued at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus; or (v) the occurrence of any material
13
<PAGE> 15
adverse change in the existing, financial, political or economic conditions in
the United States or elsewhere which, in the judgment of the Representatives,
would materially and adversely affect the financial markets or the markets for
the Securities and other debt securities or the market for any equity
securities;
(h) The shares of Stock issuable upon conversion of the Securities shall
have been duly listed, subject to notice of issuance, on the Exchange;
(i) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(j) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
14
<PAGE> 16
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by each party to this agreement from the offering of the Securities. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of each party to this agreement in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company, the total underwriting discount and
commissions payable to the Underwriters as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to
15
<PAGE> 17
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Securities which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Securities on
the terms contained herein at a Time of Delivery. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Securities, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Securities on such terms. In the event
that, within the respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Securities, or the Company notifies
you that it has so arranged for the purchase of such Securities, you or the
Company shall have the right to postpone such Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate principal amount of such
Securities which remains unpurchased does not exceed one-eleventh of the
aggregate principal amount of all the Securities to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the principal amount of Securities which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the principal amount of Securities which such Underwriter agreed
to purchase hereunder) of the Securities of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate principal amount of Securities
which remains unpurchased exceeds one-eleventh of the aggregate principal amount
of all the Securities to be purchased at such Time of Delivery, or if the
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Securities of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligation of the Underwriters to purchase and of the
Company to sell the Optional Securities) shall thereupon terminate, without
liability on the part of
16
<PAGE> 18
any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, the parties hereto shall be entitled to act
and rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of
you as the Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "BUSINESS DAY" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
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<PAGE> 19
If the foregoing is in accordance with your understanding, please sign
and return to us one copy of this Agreement for the Company and each of the
Representatives plus one for each counsel counterparts hereof, and upon the
acceptance hereof by you, as the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
STANDARD MOTOR PRODUCTS, INC.
By: _____________________________________________
Name: Lawrence I. Sills
Title: President and Chief Operating Officer
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
BY:_______________________________
NAME:
TITLE:
MORGAN STANLEY & CO. INCORPORATED
BY:_______________________________
NAME:
TITLE:
<PAGE> 20
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF OPTIONAL SECURITIES
FIRM SECURITIES TO BE PURCHASED
TO BE IF MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
----------- --------- ---------
<S> <C> <C>
Goldman, Sachs & Co...................................
Morgan. Stanley & Co. Incorporated....................
Total......................................... $75,000,000.00 $11,250,000.00
============== ==============
</TABLE>
<PAGE> 21
SCHEDULE II
FOREIGN QUALIFICATIONS
<PAGE> 22
SCHEDULE III
MATERIAL SUBSIDIARIES
<PAGE> 23
SCHEDULE IV
MATERIAL CONTRACTS
<PAGE> 24
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial
information) examined by them and included or incorporated by reference
in the Registration Statement or the Prospectus comply as to form in
all material respects with the applicable accounting requirements of
the Act or the Exchange Act, as applicable, and the related published
rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American
Institute of Certified Public Accountants of the consolidated interim
financial statements, selected financial data, pro forma financial
information, prospective financial statements and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statement of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included in the Company's quarterly
report on Form 10-Q incorporated by reference into the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives; and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to
in paragraph (vi)(A)(i) below comply as to form in the related in all
material respects with the applicable accounting requirements of the
Act and the Exchange Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding amounts (after restatement where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures
F-1
<PAGE> 25
specified in such letter nothing came to their attention as a result of
the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, inquiries of officials of
the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
(A) (i) the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus and/or included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Exchange Act and the related published rules and
regulations, or (ii) any material modifications should be made
to the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of
cash flows included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus, for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in
the Company's Annual Report on Form 10-K for the most recent
fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited financial statements included or
incorporated by reference in the Company's Annual Report on
Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
<PAGE> 26
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included
or incorporated by reference in the Prospectus) or any
increase in the consolidated long-term debt of the Company and
its subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included or incorporated by
reference in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(F) for the period from the date of the latest
financial statements included or incorporated by reference in
the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the
comparable period of the preceding year and with any other
period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (vi) above, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear in
the Prospectus (excluding documents incorporated by reference) or in
Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives or in documents incorporated by
reference in the Prospectus specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
<PAGE> 1
STANDARD MOTOR PRODUCTS, INC.
__% CONVERTIBLE SUBORDINATED DEBENTURES
INDENTURE
Dated as of __________, 1999
HSBC Bank USA
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1) 7.10
(a)(2) 7.10
(a)(5) 7.10
(b) 7.10
311(a) 7.11
(b) 7.11
312(a) 2.05
(b) 11.03
(c) 11.03
313(a) 7.06
(b)(1) 10.03
(b)(2) 7.07
(c) 7.06;11.02
(d) 7.06
314(a) 4.03;11.02
(b) 10.02
(c)(1) 11.04
(c)(2) 11.04
(e) 11.05
315(a) 7.01
(b) 7.05,11.02
(c) 7.01
(d) 7.01
(e) 6.11
316(a) (last sentence) 2.09
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(b) 6.07
(c) 2.12
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 11.01
(c) 11.01
</TABLE>
* This Cross Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions............................................ 1
Section 1.02. Other Definitions...................................... 6
Section 1.03. Incorporation by Reference of Trust Indenture Act...... 6
Section 1.04. Rules of Construction.................................. 6
ARTICLE 2
THE DEBENTURES
Section 2.01. Form and Dating........................................ 7
Section 2.02. Execution and Authentication........................... 7
Section 2.03. Registrar and Paying Agent............................. 8
Section 2.04. Paying Agent to Hold Money in Trust.................... 8
Section 2.05. Holder Lists........................................... 8
Section 2.06. Transfer and Exchange.................................. 9
Section 2.07. Replacement Debentures................................. 12
Section 2.08. Outstanding Debentures................................. 12
Section 2.09. Treasury Debentures.................................... 13
Section 2.10. Temporary Debentures................................... 13
Section 2.11. Cancellation........................................... 13
Section 2.12. Defaulted Interest..................................... 13
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee..................................... 14
Section 3.02. Selection of Debentures to Be Redeemed................. 14
Section 3.03. Notice of Redemption................................... 14
Section 3.04. Effect of Notice of Redemption......................... 15
Section 3.05. Deposit of Redemption Price............................ 15
Section 3.06. Debentures Redeemed in Part............................ 15
Section 3.07. Optional Redemption.................................... 16
Section 3.08. Mandatory Redemption................................... 16
ARTICLE 4
COVENANTS
Section 4.01. Payment of Debentures.................................. 16
Section 4.02. Maintenance of Office or Agency........................ 16
Section 4.03. Reports................................................ 17
Section 4.04. Compliance Certificate................................. 17
Section 4.05. Taxes.................................................. 18
Section 4.06. Stay, Extension and Usury Laws......................... 18
Section 4.07. Limitation on Status as Investment Company............. 18
Section 4.08. Corporate Existence.................................... 18
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 4.09. Offer to Repurchase Upon Change of Control............. 19
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets............... 20
Section 5.02. Successor Corporation Substituted...................... 20
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default...................................... 21
Section 6.02. Acceleration........................................... 22
Section 6.03. Other Remedies......................................... 23
Section 6.04. Waiver of Past Defaults................................ 23
Section 6.05. Control by Majority.................................... 23
Section 6.06. Limitation on Suits.................................... 23
Section 6.07. Rights of Holders of Debentures to Receive Payment..... 24
Section 6.08. Collection Suit by Trustee............................. 24
Section 6.09. Trustee May File Proofs of Claim....................... 24
Section 6.10. Priorities............................................. 25
Section 6.11. Undertaking for Costs.................................. 25
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee...................................... 26
Section 7.02. Rights of Trustee...................................... 27
Section 7.03. Individual Rights of Trustee........................... 27
Section 7.04. Trustee's Disclaimer................................... 27
Section 7.05. Notice of Defaults..................................... 28
Section 7.06. Reports by Trustee to Holders of the Debentures........ 28
Section 7.07. Compensation and Indemnity............................. 28
Section 7.08. Replacement of Trustee................................. 29
Section 7.09. Successor Trustee by Merger, etc....................... 30
Section 7.10. Eligibility; Disqualification.......................... 30
Section 7.11. Preferential Collection of Claims Against Company...... 30
ARTICLE 8
SATISFACTION AND DISCHARGE
Section 8.01. Satisfaction and Discharge of Indenture................ 30
Section 8.02. Repayment to the Company............................... 31
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Debentures............... 31
Section 9.02. With Consent of Holders of Debentures.................. 32
Section 9.03. Compliance with Trust Indenture Act.................... 33
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.04. Revocation and Effect of Consents...................... 33
Section 9.05. Notation on or Exchange of Debentures.................. 33
Section 9.06. Trustee to Sign Amendments, etc........................ 34
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.............................. 34
Section 10.02. Certain Definitions................................... 34
Section 10.03. Liquidation; Dissolution; Bankruptcy.................. 35
Section 10.04. Default on Senior Debt................................ 35
Section 10.05. Acceleration of Debentures............................ 36
Section 10.06. When Distribution Must Be Paid Over................... 36
Section 10.07. Notice by Company..................................... 36
Section 10.08. Subrogation........................................... 37
Section 10.09. Relative Rights....................................... 37
Section 10.10. Subordination May Not Be Impaired by Company.......... 37
Section 10.11. Distribution or Notice to Representative.............. 37
Section 10.12. Rights of Trustee and Paying Agent.................... 38
Section 10.13. Authorization to Effect Subordination................. 38
Section 10.14. Amendments............................................ 38
ARTICLE 11
CONVERSION OF DEBENTURES
Section 11.01. Conversion Rights..................................... 38
Section 11.02. Exercise of Conversion Right.......................... 38
Section 11.03. Fractional Interests.................................. 39
Section 11.04. Conversion Price...................................... 40
Section 11.05. Adjustment of Conversion Rate......................... 40
Section 11.06. Taxes on Conversion................................... 44
Section 11.07. Continuation of Conversion Privilege.................. 44
Section 11.08 Notice of Certain Events.............................. 45
Section 11.09. Company to Provide Stock.............................. 46
Section 11.10. Disclaimer of Responsibility for Certain Matters...... 46
Section 11.11. Return of Funds Deposited for Redemption of Converted
Debentures............................................ 46
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.......................... 47
Section 12.02. Notices............................................... 47
Section 12.03. Communication by Holders of Debentures with Other
Holders of Debentures................................. 48
Section 12.04. Certificate and Opinion as to Conditions Precedent.... 48
Section 12.05. Statements Required in Certificate or Opinion......... 48
Section 12.06. Rules by Trustee and Agents........................... 49
Section 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders............................ 49
Section 12.08. Governing Law......................................... 49
Section 12.09. No Adverse Interpretation of Other Agreements......... 49
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 12.10. Successors............................................ 49
Section 12.11. Severability.......................................... 49
Section 12.12. Counterpart Originals................................. 49
Section 12.13. Table of Contents, Headings, etc...................... 50
EXHIBIT
Exhibit A FORM OF DEBENTURE
</TABLE>
6
<PAGE> 7
INDENTURE dated as of __________, 1999 between Standard Motor Products,
Inc., a New York corporation (the "Company"), and HSBC Bank USA, as trustee (the
"Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the __%
Convertible Subordinated Debentures due 2009 (the "Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Debenture, the rules and procedures
of the Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions are authorized or
obligated by law or executive order to close.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, with respect to partnerships, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.
"Cedel" means Cedel Bank, SA.
"Change of Control" means:
(i) any Person's acquisition of beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of the
Company entitling such Person to exercise 50% or more of the total
voting power of
7
<PAGE> 8
all shares of capital stock of the Company entitled to vote generally in
elections of directors, other than any such acquisition by the Company
or any employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into any
other Person, any merger of another Person into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or
substantially all of the properties and assets of the Company to another
Person (other than (a) any such transaction (x) that does not result in
any reclassification, conversion, exchange or cancellation of
outstanding shares of common stock and (y) pursuant to which holders of
common stock immediately prior to such transaction have the entitlement
to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock entitled to vote generally in the
election of directors of the continuing or surviving person immediately
after such transaction and (b) any merger which is effected solely to
change the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of common
stock solely into shares of common stock of the surviving entity).
A Change of Control shall not be deemed to have occurred if the closing sale
price per share of the common stock for any five Trading Days within the period
of 10 consecutive Trading Days ending immediately after the later of the date of
the Change of Control or the date of the public announcement of the Change of
Control (in the case of a Change of Control under clause (i) above) or ending
immediately before the Change of Control (in the case of a Change of Control
under clause (ii) above) shall equal or exceed 105% of the Conversion Price of
the Debentures in effect on each such Trading Day.
"Company" means the issuer, and any and all successors thereto.
"Conversion Price" shall have the meaning specified in Section 11.04.
"Conversion Shares" shall have the meaning specified in Section 11.05.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Custodian" means the Trustee, as custodian with respect to the
Debentures in global form, or any successor entity thereto.
"Debentures" has the meaning assigned to it in the preamble to this
Indenture.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Debenture" means a certificated Debenture registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A hereto except that such Debenture shall
not bear the Global Debenture Legend and shall not have the "Schedule of
Exchanges of Interests in the Global Debenture" attached thereto.
"Depositary" means, with respect to the Debentures issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Debentures, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant
8
<PAGE> 9
to the applicable provision of this Indenture.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.
"Global Debenture Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Debentures issued
under this Indenture.
"Global Debentures" means, individually and collectively, each of the
Restricted Global Debentures and the Unrestricted Global Debentures,
substantially in the form of Exhibit A hereto issued in accordance with Section
2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
indebtedness.
"Holder" means a Person in whose name a Debenture is registered.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest in
a Global Debenture through a Participant.
"Investment" means, with respect to any Person, any investment by such
Person in other Persons (including Affiliates of such Person) in the form of
loans (including guarantees), advances (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
capital contributions, purchases or other acquisitions for consideration of
indebtedness, Equity Interests or other securities, or any agreement to make any
such investment or enter into any such transaction on a future date or upon the
happening of any event, and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place
9
<PAGE> 10
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Debentures for use by such Holders
in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Minority Owned Affiliate" of any specified Person means any other
Person in which an Investment has been made by the specified Person other than a
direct or indirect Subsidiary of the specified Person.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any indebtedness.
"Offer" has the meaning specified in Section 11.05(f).
"Offering" means the offering of the Debentures by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Cedel,
a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to
10
<PAGE> 11
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date of this Indenture.
"Stated Maturity," when used with respect to any Debenture, means
_____________, 2009.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than a day on which securities are not traded on the New York
Stock Exchange (or, if the common stock is not listed thereon, on the principal
national securities exchange on which the common stock is listed or admitted to
trading).
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined
in
Term Section
---- -------
<S> <C>
"Authentication Order"................................... 2.02
"Bankruptcy Law"......................................... 4.01
"Change of Control Offer"................................ 4.09
"Event of Default"....................................... 6.01
"Paying Agent"........................................... 2.03
"Registrar".............................................. 2.03
"Repurchase Date"........................................ 4.09
"Repurchase Price"....................................... 4.09
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Debentures;
11
<PAGE> 12
"indenture trustee" or "institutional trustee" means the Trustee; and
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or rules adopted
by the SEC from time to time.
ARTICLE 2
THE DEBENTURES
Section 2.01. Form and Dating.
(a) General. The Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Debentures may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Debenture shall be dated the date of its
authentication. The Debentures shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Debentures shall constitute,
and are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Debenture conflicts with the express provisions of this
Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Debentures. Debentures issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Debenture Legend thereon and the "Schedule of Exchanges of Interests in the
Global Debenture" attached thereto). Debentures issued in definitive form shall
be substantially in the form of Exhibit A attached hereto (but without the
Global Debenture Legend thereon and without the "Schedule of Exchanges of
Interests in the Global Debenture" attached thereto). Each Global Debenture
shall represent such of the outstanding Debentures as shall be specified therein
and each shall provide that it shall represent the aggregate principal amount of
outstanding Debentures from time to time endorsed thereon and that the aggregate
principal amount of outstanding Debentures represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Debenture to reflect the amount of any
increase or
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decrease in the aggregate principal amount of outstanding Debentures represented
thereby shall be made by the Trustee or the Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in Global Debentures that are held by Participants through
Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
One Officer shall sign the Debentures for the Company by manual or
facsimile signature. The Company's seal may be reproduced on the Debentures and
may be in facsimile form.
If an Officer whose signature is on a Debenture no longer holds that
office at the time a Debenture is authenticated, the Debenture shall
nevertheless be valid.
A Debenture shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Debenture has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Debentures for original issue
up to the aggregate principal amount stated in paragraph 4 of the Debentures.
The aggregate principal amount of Debentures outstanding at any time may not
exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Debentures. An authenticating agent may authenticate
Debentures whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Debentures may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Debentures may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Debentures and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and the
term "Paying Agent" includes any additional paying agent. The Company may change
any Paying Agent or Registrar without notice to any Holder. The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Debentures.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Debentures.
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Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Debentures, and will notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Debentures.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Debentures and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Debentures. A Global Debenture may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Debentures will be exchanged by the Company for Definitive Debentures if (i) the
Company delivers to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary or (ii) the Company in its sole discretion
determines that the Global Debentures (in whole but not in part) should be
exchanged for Definitive Debentures and delivers a written notice to such effect
to the Trustee. Any Holder of a beneficial interest in a Global Debenture may
exchange such beneficial interest for a Definitive Debenture in the event that
there shall have occurred and be continuing an Event of Default or any event
which after notice or lapse of time or both would be an event of default with
respect to the Debentures. Upon the occurrence of any of the preceding events
referred to above, Definitive Debentures shall be issued in such names as the
Depositary shall instruct the Trustee. Global Debentures also may be exchanged
or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Debenture authenticated and delivered in exchange for, or in lieu of, a
Global Debenture or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Debenture. A Global Debenture may not be exchanged
for another Debenture other than as provided in this Section 2.06(a), however,
beneficial interests in a Global Debenture may be transferred and exchanged as
provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Debentures. The transfer and exchange of beneficial interests in the Global
Debentures shall be effected through the Depositary, in
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<PAGE> 15
accordance with the provisions of this Indenture and the Applicable Procedures.
Transfers of beneficial interests in the Global Debentures shall require
compliance with either subparagraph (i) or (ii) below, as applicable:
(i) Transfer of Beneficial Interests in the Same Global
Debenture. Beneficial interests in any Global Debenture may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Global Debenture. No written orders or
instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Debentures. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the Registrar
either (A) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to credit or cause to be credited a
beneficial interest in another Global Debenture in an amount equal to
the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Debenture in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Debenture shall be registered to effect the transfer or
exchange referred to in (1) above. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global
Debentures contained in this Indenture and the Debentures or otherwise
applicable under the Securities Act, the Trustee shall adjust the
principal amount of the relevant Global Debenture(s) pursuant to Section
2.06(g) hereof.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Debentures.
If any holder of a beneficial interest in a Global Debenture
proposes to exchange such beneficial interest for a Definitive Debenture or
to transfer such beneficial interest to a Person who takes delivery thereof
in the form of a Definitive Debenture, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Debenture to be
reduced accordingly pursuant to Section 2.06(g) hereof, and the Company
shall execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Debenture in the appropriate
principal amount. Any Definitive Debenture issued in exchange for a
beneficial interest pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or denominations as
the holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant.
(d) Transfer and Exchange of Definitive Debentures for Beneficial
Interests.
(i) Definitive Debentures to Beneficial Interests in Global
Debentures. A Holder of a Definitive Debenture may exchange such Debenture
for a beneficial interest in a Global Debenture or transfer such Definitive
Debentures to a Person who takes delivery thereof in the form of a
beneficial interest in a Global Debenture at any time. Upon receipt of a
request for such an exchange or transfer, the Trustee shall cancel the
applicable Definitive Debenture and increase or cause to be increased the
aggregate principal amount of one of the Global Debentures.
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<PAGE> 16
(e) Transfer and Exchange of Definitive Debentures for Definitive
Debentures. Upon request by a Holder of Definitive Debentures and such
requesting Holder's presenting or surrendering to the Registrar of the
Definitive Debentures duly endorsed and accompanied by written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing, the Registrar shall register the
transfer and exchange of Definitive Debentures.
(f) Legends. Each Global Debenture shall bear a legend in substantially
the following form:
"THIS GLOBAL DEBENTURE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS DEBENTURE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL
DEBENTURE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a)
OF THE INDENTURE, (III) THIS GLOBAL DEBENTURE MAY BE DELIVERED TO THE TRUSTEE
FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
DEBENTURE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF STANDARD MOTOR PRODUCTS, INC."
(g) Cancellation and/or Adjustment of Global Debentures. At such time as
all beneficial interests in a particular Global Debenture have been exchanged
for Definitive Debentures or a particular Global Debenture has been redeemed,
repurchased or canceled in whole and not in part, each such Global Debenture
shall be returned to or retained and canceled by the Trustee in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Debenture is exchanged for or transferred to a Person who
will take delivery thereof in the form of a beneficial interest in another
Global Debenture or for Definitive Debentures, the principal amount of
Debentures represented by such Global Debenture shall be reduced accordingly and
an endorsement shall be made on such Global Debenture by the Trustee or by the
Depositary at the direction of the Trustee to reflect such reduction; and if the
beneficial interest is being exchanged for or transferred to a Person who will
take delivery thereof in the form of a beneficial interest in another Global
Debenture, such other Global Debenture shall be increased accordingly and an
endorsement shall be made on such Global Debenture by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(h) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global
Debentures and Definitive Debentures upon the Company's order or at the
Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Debenture or to a Holder of a Definitive Debenture
for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 4.09 and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Debenture selected for redemption in whole
or in part, except the unredeemed portion of any
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Debenture being redeemed in part.
(iv) All Global Debentures and Definitive Debentures issued upon
any registration of transfer or exchange of Global Debentures or
Definitive Debentures shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Global Debentures or Definitive Debentures surrendered
upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange any Debentures during a period beginning
at the opening of business 15 days before the day of any selection of
Debentures for redemption under Section 3.02 hereof and ending at the
close of business on the day of selection, (B) to register the transfer
of or to exchange any Debenture so selected for redemption in whole or
in part, except the unredeemed portion of any Debenture being redeemed
in part or (C) to register the transfer of or to exchange a Debenture
between a record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer
of any Debenture, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Debenture is registered as the
absolute owner of such Debenture for the purpose of receiving payment of
principal of and interest on such Debentures and for all other purposes,
and none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Debentures and
Definitive Debentures in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a registration of transfer or exchange may be submitted by
facsimile.
Section 2.07. Replacement Debentures.
If any mutilated Debenture is surrendered to the Trustee or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Debenture, the Company shall issue and the Trustee, upon receipt
of an Authentication Order, shall authenticate a replacement Debenture if the
Trustee's requirements are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Company to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a
Debenture is replaced. The Company may charge for its expenses in replacing a
Debenture.
Every replacement Debenture is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Debentures duly issued hereunder.
Section 2.08. Outstanding Debentures.
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Debenture
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Debenture does not cease
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to be outstanding because the Company or an Affiliate of the Company holds the
Debenture.
If a Debenture is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.
If the principal amount of any Debenture is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Debentures payable on that date, then on and after that date
such Debentures shall be deemed to be no longer outstanding and shall cease to
accrue interest.
Section 2.09. Treasury Debentures.
In determining whether the Holders of the required principal amount of
Debentures have concurred in any direction, waiver or consent, Debentures owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Debentures that the Trustee knows are so
owned shall be so disregarded.
Section 2.10. Temporary Debentures.
Until certificates representing Debentures are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Debentures. Temporary Debentures shall be
substantially in the form of certificated Debentures but may have variations
that the Company considers appropriate for temporary Debentures and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive Debentures in
exchange for temporary Debentures.
Holders of temporary Debentures shall be entitled to all of the benefits
of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Debentures surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy canceled Debentures (subject to the record retention requirement
of the Exchange Act). Certification of the destruction of all canceled
Debentures shall be delivered to the Company. The Company may not issue new
Debentures to replace Debentures that it has paid or that have been delivered to
the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Debentures, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Debentures and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount
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of defaulted interest proposed to be paid on each Debenture and the date of the
proposed payment. The Company shall fix or cause to be fixed each such special
record date and payment date, provided that no such special record date shall be
less than 10 days prior to the related payment date for such defaulted interest.
At least 15 days before the special record date, the Company (or, upon the
written request of the Company, the Trustee in the name and at the expense of
the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Debentures pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Debentures to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Debentures to Be Redeemed.
If less than all of the Debentures are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Debentures to be
redeemed or purchased among the Holders of the Debentures in compliance with the
requirements of the principal national securities exchange, if any, on which the
Debentures are listed or, if the Debentures are not so listed, on a pro rata
basis, by lot or in accordance with any other method the Trustee considers fair
and appropriate. In the event of partial redemption by lot, the particular
Debentures to be redeemed shall be selected, unless otherwise provided herein,
not less than 30 nor more than 60 days prior to the redemption date by the
Trustee from the outstanding Debentures not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Debentures selected for redemption and, in the case of any Debenture selected
for partial redemption, the principal amount thereof to be redeemed. Debentures
and portions of Debentures selected shall be in amounts of $1,000 or whole
multiples of $1,000; except that if all of the Debentures of a Holder are to be
redeemed, the entire outstanding amount of Debentures held by such Holder, even
if not a multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Debentures called
for redemption also apply to portions of Debentures called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Debentures are to be redeemed at its registered address.
The notice shall identify the Debentures to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
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(c) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the redemption
date upon surrender of such Debenture, a new Debenture or Debentures in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Debenture;
(d) the name and address of the Paying Agent;
(e) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Debentures called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Debentures and/or Section of this Indenture
pursuant to which the Debentures called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Debentures.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Debentures called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Debentures to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Debentures to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the
Debentures or the portions of Debentures called for redemption. If a Debenture
is redeemed on or after an interest record date but on or prior to the related
Interest Payment Date, then any accrued and unpaid interest shall be paid to the
Person in whose name such Debenture was registered at the close of business on
such record date. If any Debenture called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, interest shall be paid on the unpaid principal,
from the redemption date until such principal is paid, and to the extent lawful
on any interest not paid on such unpaid principal, in each case at the rate
provided in the Debentures and in Section 4.01 hereof.
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Section 3.06. Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Debenture equal
in principal amount to the unredeemed portion of the Debenture surrendered.
Section 3.07. Optional Redemption.
(a)The Company shall not have the option to redeem the Debentures
pursuant to this Section 3.07 prior to __________, 200__. Thereafter, the
Company shall have the option to redeem the Debentures, in whole or in part, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on _______
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.................................................. ______%
2005.................................................. ______%
2006.................................................. ______%
2007.................................................. ______%
200_ and thereafter................................... 100.000%
</TABLE>
(b) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Company shall not be required to make mandatory redemption payments
with respect to the Debentures.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Debentures.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Debentures on the dates and in the manner provided in
the Debentures. Principal, premium, if any, and interest shall be considered
paid on the date due if the Paying Agent, if other than the Company or a
Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Debentures to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
Section 4.02. Maintenance of Office or Agency.
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The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Debentures may be surrendered
for registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Debentures and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03.
The Company will cause notice of any resignation, termination or
appointment of the Trustee or any Paying Agent, transfer agent or conversion
agent, and of any change in the office through which any such agent will act, to
be provided to Holders of the Debentures.
Section 4.03. Reports.
Whether or not required by the rules and regulations of the SEC, so long
as any Debentures are outstanding, the Company shall furnish to the Holders of
Debentures:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K
if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company were required to file such reports,
in each case, within the time periods specified in the SEC's rules and
regulations.
In addition, whether or not required by the rules and regulations of the SEC,
the Company shall file a copy of all such information and reports with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA Section 314(a).
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
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<PAGE> 23
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Debentures
is prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Debentures are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Debentures.
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Intentionally Deleted.
Section 4.08. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
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<PAGE> 24
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Debentures.
Section 4.09. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall make
an offer (a "Change of Control Offer") to each Holder to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's
Debentures at a purchase price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase (the "Repurchase Price"). Notwithstanding the foregoing, the Company
may, at its option, in lieu of paying Repurchase Price in cash, pay the
Repurchase Price by issuing shares of common stock. The number of shares of
common stock tendered in payment shall be determined by dividing the Repurchase
Price by the value of common stock, which for this purpose shall be equal to [
]% of the average of the closing sale prices of the common stock for the five
consecutive Trading Days ending on and including the third Trading Day preceding
the Repurchase Date. Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder stating: (1) that the Change of Control Offer
is being made pursuant to this Section 4.09 and that all Debentures tendered
will be accepted for payment; (2) the Repurchase Price and the purchase date,
which shall be no later than 45 days from the date such notice is mailed (the
"Repurchase Date"); (3) that any Debenture not tendered will continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Repurchase
Price, all Debentures accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Repurchase Date; (5) that Holders
electing to have any Debentures purchased pursuant to a Change of Control Offer
will be required to surrender the Debentures, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Debentures completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Repurchase Date; (6) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Repurchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Debentures
delivered for purchase, and a statement that such Holder is withdrawing his
election to have the Debentures purchased; and (7) that Holders whose Debentures
are being purchased only in part will be issued new Debentures equal in
principal amount to the unpurchased portion of the Debentures surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Debentures in connection with a Change of Control.
(b) On the Repurchase Date, the Company shall, to the extent lawful, (1)
accept for payment all Debentures or portions thereof properly tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Repurchase Price in respect of all Debentures or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee the
Debentures so accepted together with an Officers' Certificate stating the
aggregate principal amount of Debentures or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to each Holder of Debentures
so tendered payment in an amount equal to the Repurchase Price for the
Debentures, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a
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<PAGE> 25
new Debenture equal in principal amount to any unpurchased portion of the
Debentures surrendered by such Holder, if any; provided, that each such new
Debenture shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Repurchase Date.
(c) Notwithstanding anything to the contrary in this Section 4.09, the
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section 4.09 hereof and all other provisions of this Indenture applicable to a
Change of Control Offer made by the Company and purchases all Debentures validly
tendered and not withdrawn under such Change of Control Offer.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company shall not, directly or indirectly, consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia, (ii) the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer, conveyance or
other disposition shall have been made expressly assumes all the obligations of
the Company under the Debentures and this Indenture (including, without
limitation, the due and punctual payment of the principal of and premium, if
any, and interest on the Debentures) and has provided for conversion rights as
described under Article 11, all pursuant to a supplemental Indenture in a form
reasonably satisfactory to the Trustee, (iii) immediately after such
transaction, no Default or Event of Default exists and (iv) the Trustee shall
have received an Officer's Certificate and Opinion of Counsel stating that the
execution of such supplemental Indenture is authorized or permitted by this
Indenture.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Debentures except in the case of a sale of all
of the Company's assets that meets the requirements of Section 5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on the
Debentures and such default continues for a period of 30 days, whether or not
such payment is prohibited by Article 10;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Debentures when the same becomes due and payable at
maturity, upon redemption or otherwise, whether or not such payment is
prohibited by Article 10;
(c) the Company fails to comply with its obligation to provide notice of
a Change of Control to each Holder pursuant to Section 4.09 hereof;
(d) the Company fails to observe or perform any other material covenant,
representation, warranty or other agreement in this Indenture for 60 days after
written notice to the Company by the Trustee or the Holders of at least 25% in
aggregate principal amount of the Debentures then outstanding voting as a single
class;
(e) the Company fails to pay when due the principal of, or acceleration
of, any indebtedness for money borrowed in excess of $10 million if the Company
has not discharged such indebtedness, or such acceleration is not annulled, for
30 days after written notice to the Company by the Trustee or the Holders of at
least 25% in aggregate principal amount of the Debentures then outstanding
voting as a single class;
(f) a final judgment or final judgments for the payment of money are
entered into by a court or courts of competent jurisdiction against the Company
or any of its Significant Subsidiaries or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary and such judgment or
judgments remain undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, provided that the aggregate of such undischarged
judgments exceed $5 million.
(g) the Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary
pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law
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<PAGE> 27
that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an involuntary case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary or for all or
substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in
clause (f) or (g) of Section 6.01 hereof with respect to the Company, any
Significant Subsidiary or any group of Significant Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Debentures may declare all the Debentures to be due and payable
immediately. Upon any such declaration, the Debentures shall become due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (f) or (g) of Section 6.01 hereof occurs with respect to the
Company, any of its Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary, all outstanding
Debentures shall be due and payable immediately without further action or
notice. The Holders of a majority in aggregate principal amount of the then
outstanding Debentures by written notice to the Trustee may on behalf of all of
the Holders rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
If an Event of Default occurs on or after ____________, 200__ by reason
of any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Debentures
pursuant to Section 3.07 hereof, then, upon acceleration of the Debentures, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Debentures to the
contrary notwithstanding. If an Event of Default occurs prior to __________,
200__ by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Debentures prior to such date, then, upon acceleration of the
Debentures, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on ______ of the years set
forth below, as set forth below (expressed as a percentage of the principal
amount of the Debentures on the date of payment that would otherwise be due but
for the provisions of this sentence):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999.................................................. _______%
2000.................................................. _______%
2001.................................................. _______%
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
2002.................................................. _______%
2003.................................................. _______%
2004.................................................. _______%
</TABLE>
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Debentures or to enforce the performance of any provision of the
Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Debentures or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Debenture in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Debentures by notice to the Trustee may on behalf of the
Holders of all of the Debentures waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium, if any, or interest on, the
Debentures (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Debentures may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Debentures may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Debentures or that may
involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Debenture may pursue a remedy with respect to this
Indenture or the Debentures only if:
(a) the Holder of a Debenture gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Debentures make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Debenture or Holders of Debentures offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
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<PAGE> 29
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Debentures do not give the Trustee a direction
inconsistent with the request.
A Holder of a Debenture may not use this Indenture to prejudice the
rights of another Holder of a Debenture or to obtain a preference or priority
over another Holder of a Debenture.
Section 6.07. Rights of Holders of Debentures to Receive Payment.
Notwithstanding any other provision of this Indenture, neither (a) the
right of any Holder of a Debenture to receive payment of principal, premium, if
any, and interest on the Debenture, on or after the respective due dates
expressed in the Debenture (including in connection with an offer to purchase),
or to bring suit for the enforcement of any such payment on or after such
respective dates nor (b) the right of any Holder of a Debenture to exercise its
conversion rights as described under Article 11, or to bring suit for the
enforcement of such conversion rights shall be impaired or affected without the
consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Debentures
and interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Debentures allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Debentures), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.
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<PAGE> 30
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee
and the costs and expenses of collection;
Second: to Holders of Debentures for amounts due and unpaid on
the Debentures for principal, premium, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Debentures for principal, premium, if any and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Debentures pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Debenture pursuant to Section 6.07 hereof, or a suit by Holders of more than 10%
in principal amount of the then outstanding Debentures.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties that
are specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of
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<PAGE> 31
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
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<PAGE> 32
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Debentures and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Debentures, it shall not be
accountable for the Company's use of the proceeds from the Debentures or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the
Debentures or any other document in connection with the sale of the Debentures
or pursuant to this Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Debentures a notice
of the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment of principal of, premium, if
any, or interest on any Debenture, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Debentures.
Section 7.06. Reports by Trustee to Holders of the Debentures.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Debentures remain outstanding, the
Trustee shall mail to the Holders of the Debentures a brief report dated as of
such reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months preceding
the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Debentures shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Debentures are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Debentures are
listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its
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acceptance of this Indenture and services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Debentures on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Debentures. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2) to
the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Debentures may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Debentures may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding
Debentures may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
SATISFACTION AND DISCHARGE
Section 8.01. Satisfaction and Discharge of Indenture.
The Company may terminate its obligations under this Indenture (subject
to the provisions of this Article VIII and Section 7.07) when it shall have
delivered to the Trustee for cancellation all Debentures theretofore
authenticated (other than Debentures that shall have been cancelled, lost or
stolen and that have been replaced or paid as provided in Article II hereof) and
the following conditions shall be satisfied:
(1) The Company has paid all sums payable under this Indenture; and
(2) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent have been complied with as contemplated by this Section 8.01.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 7.07 shall survive.
Section 8.02. Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Debenture and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Debenture shall thereafter
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Debentures.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Debentures without the
consent of any Holder of a Debenture:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Debentures in addition to or in place
of certificated Debentures or to alter the provisions of Article 2 hereof
(including the related definitions) in a manner that does not materially
adversely affect any Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Debentures by a successor to the Company pursuant to Article 5
hereof;
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(d) to make any change that would provide any additional rights or
benefits to the Holders of the Debentures or that does not adversely affect the
legal rights hereunder of any Holder of the Debenture; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Debentures.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Section 4.09 hereof)
and the Debentures may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Debentures then
outstanding voting as a single class (including consents obtained in connection
with a tender offer or exchange offer for, or purchase of, the Debentures), and,
subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Debentures, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Debentures may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Debentures voting as a single class (including consents obtained in connection
with a tender offer or exchange offer for, or purchase of, the Debentures).
Section 2.08 hereof shall determine which Debentures are considered to be
"outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Debentures as aforesaid, and upon
receipt by the Trustee of the documents described in Section 7.02 hereof, the
Trustee shall join with the Company in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Debentures
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Debentures affected thereby
a notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Debentures then outstanding voting
as a single class may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Debentures. However,
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without the consent of each Holder affected, an amendment or waiver under this
Section 9.02 may not (with respect to any Debentures held by a non-consenting
Holder):
(a) change the Stated Maturity of the principal of any Debenture or any
installment of interest thereon;
(b) reduce the principal amount on any Debenture or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon;
(c) change the place where, or currency in which, any Debenture or any
premium, if any, or interest thereon is payable;
(d) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debenture;
(e) impair the right to institute suit for the conversion of any
Debenture;
(f) except as otherwise permitted or contemplated herein, adversely
affect the right of Holders to convert such Debentures;
(g) modify the provisions of Article 10 in a manner adverse to the
Holders of the Debentures; or
(h) reduce the above-stated percentage in principal amount of the
outstanding Debentures required for any amendment, supplemental Indenture or
waiver provided for in this Indenture;
(i) waive a Default or Event of Default in the payment of principal of
or premium, if any, on the Debentures (except a rescission of acceleration of
the Debentures by the Holders of at least a majority in aggregate principal
amount of the Debentures and a waiver of the payment default that resulted from
such acceleration); or
(j) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Debentures to receive
payments of principal of or interest on the Debentures;
(k) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions; or
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Debentures shall
be set forth in an amended or supplemental Indenture that complies with the TIA
as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Debenture is a continuing consent by the Holder of a
Debenture and every subsequent Holder of a Debenture or portion of a Debenture
that evidences the same debt as the consenting Holder's Debenture, even if
notation of the consent is not made on any Debenture. However, any such Holder
of a Debenture or subsequent Holder of a Debenture may revoke the consent as to
its Debenture if the Trustee receives written notice of revocation before the
date the waiver, supplement or amendment becomes effective.
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An amendment, supplement or waiver becomes effective in accordance with its
terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Debentures.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Debenture thereafter authenticated. The Company in
exchange for all Debentures may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Debentures that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Debenture shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental Indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
12.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental Indenture is authorized or
permitted by this Indenture.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Debenture agrees,
that the indebtedness evidenced by the Debentures is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all Senior Debt (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt and holders of
Subsidiary Debt.
Section 10.02. Certain Definitions.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Debentures are subordinated to the Senior
Debt hereunder.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Senior Debt" means:
(a) the Company's indebtedness for money borrowed or evidenced by bonds,
Debentures or similar instruments;
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(b) reimbursement obligations of the Company with respect to letters of
credit, bankers' acceptances and similar facilities issued for the account of
the Company;
(c) every obligation of the Company issued or assumed as the deferred
purchase price of property or services purchased by the Company, excluding any
trade payables and other accrued current liabilities incurred in the ordinary
course of business;
(d) obligations of the Company as lessee under leases required to be
capitalized on the balance sheet of the lessee under United States generally
accepted accounting principles,
(e) obligations of the Company under interest rate and currency swaps,
caps, floors, collars or similar arrangements intended to protect the Company
against fluctuations in interest or currency exchange rates;
(f) indebtedness of others of the kinds described in the preceding
clauses (a) through (e) that the Company has assumed, guaranteed or otherwise
assured the payment thereof, directly or indirectly; and
(g) deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness or obligation described in the
preceding clauses (a) through (f) whether or not there is any notice to or
consent of the Holders of Debentures.
Notwithstanding anything to the contrary in the foregoing, the following
shall not constitute Senior Debt: (i) any particular indebtedness or obligation
that is owed by the Company to any of its direct and indirect Subsidiaries, (ii)
any indebtedness incurred for the purchase of goods or materials or for services
obtained in the ordinary course of business (other than with proceeds of
revolving credit borrowings permitted hereby) and (iii) any particular
indebtedness, deferral, renewal, extension or refunding if it is expressly
stated in the governing terms or in the assumption thereof that the indebtedness
involved is not senior in right of payment to the Debentures or that such
indebtedness is pari passu with or junior to the Debentures.
Section 10.03. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities:
(i) holders of Senior Debt shall be entitled to receive payment
in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before Holders of the
Debentures shall be entitled to receive any payment with respect to the
Debentures (except that Holders may receive Permitted Junior
Securities); and
(ii) until all Obligations with respect to Senior Debt (as
provided in clause (i) above) are paid in full, any distribution to
which Holders would be entitled but for this Article 10 shall be made to
holders of Senior Debt (except that Holders may receive Permitted Junior
Securities).
Section 10.04. Default on Senior Debt.
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(a) The Company may not make any payment or distribution to the Trustee
or any Holder in respect of Obligations with respect to the Debentures and may
not acquire from the Trustee or any Holder any Debentures for cash or property
(other than Permitted Junior Securities) until all principal and other
Obligations with respect to the Senior Debt have been paid in full if:
(i) a default in the payment of any principal or other
Obligations with respect to Senior Debt occurs and is continuing beyond
any applicable grace period in the agreement, indenture or other
document governing such Senior Debt; or
(ii) a default, other than a payment default, on Designated
Senior Debt occurs and is continuing that then permits holders of the
Senior Debt to accelerate its maturity, provided that such default shall
not have been cured or waived or ceased to exist after written notice of
such default shall have been given to the Company and the Trustee by any
holder of Senior Debt, or
(iii) any judicial proceeding shall be pending with respect to
any such default in payment or event of default.
(b) Upon any acceleration of the principal due on the Debentures, all
amounts due on all Senior Debt must be paid in full before the Holders of
Debentures are entitled to receive any payment.
Section 10.05. Acceleration of Debentures.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
Section 10.06. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Debentures at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Section 10.04 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Debt as their interests may
appear or their Representative under the indenture or other agreement (if any)
pursuant to which Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
Section 10.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Debentures to violate
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this Article 10, but failure to give such notice shall not affect the
subordination of the Debentures to the Senior Debt as provided in this Article
10.
Section 10.08. Subrogation.
After all Senior Debt is paid in full and until the Debentures are paid
in full, Holders of Debentures shall be subrogated (equally and ratably with all
other indebtedness pari passu with the Debentures) to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt to the extent
that distributions otherwise payable to the Holders of Debentures have been
applied to the payment of Senior Debt. A distribution made under this Article 10
to holders of Senior Debt that otherwise would have been made to Holders of
Debentures is not, as between the Company and Holders, a payment by the Company
on the Debentures.
Section 10.09. Relative Rights.
This Article 10 defines the relative rights of Holders of Debentures and
holders of Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Company and Holders of Debentures,
the obligation of the Company, which is absolute and unconditional, to
pay principal of and interest on the Debentures in accordance with their
terms;
(ii) affect the relative rights of Holders of Debentures and
creditors of the Company other than their rights in relation to holders
of Senior Debt; or
(iii) prevent the Trustee or any Holder of Debentures from
exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Holders of Debentures.
If the Company fails because of this Article 10 to pay principal of or
interest on a Debenture on the due date, the failure is still a Default or Event
of Default.
Section 10.10. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt to enforce the subordination of
the indebtedness evidenced by the Debentures shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company or
any Holder to comply with this Indenture.
Section 10.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of Debentures shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Debentures for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.
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Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Debentures, unless the Trustee shall have received at
its Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Debentures to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder of Debentures, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, the Representatives are hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Debentures.
Section 10.14. Amendments.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Senior Debt.
ARTICLE 11
CONVERSION OF DEBENTURES
Section 11.01. Conversion Rights
The Holder of any Debenture will have the right, at the Holder's option,
to convert any portion of the principal amount of a Debenture that is an
integral multiple of $1,000,000 into shares of common stock, unless previously
redeemed or repurchased, at a conversion rate equal to _______ shares per $1000
principal amount of Debentures (the "Conversion Rate") subject to adjustment as
described below. The right to convert a Debenture called for redemption or
delivered for repurchase will terminate at the close of business on the
Redemption Date or Repurchase Date for such Debenture, unless the Company
defaults in making the payment due upon redemption or repurchase, as the case
may be.
Section 11.02. Exercise of Conversion Right.
The right of conversion attaching to any Debenture may be exercised by
the Holder by delivering the Debenture at the office or agency of the Company in
the Borough of Manhattan, the City of New York, at any other office or agency of
the Company maintained for such purpose and at the office or agency of any
additional conversion agent appointed by the Company, accompanied by a duly
signed and completed notice of conversion, a copy of which may be obtained from
the Trustee and any
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conversion agent. The conversion date shall be the date on which the Debenture
and the duly signed and completed notice of conversion are so delivered. As
promptly as practicable on or after the conversion date, the Company shall issue
and deliver to the Trustee a certificate or certificates for the number of full
shares of common stock issuable upon conversion, together with payment in lieu
of any fraction of a share or, at the Company's option, rounded up to the next
whole number of shares; such certificate shall be sent by the Trustee to the
Conversion Agent for delivery to the Holder. Such shares of common stock
issuable upon conversion of the Debentures, in accordance with the provisions of
the Indenture, shall be fully paid and nonassessable and will also rank pari
passu with the other shares of the common stock outstanding from time to time.
Holders that surrender Debentures for conversion on a date that is not
an Interest Payment Date shall not be entitled to receive any interest for the
period from the next preceding Interest Payment Date to the date of conversion,
except as described below. However, Holders of Debentures on a Regular Record
Date, including Debentures surrendered for conversion after the Regular Record
Date, shall receive the interest payable on such Debentures on the next
succeeding Interest Payment Date. Accordingly, any Debenture surrendered for
conversion during the period from the close of business on a Regular Record Date
to the opening of business on the next succeeding Interest Payment Date must be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Debentures being surrendered
for conversion; provided, however, that no such payment shall be required upon
the conversion of any Debenture (or portion thereof) that has been called for
redemption or that is eligible to be delivered for repurchase if, as a result,
the right to convert such Debenture would terminate during the period between
such Regular Record Date and the close of business on the next succeeding
Interest Payment Date.
No other payment or adjustment for interest, or for any dividends in
respect of common stock, shall be made upon conversion. Holders of common stock
issued upon conversion shall not be entitled to receive any dividends payable to
holders of common stock as of any record date before the close of business on
the conversion date.
Section 11.03. Fractional Interests.
No fractional shares shall be issued upon conversion. If more than one
Debenture shall be surrendered for conversion at one time by the same Holder,
the number of full shares that shall be issuable upon conversion thereof shall
be computed on the basis of the aggregate principal amount of the Debentures so
surrendered. If any fraction of a share of common stock would, except for the
foregoing provision of this Section 11.03, be issuable on the conversion of any
Debenture or Debentures, the Company shall make payment in lieu thereof in an
amount of cash equal to the value of such fraction computed on the basis of the
last sale price of the common stock as reported on the New York Stock Exchange
(or if not listed for trading thereon, then on the principal national securities
exchange or the principal automated quotation system on which the common stock
is listed or admitted to trading) for such day (any such last sale price being
hereinafter referred to as the "Last Sale Price"). If on such Trading Day the
common stock is not quoted by any such organization, the fair value of such
common stock on such day, as reasonably determined in good faith by the Board of
Directors of the Company, shall be used. In lieu of the foregoing, the Company
may, at its option, round up to the next whole number of shares and issue such
shares upon conversion.
Section 11.04. Conversion Price.
The conversion price per share of common stock issuable upon conversion
of the Debentures
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(as such price may be adjusted, herein called the "Conversion Price") shall
initially be $____ (which reflects a Conversion Rate of ______ shares per $1000
principal amount of Debentures).
Section 11.05. Adjustment of Conversion Rate.
The Conversion Rate shall be subject to adjustment from time to time as
follows:
(a) In case the Company shall make or pay a dividends (and other
distributions) payable in common stock on shares of capital stock of the
Company, the Conversion Price in effect immediately following the record date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of common stock
outstanding at the close of business on such date and the denominator shall be
the sum of such number of shares and the total number of shares constituting
such dividend or other distribution. An adjustment made pursuant to this
subsection (a) shall become effective immediately, except as provided in
subsection (i) and (j) below, after such record date;
(b) In case the Company shall issue to all or substantially all holders
of common stock rights, options or warrants entitling them to subscribe for or
purchase common stock at less than the then Current Market Price per share of
the common stock (as defined in subsection (g) below) as of the record date for
holders entitled to receive such rights, options or warrants, the Conversion
Price in effect immediately following such record date shall be adjusted to a
price, computed to the nearest cent, so that the same shall equal the price
determined by multiplying such Conversion Price by a fraction of which:
(i) the numerator shall be (A) the number of shares of common
stock outstanding on such record date plus (B) the number of shares
which the aggregate offering price of the total number of shares so
offered for subscription or purchase would purchase at the Current
Market Price (determined by multiplying such total number of shares by
the exercise price of such rights, options or warrants and dividing the
product so obtained by such current market price), and
(ii) the denominator shall be (A) the number of shares of common
stock outstanding on such record date plus (B) the number of additional
shares of common stock which are so offered for subscription or
purchase.
Such adjustment shall become effective immediately, except as provided
in subsection (h) and (i) below, after the record date for the determination of
holders entitled to receive such rights, options or warrants; provided, however,
that if any such rights, options or warrants issued by the Company as described
in this subsection (b) are only exercisable upon the occurrence of certain
triggering events, then the Conversion Price will not be adjusted as provided in
this subsection (b) until such triggering events occur. Upon the expiration or
termination of any rights, options or warrants without the exercise of such
rights, options or warrants, the Conversion Price then in effect shall be
adjusted immediately to the Conversion Price which would have been in effect at
the time of such expiration or termination had such rights, options or warrants,
to the extent outstanding immediately prior to such expiration or termination,
never been issued;
(c) In case the Company shall (1) subdivide its outstanding shares of
common stock into a greater number of shares or (2) combine or reclassify its
outstanding shares of common stock into a smaller number of shares, the
Conversion Price in effect immediately following the effectiveness of such
action shall be adjusted by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of common stock outstanding
immediately prior to such subdivision or combination and the denominator shall
be the number of shares outstanding immediately after giving
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<PAGE> 45
effect to such subdivision or combination. An adjustment made pursuant to this
subsection (c) shall become effective immediately, except as provided in
subsection (j) and (k) below, after the effective date of a subdivision or
combination;
(d) In case the Company or any Subsidiary or Minority Owned Affiliate of
the Company shall distribute to all or substantially all holders of common
stock, any of its assets, evidences of indebtedness, cash or securities (other
than (x) dividends or distributions exclusively in cash, (y) any dividend or
distribution for which an adjustment is required to be made in accordance with
subsection (a) or (c) above and in mergers and consolidations to which Section
11.06 applies, or (z) any distribution of rights or warrants subject to
subsection (1) below) then in each such case the Conversion Price in effect
immediately following the record date fixed for the determination of the
stockholders entitled to such distribution shall be adjusted so that the same
shall equal the price determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the then Current Market Price per share
of the common stock on such record date less the then fair market value (as
reasonably determined in good faith by the Board of Directors of the Company) of
the portion of the assets so distributed applicable to one share of common
stock, and of which the denominator shall be such Current Market Price per share
of the common stock. Such adjustment shall become effective immediately, except
as provided in subsection (j) and (k) below, after the record date for the
determination of stockholders entitled to receive such distribution;
(e) In case the Company or any Subsidiary of the Company shall make any
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above, or cash distributed upon a merger or
consolidation to which the next succeeding paragraph applies) to all holders of
common stock in an aggregate amount that, combined together with (i) other such
all-cash distributions made within the preceding 12 months in respect of which
no adjustment has been made and (ii) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or any of
its Subsidiaries for common stock, to the extent that the cash and value of any
other consideration included in such payment per share of common stock exceeds
the Current Market Price per share of Common Stock on the Trading Day next
succeeding the date of payment concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then Current Market Price of the
common stock and the number of shares of common stock then outstanding) on the
record date for such distribution, in each such case the Conversion Price
immediately following such record date shall be adjusted so that the same shall
equal the price determined by multiplying such Conversion Price by a fraction of
which the numerator shall be the then Current Market Price per share of the
common stock on such record date less the amount of the cash and/or fair market
value (as reasonably determined in good faith by the Board of Directors of the
Company) of other consideration so distributed applicable to one share of common
stock, and of which the denominator shall be such Current Market Price per share
of the common stock. Such adjustment shall become effective immediately, except
as provided in subsection (j) and (k) below, after the record date for the
determination of stockholders entitled to receive such distribution; and
(f) In case the Company or any Subsidiary of the Company shall complete
a tender or exchange offer for all or any portion of the common stock (any such
tender or exchange offer being referred to as an "Offer"), to the extent that
the cash and value of any other consideration included in such payment per share
of common stock exceeds the Current Market Price as of the expiration of the
Offer (the "Expiration Time"), the aggregate amount of which, together with (i)
any cash and other consideration in excess of the then Current Market Price paid
in a tender offer by the Company or any of its Subsidiaries for common stock
expiring within the 12 months preceding the expiration of such Offer in respect
of which no adjustment has been made and (ii) the aggregate amount of any such
all-cash
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<PAGE> 46
distributions referred to in (a) above to all holders of common stock within the
12 months preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 10% of the Company's market capitalization
on the expiration of such Offer, the Conversion Price in effect immediately
following such Expiration Time shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be (i) the product of the then
Current Market Price per share of the common stock on the Expiration Time times
the number of shares of common stock outstanding (including any tendered shares)
on the Expiration Time minus (ii) the fair market value of the aggregate
consideration so in excess of such 10% and payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the Offer) of all shares
validly tendered and not withdrawn as of the Expiration Time (the shares deemed
so accepted being referred to as the "Purchased Shares") and the denominator
shall be the product of (i) such current market price per share on the
Expiration Time times (ii) such number of outstanding shares on the Expiration
Time less the number of Purchased Shares, such reduction to become effective
immediately prior to the opening of business on the day following the Expiration
Time.
For purposes of this subsection (f), the fair market value of any
consideration with respect to an Offer shall be reasonably determined in good
faith by the Board of Directors of the Company and described in a board
resolution.
(g) For the purpose of any computation under subsections (c), (d), (e)
and (f) above, the current market price per share of common stock on any date
shall be deemed to be the average of the Last Sale Prices of a share of common
stock for the five consecutive Trading Days selected by the Company commencing
not more than 20 Trading Days before, and ending not later than, the earlier of
the date in question and the date before the "'ex' date," with respect to the
issuance, distribution or Offer requiring such computation (the "Current Market
Price"). If on such Trading Day the common stock is not quoted by any
organization referred to in the definition of the Last Sale Price in Section
11.03 hereof, the fair value of the common stock on such day, as reasonably
determined in good faith by the Board of Directors of the Company, shall be the
Current Market Price. For purposes of the definition of Current Market Price,
the term "'ex' date", when used with respect to any issuance, distribution or
payments with respect to an Offer, means the date on which the common stock
trades in a regular way on the New York Stock Exchange (or if not listed or
admitted to trading thereon, then on the principal national securities exchange
or automated quotation system if the common stock is listed or admitted to
trading thereon) without the right to receive such issuance, distribution or
Offer.
(h) In addition to the foregoing adjustments in subsections (a), (b),
(c), (d), (e) and (f) above, the Company, from time to time and to the extent
permitted by law, may reduce the Conversion Price by any amount for at least 20
Business Days, if the Board of Directors has made a determination, which
determination shall be conclusive, that such reduction would be in the best
interests of the Company. The Company shall cause notice of such reduction to be
mailed to each Holder of Debentures, in the manner specified in Section 11.08,
at least 15 days prior to the date on which such reduction commences. The
Company may, at its option, also make such reductions in the Conversion Price in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of shares of common stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for United States federal income tax purposes.
(i) In any case in which this Section 11.05 shall require that an
adjustment be made immediately following a record date, the Company may elect to
defer the effectiveness of such adjustment (but in no event until a date later
than the effective time of the event giving rise to such adjustment), in which
case the Company shall, with respect to any Debenture converted after such
record
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<PAGE> 47
date and on and before such adjustment shall have become effective (i) defer
paying any Cash payment pursuant to Section 11.03 hereof or issuing to the
Holder of such Debenture the number of shares of common stock and other capital
stock of the Company (or other assets or securities) issuable upon such
conversion in excess of the number of shares of common stock and other Capital
Stock of the Company issuable thereupon only on the basis of the Conversion
Price prior to adjustment, and (ii) not later than five Business Days after such
adjustment shall have become effective, pay to such Holder the appropriate Cash
payment pursuant to Section 11.03 hereof and issue to such Holder the additional
shares of common stock and other Capital Stock of the Company issuable on such
conversion.
(j) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1.0% of the
Conversion Price; provided, that any adjustments which by reason of this
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
11 shall be made to the nearest cent or to the nearest one hundredth of a share,
as the case may be.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly (i) file with the Trustee and each conversion agent an
Officers' Certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall be conclusive evidence of the correctness of such
adjustment, and (ii) mail or cause to be mailed a notice of such adjustment to
each holder of Debentures at his address as the same appears on the registry
books of the Company.
(l) In the event that the Company distributes rights or warrants (other
than those referred to in subsection (c) above) pro rata to holders of common
stock, so long as any such rights or warrants have not expired or been redeemed
by the Company, the Company shall make proper provision so that the Holder of
any Debenture surrendered for conversion will be entitled to receive upon such
conversion, in addition to the shares of common stock issuable upon such
conversion (the "Conversion Shares"), a number of rights or warrants to be
determined as follows: (i) if such conversion occurs on or prior to the date for
the distribution to the holders of rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same number of
rights or warrants to which a holder of a number of shares of common stock equal
to the number of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions of and applicable to the rights or
warrants, and (ii) if such conversion occurs after such Distribution Date, the
same number of rights or warrants to which a holder of the number of shares of
common stock into which the principal amount of such Debenture so converted was
convertible immediately prior to such Distribution Date would have been entitled
on such Distribution Date in accordance with the terms and provisions of and
applicable to the rights or warrants.
Section 11.06. Taxes on Conversion.
A Holder delivering a Debenture for conversion shall not be required to
pay any taxes or duties in respect of the issue or delivery of common stock on
conversion. However, the Company shall not be required to pay any tax or duty
that may be payable in respect of any transfer involved in the issue or delivery
of the common stock in a name other than that of the Holder of the Debenture.
Certificates representing shares of common stock will not be issued or delivered
unless the person requesting such issue has paid to the Company the amount of
any such tax or duty or has established to the satisfaction of the Company that
such tax or duty has been paid.
Section 11.07. Continuation of Conversion Privilege.
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If any of the following shall occur, namely: (a) any reclassification or
change of outstanding shares of common stock issuable upon conversion of the
Debentures (other than a change in par value, or from par value to no par value,
or from no par value, to par value, or as a result of a subdivision or
combination), (b) any consolidation or merger of the Company with or into any
other Person, or the merger of any other Person with or into the Company (other
than a merger which does not result in any reclassification, change, conversion,
exchange or cancellation of outstanding shares of common stock) or (c) any sale,
transfer or conveyance of all or substantially all of the assets of the Company
(computed on a consolidated basis), then the Company, or such successor or
purchasing entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental Indenture providing that the Holder of
each Debenture then outstanding shall have the right to convert such Debenture
only into the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale, transfer or conveyance by a holder of the number of
shares of common stock issuable upon conversion of such Debenture immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance assuming such holder of common stock of the Company failed to
exercise his rights of an election, if any, as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance (provided that if
the kind or amount of securities, cash, and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance is
not the same for each share of common stock of the Company held immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this Section 11.06 the
kind and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance by
each non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). Such supplemental
Indenture shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 11. If, in
the case of any such consolidation, merger, sale or conveyance, the stock or
other securities and property (including cash) receivable thereupon by a holder
of shares of common stock includes shares of stock or other securities and
property (including cash) of a corporation other than the successor or
purchasing corporation, as the case may be, in such consolidation, merger, sale
or conveyance, then such supplemental Indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the Holders of the Debentures as the Board of Directors of the
Company shall reasonably consider necessary by reason of the foregoing. The
provisions of this Section 11.07 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental Indenture shall be
mailed to each Holder of Debentures at his address as the same appears on the
registry books of the Company.
Neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental Indenture relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by Holders of
Debentures upon the conversion of their Debentures after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Article VII hereof, may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental Indenture) with respect thereto.
Section 11.08 Notice of Certain Events.
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In case:
(a) the Company shall declare a dividend (or any other distribution)
payable to the holders of common stock (other than cash dividends);
(b) the Company shall authorize the granting to the holders of common
stock of rights, warrants or options to subscribe for or purchase any shares of
stock of any class or of any other rights;
(c) the Company shall authorize any reclassification or change of the
common stock (including a subdivision or combination of its outstanding shares
of common stock), or any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or the
sale or conveyance of all or substantially all the property or business of the
Company;
(d) there shall be proposed any voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company or any of its Subsidiaries shall complete an Offer;
then, the Company shall cause to be filed at the office or agency maintained for
the purpose of conversion of the Debentures as provided in Section 11.02 hereof,
and shall cause to be mailed to each Holder of Debentures, at his address as it
shall appear on the registry books of the Company, at least 20 days before the
date hereinafter specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice stating the date on
which (1) a record is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options or Offer, or if a record is not to be
taken, the date as of which the holders of common stock of record to be entitled
to such dividend, distribution, rights, warrants or options or to participate in
such Offer are to be determined, or (2) such reclassification, change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective and the date, if any is to be fixed, as of which
it is expected that holders of common stock of record shall be entitled to
exchange their shares of common stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up.
Section 11.09. Company to Provide Stock.
The Company shall reserve, free from preemptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Debentures from time to time as such Debentures are presented for
conversion, provided, that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of Debentures by delivery of repurchased shares of common stock which
are held in the treasury of the Company.
If any shares of common stock to be reserved for the purpose of
conversion of Debentures hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible use all reasonable efforts
to secure such registration or approval, as the case may be, provided, however,
that nothing in this Section 11.09 shall be deemed to limit in any way the
obligations of the Company provided in this Article 11.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the common stock, the
Company will take all corporate action which may, in the Opinion of Counsel, be
necessary in order that the Company may validly and legally issue
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fully paid and non-assessable shares of common stock at such adjusted Conversion
Price.
The Company covenants that all shares of common stock which may be
issued upon conversion of Debentures will upon issue be fully paid and non
assessable by the Company and free of preemptive rights.
Section 11.10. Disclaimer of Responsibility for Certain Matters.
Neither the Trustee nor any agent of the Trustee shall at any time be
under any duty or responsibility to any Holder of Debentures to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the Officers' Certificate referred to in Section 12.05
hereof, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed, or herein or in any supplemental
Indenture provided to be employed, in making the same. Neither the Trustee nor
any agent of the Trustee shall be accountable with respect to the validity or
value (or the kind or amount) of any shares of common stock, or of any
securities or property (including cash), which may at any time be issued or
delivered upon the conversion of any Debenture; and neither the Trustee nor any
conversion agent makes any representation with respect thereto. Neither the
Trustee nor any agent of the Trustee shall be responsible for any failure of the
Company to issue, register the transfer of or deliver any shares of common stock
or stock certificates or other securities or property (including cash) upon the
surrender of any Debenture for the purpose of conversion or, subject to Article
VII hereof, to comply with any of the covenants of the Company contained in this
Article 11.
Section 11.11 Return of Funds Deposited for Redemption of Converted Debentures.
Any funds which at any time shall have been deposited by the Company or
on its behalf with the Trustee or any other Paying Agent for the purpose of
paying the principal of and interest on any of the Debentures and which shall
not be required for such purposes because of the conversion of such Debentures,
as provided in this Article 11, shall after such conversion be repaid to the
Company by the Trustee or such other Paying Agent.
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 12.02. Notices.
Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Standard Motor Products, Inc.
37-18 Northern Boulevard
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Long Island City, New York 11101
Telecopier No.: (718) 937-8219
Attention: _________________
With a copy to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178
Telecopier No.: (212) 808-7897
Attention: Brian G. Calvey, Esq.
If to the Trustee:
HSBC Bank USA
______________________________
______________________________
Telecopier No.: ( ) ___-____
Attention: ___________________
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Debentures with Other Holders of
Debentures.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Debentures. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
51
<PAGE> 52
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 11.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Debentures, this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Debentures.
Section 12.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE DEBENTURES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED
52
<PAGE> 53
THEREBY.
Section 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 12.10. Successors.
All agreements of the Company in this Indenture and the debentures shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
Section 12.11. Severability.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 12.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
53
<PAGE> 54
SIGNATURES
Dated as of ______, 1999
STANDARD MOTOR PRODUCTS, INC.
By:
Name:
Title:
Attest:
Name:
Title:
HSBC BANK USA
By:
Name:
Title:
Attest:
Authorized Signatory
Date:
54
<PAGE> 55
EXHIBIT A
[Face of Debenture]
________________________________________________________________________________
CUSIP/CINS ____________
__% Convertible Subordinated Debentures due 2009
No. ___ $75,000,000
STANDARD MOTOR PRODUCTS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on _____________, 200__.
Interest Payment Dates: ____________ and ____________
Record Dates: ____________ and ____________
Dated: _______________, ____
STANDARD MOTOR PRODUCTS, INC.
By:
Name:
Title:
By:
Name:
Title:
(SEAL)
This is one of the
Debentures referred to
in the within-mentioned
Indenture:
HSBC Bank USA
as Trustee
By: __________________________________
A-55
<PAGE> 56
EXHIBIT A
Authorized Signatory
[BACK OF DEBENTURE]
___% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2009
[Insert the Global Debenture Legend, if applicable pursuant to the provisions of
the Indenture]
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Standard Motor Products, Inc., a New York corporation (the
"Company"), promises to pay interest on the principal amount of this Debenture
at ___% per annum from ________________, 199__ until maturity. The Company will
pay interest semi-annually in arrears on ___________ and ___________ of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Debentures will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default in the payment of interest, and if this Debenture is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
_____________, 199__. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in
excess of the rate then in effect; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Debentures
(except defaulted interest) to the Persons who are registered Holders of
Debentures at the close of business on the ___________ or ___________ next
preceding the Interest Payment Date, even if such Debentures are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The
Debentures will be payable as to principal, premium, if any, and interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest may be made by check mailed to the Holders at their addresses set forth
in the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium on, all Global Debentures and all other Debentures the Holders
of which shall have provided wire transfer instructions to the Company or the
Paying Agent. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. Paying Agent and Registrar. Initially, HSBC Bank USA, the Trustee
under the Indenture, will act as Paying Agent and Registrar. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Debentures under an Indenture dated
as of ____________, 1999 ("Indenture") between the Company and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb). The Debentures are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the
A-56
<PAGE> 57
EXHIBIT A
extent any provision of this Debenture conflicts with the express provisions of
the Indenture, the provisions of the indenture shall govern and be controlling.
The Debentures are obligations of the Company limited to $75 million in
aggregate principal amount.
5. Optional Redemption.
(a) The Company shall not have the option to redeem the Debentures prior
to __________, 20__. Thereafter, the Company shall have the option to redeem the
Debentures, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on ___________ of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.................................................. ______%
2005.................................................. ______%
2006.................................................. ______%
2007.................................................. ______%
200_ and thereafter................................... 100.000%
</TABLE>
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Debentures.
7. Repurchase at Option of Holder.
If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Debentures at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of purchase (the
"Repurchase Price"). Notwithstanding the foregoing, the Company may, at its
option, in lieu of paying the Repurchase Price in cash, pay the Repurchase Price
by issuing shares of common stock. Within 30 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Debentures are to be redeemed at its registered address. Debentures in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Debentures held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Debentures or portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Debentures are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Debentures may be registered and Debentures may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Debenture or portion of a Debenture
selected for redemption, except for the unredeemed portion of any Debenture
A-57
<PAGE> 58
EXHIBIT A
being redeemed in part. Also, the Company need not exchange or register the
transfer of any Debentures for a period of 15 days before a selection of
Debentures to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Debenture may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Debentures may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Debentures voting as a single class, and any existing default or compliance with
any provision of the Indenture or the Debentures may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding
Debentures voting as a single class. Without the consent of any Holder of a
Debenture, the Indenture or the Debentures may be amended or supplemented to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Debentures in addition to or in place of certificated Debentures, to provide for
the assumption of the Company's obligations to Holders of the Debentures in case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Debentures or that does not
adversely affect the legal rights under the Indenture of any such Holder or to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest on the Debentures; (ii) default in
payment when due of principal of or premium, if any, on the Debentures when the
same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the Company
to comply with Section 4.09 of the Indenture; (iv) failure by the Company for 60
days after notice to the Company by the Trustee or the Holders of at least 25%
in principal amount of the Debentures then outstanding voting as a single class
to comply with certain other agreements in the Indenture, the Debentures; (v)
default under certain other agreements relating to indebtedness of the Company
which default results in the acceleration of such indebtedness prior to its
express maturity; or (vi) certain events of bankruptcy or insolvency with
respect to the Company or any of its Material Subsidiaries. If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Debentures may declare all the
Debentures to be due and payable. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Debentures will become due and payable without further action or
notice. Holders may not enforce the Indenture or the Debentures except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Debentures may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of the
Debentures notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Debentures then outstanding by
notice to the Trustee may on behalf of the Holders of all of the Debentures
waive any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Debentures. The Company is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may
A-58
<PAGE> 59
EXHIBIT A
make loans to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it
were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Debentures or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Debentures.
15. Authentication. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Debentures and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Debentures
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Standard Motor Products, Inc.
37-18 Northern Boulevard
Long Island City, New York 11101
Attention: ______________
A-59
<PAGE> 60
EXHIBIT A
ASSIGNMENT FORM
To assign this Debenture, fill in the form below:
(I) or (we) assign and transfer this Debenture to:
(Insert assignee's legal name)
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Debenture on the books of the Company. The agent may substitute
another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Debenture)
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-60
<PAGE> 61
EXHIBIT A
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Debenture purchased by the Company
pursuant to Section 4.09 of the Indenture, check the box below:
[ ]
If you want to elect to have only part of the Debenture purchased by the
Company pursuant to Section 4.09 of the Indenture, state the amount you elect to
have purchased:
$
Date:
Your Signature:
(Sign exactly as your name appears
on the face of this Debenture)
Tax Identification No.:
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-61
<PAGE> 62
EXHIBIT A
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL DEBENTURE*
The following exchanges of a part of this Global Debenture for an
interest in another Global Debenture or for a Definitive Debenture, or exchanges
of a part of another Global Debenture or Definitive Debenture for an interest in
this Global Debenture, have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Amount
Amount of Amount of [at maturity] of Signature of
decrease in increase in this Global authorized
Principal Principal Debenture officer of
Date of Amount Amount following such Trustee or
Exchange [at maturity] of [at maturity] of decrease Debenture
this Global this Global (or increase) Custodian
Debenture Debenture
</TABLE>
* This schedule should be included only if the Debenture is issued in global
form.
A-62
<PAGE> 1
EXHIBIT 5
Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178
July 20, 1999
Standard Motor Products, Inc.
37-18 Northern Boulevard
Long Island City, New York 11101
Ladies and Gentlemen:
We are acting as counsel to Standard Motor Products, Inc., a
New York corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") of a
Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"). The Registration Statement
relates to up to $86,250,000 in aggregate principal amount of Convertible
Subordinated Debentures (the "Convertible Debentures") and the underlying shares
of the Company's common stock, par value $2.00 per share, which may be issued
upon conversion thereof (the "Shares").
In connection with this opinion, we have examined and relied
upon copies certified or otherwise identified to our satisfaction of: (i) the
Registration Statement; (ii) the Company's Amended and Restated Certificate of
Incorporation, as amended, and Amended and Restated By-Laws; and (iii) the
minute books and other records of corporate proceedings of the Company, as made
available to us by officers of the Company; and have reviewed such matters of
law as we have deemed necessary or appropriate for the purpose of rendering this
opinion.
For purposes of this opinion we have assumed the authenticity
of all documents submitted to us as originals, the conformity to originals of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of all documents submitted to us as copies. We
have also assumed the legal capacity of all natural persons, the genuineness of
all signatures on all documents examined by us, the authority of such persons
signing on behalf of the parties thereto other than the Company and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company. As to certain factual matters material to the opinion
expressed herein, we have relied to the extent we deemed proper upon
representations, warranties and statements as to factual matters of officers and
other representatives of the Company. Our opinion expressed below is subject to
the qualification that we express no opinion as to any law other than the laws
of the State of New York, the corporate
<PAGE> 2
law of the State of Delaware and the federal laws of the United States of
America. Without limiting the foregoing, we express no opinion with respect to
the applicability thereto or effect of municipal laws or the rules, regulations
or orders of any municipal agencies within any such state.
Based upon and subject to the foregoing qualifications,
assumptions and limitations and the further limitations set forth below, it is
our opinion that (i) the Convertible Debentures have been duly authorized and
when duly executed and delivered against payment therefor will constitute valid
and legally binding obligations of the Company, and (ii) the Shares to be issued
by the Company upon conversion of the Convertible Debentures have been duly
authorized and reserved for issuance and, when certificates for the Shares have
been duly executed by the Company, countersigned by a transfer agent, duly
registered by a registrar for the Shares and issued upon conversion of the
Convertible Debentures in accordance with the terms thereof, the Shares will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this letter as an exhibit
to the Registration Statement and to the reference to our Firm in the Prospectus
included therein under the caption "Legal Matters.". In giving such consent, we
do not admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
promulgated thereunder.
This opinion is furnished to you in connection with the filing
of the Registration Statement and is not to be used, circulated, quoted or
otherwise relied upon for any other purpose.
Very truly yours,
/s/ KELLEY DRYE & WARREN LLP
2
<PAGE> 1
01/04/89
EMPLOYEE STOCK
OWNERSHIP PLAN
AND TRUST
OF
STANDARD MOTOR PRODUCTS, INC.
Effective January 1, 1989
<PAGE> 2
AGREEMENT made this 5th day of January, 1989, by and between
Standard Motor Products, Inc. (the "Company"), a corporation organized under the
laws of the State of New York, Mark S. Chanko, Sanford
Kay and Boris Jody (the "Trustees").
W I T N E S S E T H :
WHEREAS, the Company desires to adopt and establish an
employee stock ownership plan, known as the Employee Stock Ownership Plan and
Trust of Standard Motor Products, Inc. (the "Plan") in order to provide
retirement benefits for its eligible employees and their beneficiaries;
WHEREAS, the Company intends that the Plan meet the
requirements of an employee stock ownership plan under Section 4975 of the
Internal Revenue Code for its eligible employees; and
NOW, THEREFORE, in consideration of the premises, it is agreed
that the EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST OF STANDARD MOTOR PRODUCTS,
INC. is hereby adopted effective January 1, 1989.
<PAGE> 3
ARTICLE ONE
DEFINITIONS
1.1 "Account" means the separate account which the Trustees shall
maintain for a Participant under the Plan.
1.2 "Accounting Date" means the last day of the Plan Year or such other
interim valuation date as may be set by the Trustees.
1.3 "Beneficiary" means a person designated by a Participant, or
otherwise, who is or may become entitled to a benefit under the Plan.
1.4 "Break in Service" means an eligibility or vesting computation
period, as the case may be, during which a Participant has not completed more
than 500 Hours of Service. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the
Trustees shall credit Hours of Service during an Employee's unpaid absence
period due to maternity or paternity leave. The Trustees shall consider an
Employee on maternity or paternity leave if the Employee's absence is due to the
Employee's pregnancy, the birth of the Employee's child, the placement with the
Employee of an adopted child, or the care of the Employee's child immediately
following the child's birth or placement. The Trustees shall credit Hours of
Service under this paragraph on the basis of the number of Hours of Service the
Employee would receive if he were paid during the absence period or, if the
Trustees cannot determine the number of Hours of Service the Employee would
receive, on the basis of eight (8) hours per day during the absence period. The
Trustees shall credit only the number of Hours of Service (up to 501 Hours of
Service) necessary to prevent an Employee's Break in Service. The Trustees shall
credit all Hours of Service described in this paragraph to the computation
period in which the absence period begins or, if the Employee does not need
these Hours of Service to
I-1
<PAGE> 4
prevent a Break in Service in the computation period in which his absence period
begins, the Trustees shall credit these Hours of Service to the immediately
following computation period.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Company" means STANDARD MOTOR PRODUCTS, INC., a New York
corporation, and any successor thereto.
1.7 "Compensation" means the compensation as reported on Form W-2 and
including any salary deferral contributions made by the Employee pursuant to a
plan qualified under Section 401(k) of the Code, for services paid or accrued by
an Employer to an Employee during the Plan Year. For the purpose of allocating
contributions under Section 6.2 and for purposes of Article Twelve a
Participant's Compensation for a Plan Year in excess of $200,000, or such other
amount as may be specified by the Secretary of the Treasury or his delegates
pursuant to regulations issued under Sections 401(a)(17) and 415(d) of the Code,
shall not be recognized.
For the purposes of Section 6.4 and Article Twelve Compensation shall
include:
I) the participant's wages, salaries, fees for professional
service and other amounts received for personal services actually rendered in
the course of employment with the Employer maintaining the Plan (including, but
not limited to commissions paid salesmen, compensation for services on the basis
of a percentage of profits, commissions or insurance premiums, tips and
bonuses).
II) In the case of a Participant who is an Employee within of
Section 401(c)(l) and the regulations thereunder, the Participant's earned
income (as described in Section 401(c)(2) and the regulations thereunder).
I-2
<PAGE> 5
III) For purposes of subdivisions (I) and (II) of this
subparagraph, earned income from sources outside the United States (as defined
in Section 911(b)) of the Code, whether or not excludable from gross income
under Section 911 or deductible under Section 913.
IV) Amounts described in Sections 104(a)(3), 105(a) and
105(h), but only to the extent that these amounts are includible in the gross
income of the Employee.
V) Amounts described in Section 105(d), whether or not these
amounts are excludable from the gross income of the Employee under that Section.
VI) Amounts paid or reimbursed by the Employer for moving
expenses incurred by an Employee, but only to the extent that these amounts are
not deductible by the Employee under Section 217. VII) The value of a
non-qualified stock option granted to an Employee by the Employer, but only to
the extent that the value of the option is includible in the gross income of the
Employee for the taxable year in which granted.
VIII) The amount includible in the gross income of an Employee
upon making the election described in Section 83(b); but shall not include
i) Contributions made by an Employer to a plan of
deferred compensation to the extent that, before the application of the
section 415 limitations to that plan, the contributions are not
includible in the gross income of the Employee for the taxable year in
which contributed. In addition, Employer contributions made on behalf
of an Employee to a simplified Employee pension described in section
408(k) are not considered as compensation for the taxable year in which
contributed to the extent such contributions are deductible by the
Employee under section 219(b)(7). Additionally, any distributions from
a funded plan of deferred compensation are not considered as
I-3
<PAGE> 6
compensation for section 415 purposes, regardless of whether such
amounts are includible in the gross income of the Employee when
distributed. However, any amounts received by an Employee pursuant to
an unfunded non-qualified plan may be considered as compensation for
section 415 purposes in the year such amounts are includible in the
gross income of the Employee.
ii) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or property) held
by an Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture (see section 83 and the
regulations thereunder).
iii) Amounts realized from the sale, exchange, or other
disposition of stock under a qualified stock option.
iv) Other amounts which receive special tax benefits,
such as premiums for group term life insurance (but only to the extent
that the premiums are not includible in the gross income of the
Employee), or contributions made by an Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity contract
described in section 403(b) or under a Section 401(k) Plan (whether or
not the contributions are excludable from the gross income of the
Employee).
1.8 "Company Securities" means shares of common stock issued by the
Company which constitute "employer securities" as defined under Code Sections
409(1) and 4975(e)(8).
1.9 "Disability" means that a Participant, because of a physical or
mental disability, is unable to perform the duties of his customary position of
employment for an indefinite period which the Trustee considers will be of long
and continued duration. The Trustee may require a
I-4
<PAGE> 7
Participant to submit to a physical examination in order to confirm disability.
The Trustee shall make its determinations in a nondiscriminatory, consistent and
uniform manner.
1.10 "Disqualified Person" shall have the meaning ascribed to that term
under Code Section 4975(e)(2).
1.11 "Eligible Spouse" shall mean a Participant's spouse if the
Participant and such spouse had been married throughout the one year period
ending on the date of the Participant's death. To the extent provided in any
qualified domestic relations order, "Eligible Spouse" shall also mean a former
spouse of the Participant, if such former spouse and the Participant had been
married for at least one year.
1.12 "Employee" means any individual employed by an Employer.
1.13 "Employer" means the Company and any ERISA Affiliate that, with
the consent of the Company, hereafter adopts the Plan, as provided in Section
13.4.
1.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.15 "ERISA Affiliate" means any organization (whether or not
incorporated) which, together with the Company, is under "common control" or is
a member of an "affiliated service group" within the meaning of Sections 414(b),
414(c) and 414(m) of the Code, respectively.
1.16 "Exempt Loan" means a loan (including an extension of credit) used
by the Trust to finance the acquisition of Company Securities, which loan may be
made or guaranteed by a Disqualified Person, provided the loan satisfies the
requirements of Treasury Regulation 54.4975--7(b).
1.17 "Fair Market Value" means the fair market value as set by
procedures established by the Trustee that comply with Section 3(18) of ERISA
and Section 4975 of the Code.
I-5
<PAGE> 8
1.18 "Hour of Service" means:
a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Company. These hours shall be
credited to the Employee for the computation period or periods in which the
duties are performed, irrespective of when paid.
b) Each hour for which an Employee is paid, or entitled to
payment, by the Company on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), jury duty, military duty, or a leave of absence; authorized by the
Company under a uniform, nondiscriminatory policy applicable to all Employees.
c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Company. These hours shall be
credited to the Employee for the computation period or periods to which the
award or payment pertains, rather than the computation period in which the
award, agreement or payment is made, provided, however, that no more than 501
Hours of Service shall be credited under Paragraph (b) or this Paragraph (c) to
an Employee on account of any single continuous period during which the Employee
performs no services (whether or not such period occurs in a single Plan Year or
other computation period). These hours shall be credited to the Employee in
accordance with the rules of Paragraphs (b) and (c) of Labor Reg. 2530.200b-2
which the Plan hereby specifically incorporates by reference.
An Hour of Service shall not be credited to an Employee under more
than one of the above methods.
For the purposes of determining Hours of Service, the term
"Company" shall include all ERISA Affiliates regardless of whether they have
adopted the Plan, and the term
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<PAGE> 9
"Employee" shall include all employees regardless of whether they are covered by
a collective bargaining agreement. Where an Employer maintains a plan of a
predecessor employer, service with such predecessor employer shall be treated as
service with the Employer.
1.19 "Normal Retirement Age" means the date on which a Participant
attains sixty-five (65) years of age.
1.20 "Participant" means any present or former employee who is
qualified to participate and does participate in the Plan and for whom there
remains any balance in his Account.
1.21 "Plan" means the tax-qualified stock bonus plan established by the
Company hereunder, designed to invest primarily in Company Securities and known
as an the Employee Stock Ownership Plan and Trust of Standard Motor Products,
Inc..
1.22 "Plan Administrator" shall be the person designated by the Company
from time to time to have full responsibility for compliance with the reporting
and disclosure rules under the Act with respect to the Plan, and such other
duties as may be consistent therewith. If no such person is designated, the Plan
Administrator shall be the Company.
1.23 "Plan Year means the 12 consecutive month period beginning on
January and ending on December 31.
1.24 "Trust" means the entity created under the provisions of this
Plan.
1.25 "Trustees" means the party or parties, individual or corporate,
who are signatories to this Plan as Trustees, and any duly appointed additional
or successor Trustee or Trustees acting hereunder. The Trustees shall be the
"named fiduciaries" referred to in Section 402(a) of ERISA with respect to the
control, management and disposition of the assets of the Trust.
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<PAGE> 10
1.26 "Trust Fund" means the total of the contributions made by the
Employers to the Trust pursuant to the Plan, increased by profits, gains, income
and recoveries received, and decreased by losses, depreciation, benefits paid
and expenses incurred in the administration of the Trust. Trust Fund includes
all assets acquired by investment and reinvestment which are held in the Trust
by the Trustees.
1.27 "Year of Service" means a twelve (12) consecutive month period
during which an Employee is credited with at least 1,000 Hours of Service. For
purposes of determining an Employee's eligibility for participation in the Plan:
a) the initial twelve (12) consecutive month period shall begin on the first day
on which the Employee is credited with an Hour of Service; and b) the subsequent
twelve (12) consecutive month periods shall be Plan Years (including Plan Years
prior to the effective date of the Plan) beginning after the first day on which
the Employee is credited with an Hour of Service. In the case of an Employee who
incurs a Break in Service at a time when he is non-vested in any portion of his
benefit, and whose Breaks-in-Service exceeds the greater of (i) 5, or (ii) his
years of eligibility service prior to such Breaks in Service, his eligibility
service prior to such Breaks in Service shall be disregarded for eligibility
purposes, and the initial twelve (12) consecutive month period for determining
his eligibility for participation following such Breaks in Service shall begin
on the date such Employee first completes an Hour of Service following such
Breaks in Service.
1.28 "Year of Vesting Service" means any Plan Year, including Plan
Years prior to the effective date of this Plan, during which an Employee is
credited with at least 1,000 Hours of Service.
I-8
<PAGE> 11
ARTICLE TWO
PURPOSE
2.1 The Plan is established to provide for the participation of
employees in the growth of the Company by enabling them to acquire stock
ownership interests in the Company. The Plan is intended as a stock bonus plan
qualified under Section 401(a) of the Code and as an Employee Stock Ownership
Plan under Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA.
2.2 The Trust hereunder is designed to invest primarily in Company
Securities and is created for the exclusive benefit of Participants and their
Beneficiaries and shall be interpreted and administered at all times in a manner
consistent with the requirements of the Code and the Regulations thereunder
relating to qualified stock bonus plans and trusts and employee stock ownership
plans. Except as provided in Section 4.4 or Section 9.3(b), the principal or
income of this Trust shall not be paid to or revert to the Company or be used
for any purpose whatsoever other than the exclusive benefit of the Participants
or their Beneficiaries.
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<PAGE> 12
ARTICLE THREE
PARTICIPANTS
3.1 Each Employee who, on January 1, 1989, is a Participant in the
Standard Motor Products, Inc. Employees' Profit Sharing Plan and Trust shall
participate in this Plan as of January 1, 1989.
For all other Employees, the following eligibility rules shall
apply:
a) Employees who are hired on or after July 1 of any year will
become Participants on the January 1 following the completion of one Year of
Service.
b) Employees who are hired prior to July 1 of any year, complete
one thousand (1,000) Hours of Service by December 31 of the same year, and are
still employed by the Company as of such date, will become Participants on
January 1 immediately following their date of hire.
c) Employees who are hired prior to July 1 of any year, and who
either do not complete one thousand (1,000) Hours of Service or who are not
employed by December 31, will become Participants effective as of the January 1
immediately prior to the end of their completion of a Year of Service.
3.2 If a former Employee who has incurred a termination of employment
again becomes an Employee, then, unless his prior Years of Service are
disregarded for eligibility purposes in accordance with Section 1.27, his prior
service shall be recognized for eligibility purposes under Section 3.1 above and
he shall be eligible to participate in this Plan as of the later of the date he
again became an Employee, or the date he would have been eligible to participate
in the Plan in accordance with Section 3.1 above had he not incurred a
termination of employment.
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<PAGE> 13
3.3 Notwithstanding the foregoing, an Employee shall not be eligible to
participate in the Plan if he is covered by a collective bargaining agreement
between employee representatives and an Employer if retirement benefits were the
subject of good faith bargaining.
III-2
<PAGE> 14
ARTICLE FOUR
COMPANY CONTRIBUTIONS
4.1 Each Employer, or the Company acting on behalf of such Employer,
shall contribute to the Trust under the Plan for each Plan Year it is in effect
such an amount or amounts as it shall determine to be advisable.
4.2 The Trustees shall not be under any duty to inquire into the
correctness of the amounts contributed and paid over to the Trustees nor shall
they have any duty to enforce payment of any contributions to be made hereunder.
An Employer contributions may be made in whole or in part in cash or in the form
of Company Securities.
4.3 If more than one Employer maintains the Plan, the Trustees shall
account separately for each Employer's contributions under the Plan. The
Trustees shall allocate each Employer's contribution(s) for a Plan Year to the
Accounts of those Participants actually employed by that Employer during the
Plan Year. For purposes of Section 6.2, Compensation shall only include
compensation paid or accrued during the Plan Year by an Employer to those
Participants actually employed by that Employer during that Plan Year.
4.4 The establishment of the Plan and Trust by the Company is
contingent upon obtaining the approval of the Internal Revenue Service. In the
event that the Internal Revenue Service fails to approve the Plan and Trust, the
Trustees shall proceed to liquidate the Trust by paying all expenses and
returning all remaining assets to the Employers to which they are attributable
as promptly as practicable, but in no event later than one (1) year after the
date of the final resolution of any appeals before the Internal Revenue Service
or the courts. The Trust shall thereupon terminate. In the event an Employer
contribution is made under a mistake of fact, such contribution shall be
returned to the Employer within one (1) year after the payment of the
contribution, and if a contribution is conditioned upon the deductibility of
such contribution
IV-1
<PAGE> 15
under Section 404 of the Code, such contribution shall be returned to the
Employer (to the extent disallowed) within one (1) year after the disallowance
of the deduction. The Trustees may require an Employer to furnish whatever
evidence the Trustees deem necessary to enable the Trustees to confirm that the
amount an Employer has requested be returned is properly returnable under ERISA.
4.5 Employer contributions may be paid in cash in such amounts and at
such times as may be needed to provide the Trustees with cash sufficient to pay
any currently maturing Exempt Loan obligations, provided, however, that to the
extent provided in Section 11.12, such loan obligations (principal and interest)
may be paid from cash dividends on Company Securities held by the Plan.
IV-2
<PAGE> 16
ARTICLE FIVE
EMPLOYEE CONTRIBUTIONS
5.1 The Plan does not require nor permit contributions by Employees or
Participants.
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<PAGE> 17
ARTICLE SIX
ALLOCATIONS OF CONTRIBUTIONS AND FORFEITURES
6.1 The Trustees shall establish and maintain an Account in the name of
each Participant and shall determine the accrual of benefits on the basis of the
Plan Year.
6.2
a) Seventy Percent (70%) of the contributions for the Plan Year
made by an Employer shall be allocated to the Accounts of those Participants (A)
who have completed at least 1,000 Hours of Service during the Plan Year and who
are Employees or on maternity or paternity leave as of the last day of the Plan
Year or (B) who retire on or after their Normal Retirement Date, die or become
disabled during such Plan Year, in the ratio which the Compensation of each such
Participant for such Plan Year bears to the total Compensation of all such
Participants for such year.
b) Thirty Percent (30%) of the contributions made by an Employer
for a Plan Year shall be allocated to the Accounts of those Participants who (A)
have completed at least five (5) Years of Vesting Service by the last day of
such Plan Year, and (B) have either (I) completed at least one thousand (1,000)
Hours of Service during such Plan Year and remain employed or are on a maternity
or paternity leave on the last day of such year or (II) retired on or after
their Normal Retirement Date, died or become disabled during the Plan Year, in
the ratio of the Compensation of each such Participant for such Plan Year bears
to the total Compensation of all such Participants for such year.
c) Subject to any restoration allocation required under Section
7.5, the Trustees shall allocate forfeitures (in addition to the allocation of
contributions) to Accounts in the same manner as Employer contributions are
allocated pursuant to paragraphs (a) and (b)
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<PAGE> 18
above for the Plan Year in which such forfeiture occurs, and without regard to
the identity of the Employer who employed the Participant with respect to which
such forfeiture arose.
d) Notwithstanding the foregoing, for the Plan Year beginning
January 1, 1989, the Company may, in its discretion, direct the Trustees to
allocate all or any specific portion of the Employer contributions to the Plan
for such year to Accounts as follows: seventy percent (70%) of such contribution
shall be allocated to the Accounts of those Participants who have completed at
least one Year of Service by January 1, 1989 in the ratio which the Compensation
of each such Participant for calendar year 1988 bears to the total Compensation
of all such Participants for such year; and thirty percent (30%) of such
contribution shall be allocated to the Accounts of those Participants who
completed at least five Years of Service by January 1, 1989 in the ratio that
the Compensation of such Participant for calendar year 1988 bears to the total
Compensation of all such Participants for such year. Any Employer contributions
for the Plan Year beginning January 1, 1989 not allocated in accordance with
this Section 6.2(d), shall be allocated in accordance with paragraphs (a) and
(b) above.
6.3 In no event shall the Trustees allocate to the account of any
Participant in any Limitation Year an Annual Addition (as hereinafter defined)
in excess of the Maximum Permissible Amount (as hereinafter defined). If, as a
result of the allocation of forfeitures, a reasonable error in estimating a
Participant's annual compensation, or under other limited facts and
circumstances justify the availability of the rules set forth in this
subparagraph, the annual additionals under the terms of this Plan for a
particular Participant exceed the Maximum Permissible Amount applicable to that
Participant for the limitation year, the excess amounts shall not be deemed
annual additions in that limitation year, and the Trustees shall hold the excess
in a suspense account and allocate in the following Plan Year to the Account
from which
VI-2
<PAGE> 19
such excess arose. The Trustees shall not distribute any such excess to
Participants or former Participants.
6.4 For purposes of this Article:
a) Annual Addition shall mean the sum of the following amounts
allocated on behalf of a Participant for a Limitation Year: (i) all Employer
contributions; (ii) all forfeitures (including income allocable thereto) and
(iii) the amount of all non-deductible Participant contributions. For the
purposes of this Article, Annual Addition also shall include excess amounts
allocated to Accounts under Section 6.3. Notwithstanding the foregoing, any
Company contributions applied by the Trustees for any Limitation Year to pay
interest on an Exempt Loan and any shares of Company Securities acquired by the
Plan with the proceeds of an Exempt Loan which are allocated as forfeitures
pursuant to Section 6.2(b) for any Year shall not be included as Annual
Additions, provided that not more than one-third (1/3) of the Company
contributions applied to pay principal and interest on an Exempt Loan for such
Year are allocated to the Special Participant Group, as hereafter defined. The
Trustees may reallocate such Company contributions in order to satisfy this
special limitation.
Annual Additions also include amounts allocated after March 31,
1984, to an individual medical account (as defined in Code Section 415(1)
included as part of a defined benefit plan maintained by the Company.
Furthermore, Annual Additions include contributions paid or accrued after
December 31, 1985, for taxable years ending after December 31, 1985,
attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit fund (Code Section 419(e)) maintained by the Company.
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<PAGE> 20
b) Maximum Permissible Amount shall mean with respect to any
Participant for any Year the lesser of (i) $30,000 (or such greater amount as
the Secretary of the Treasury or his delegates may prescribe pursuant to
regulations under Section 415(d) of the Code), or (ii) twenty-five percent (25%)
of the Participant's Compensation. Notwithstanding the foregoing, such dollar
amount (i) may be increased by the lesser of (A) 100% of the dollar amount
otherwise applicable for that Plan Year or (B) the amount of Company Securities
allocated as Employer contributions to the Participant's Account for that Plan
Year provided no more than one-third of Employer contributions for such year are
allocated to the Accounts of members of the Special Participant Group and
provided further that the Employer's contribution if made in cash, is made no
later than thirty (30) days after the time prescribed by law, plus extensions,
for the filing of the Employer's income tax returns applicable to the taxable
year with or within which the Plan Year ends and that Company Securities are
purchased no later than sixty (60) days after the end of such period.
For these purposes "Special Participant Group" shall mean
participants who are highly compensated employees within the meaning of Section
414(q) of the Code.
c) Company shall mean all members of a group which constitutes a
controlled group of corporations (as defined in Code Section 414(b) as modified
by Code Section 415(h)), or which constitutes trades or businesses (whether or
not incorporated) which are under common control (as defined in Code Section
414(c) as modified by Code Section 415(h)), or which constitutes an affiliated
service group as defined by Code Section 414(m).
d) The Trustees shall treat all defined contribution plans
(whether or not terminated) maintained by the Company or any ERISA Affiliate as
a single plan.
VI-4
<PAGE> 21
6.5 If the Participant presently participates, or has ever
participated, under a defined benefit plan maintained by the Company or any
ERISA Affiliate, then the sum of the defined benefit plan fraction and the
defined contribution plan fraction for the Participant for that Limitation Year
shall not exceed 1.0. If in any Limitation Year the sum of the defined benefit
plan fraction and the defined contribution plan fraction on behalf of a
Participant exceeds 1.0, then the Company shall reduce the Participant's
projected annual benefit under the defined benefit plan to the extent necessary
to prevent the sum of the defined contribution plan fraction and the defined
benefit plan fraction from exceeding 1.0. For these purposes the following
definitions shall apply:
a) "Defined benefit plan" -- A retirement plan which does not
provide for individual accounts for Employer contributions. The Trustees shall
treat all defined benefit plans (whether or not terminated) maintained by the
Company or any ERISA Affiliate as a single plan and the Trustees shall treat all
defined contribution plans (whether or not terminated) maintained by the
Company, or any ERISA Affiliate as a single plan.
b) "Defined benefit plan fraction"--
projected annual benefit of the Participant under
the defined benefit plan(s)
The lesser of (i) l25% of the dollar limitation
in effect under Code Section 415(b)(l)(A) for the
Limitation Year, or (ii) 140% of the Participant's
average Compensation for his high three (3)
consecutive Years of Service
If the Employee was a Participant in one or more defined benefit
plans maintained by the Company or ERISA Affiliate which were in existence on
July 1, 1982, the denominator of this fraction will not be less than l25% of the
sum of the annual benefits under such plans which the Employee had accrued as of
the end of the 1982 Limitation Year (the last Limitation Year beginning before
January 1, 1983). The preceding sentence only applies if the defined benefit
VI-5
<PAGE> 22
plans individually and in the aggregate satisfied the requirements of Code
Section 415 as in effect at the end of the 1982 Limitation Year.
c) "Defined contribution plan fraction" --
the sum of the Annual Additions to the
Participant's Account under the defined contribution
plan(s) and defined benefit plan(s) as of the close
of the Limitation Year
the sum of the lesser of the following amounts
determined for the Limitation Year and for each prior Year
of Service with the Company or ERISA Affiliate: (i) 125% of the dollar
limitation in effect under Code Section 415(c)(l)(A) for the Limitation
Year (determined without regard to the special dollar limitations for
employee stock ownership plans), or ii) 35% of the Participant's
Compensation for the Limitation Year
At the discretion of the Trustees, in applying the provisions of this Section
6.5 with respect to the defined contribution plan fraction for any Plan Year
ending after December 31, 1982, the amount taken into account for the
denominator for each Participant for all Plan Years ending before January 1,
1983 shall be an amount equal to the product of the amount of the denominator
determined under this Section 6.5 (as in effect for the Plan Year ending in
1982) for Plan Years ending in 1982, multiplied by the "transition fraction".
This paragraph shall apply only if the plan was in existence on or before July
1, 1982.
For the purposes of the preceding paragraph, the term "transition
fraction" means a fraction (a) the numerator of which is the lesser of (1)
$51,875, or (2) 1.4 multiplied by twenty-five percent (25%) of the Participant's
Compensation for the Limitation Year ending in 1981, and, (b) the denominator of
which is the lesser of (1) $41,500, or (2) twenty-five percent (25%) of the
Participant's Compensation for the Limitation Year ending in 1981.
The Trustees may also modify the defined contribution fraction
with respect to any Participant in accordance with Section 1106(i)(4) of the Tax
Reform Act of 1986.
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<PAGE> 23
d) "Projected Annual Benefit" -- The annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if the plan
expresses such benefit in a form other than a straight life annuity or qualified
joint and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his normal
retirement age as stated in the defined benefit plan, his compensation continues
at the same rate as in effect in the Limitation Year under consideration until
the date of his normal retirement age and all other relevant factors used to
determine benefits under the defined benefit plan remain constant as of the
current Limitation Year for all future Limitation Years.
e) "Limitation Year" -- The Plan Year.
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<PAGE> 24
ARTICLE SEVEN
TERMINATION OF EMPLOYMENT
7.1 All payments made by the Trustees pursuant to this Article shall be
made in the manner provided in Article Eight.
7.2 A Participant's Account shall be 100% non-forfeitable upon his
attainment of his Normal Retirement Age (A) while employed by the Company or any
ERISA Affiliate or (B) while on maternity or paternity leave. The Account of a
Participant who remains in the employ of an Employer after attaining Normal
Retirement Age shall continue to share in Employer contributions.
7.3 When a Participant terminates employment prior to attaining Normal
Retirement Age because of death or disability, the Trustees shall commence
payment of the Participant's non-forfeitable Account Balance as determined under
Section 7.6 to him (or to his beneficiary if the Participant is deceased), in
accordance with the provisions of Article Eight.
7.4 In no event shall the Trustees commence payment under Section 7.2
later than the time prescribed by Article Eight.
7.5 The non-vested portion of a Participant's Account shall be
forfeited at the time the Participant incurs five (5) consecutive one-year
Breaks in Service or, if earlier, at the time the Participant receives a lump
sum distribution of the non-forfeitable portion of his Account upon his
termination of participation in the Plan. A distribution shall be deemed to be
made upon termination of participation in this Plan if such distribution is made
prior to the close of the second Plan Year following the Plan Year in which such
termination occurs. For purposes of this Section 7.5, if a Participant
terminates employment without having any non-forfeitable interest in his
Account, he shall be deemed to have received an immediate distribution of the
non-
VII-1
<PAGE> 25
forfeitable portion of such Account and thus the non-vested portion of the
Account shall at that time be forfeited.
In making a forfeiture, to the extent possible Company
Securities held in an Account that have been acquired pursuant to an Exempt Loan
shall be forfeited last. If a Participant's Account reflects an interest in more
than one (1) class of Company Securities, the Trustees shall treat a Participant
who incurs a forfeiture as forfeiting the same proportion of each such class.
Forfeitures arising under this Section 7.5 shall first be
applied to the restoration of previously forfeited amounts to the extent
required by Section 7.6. All or any portion of the remaining forfeitures shall
be allocated among the Accounts of Participants in the same manner as provided
in Section 6.2(a).
7.6 In the event that a former Participant who was not 100% vested in
his Account, and who received a lump sum distribution upon his termination of
employment prior to the time he incurred five (5) consecutive one-year Breaks in
Service and who forfeited a portion of his Account upon such distribution, is
re-employed by the Company or an ERISA Affiliate prior to the time he incurs
five (5) consecutive one-year Breaks in Service, such Participant may elect on a
form prescribed by the Trustees to repay to the Plan in cash, at an time prior
to the earlier of (A) five (5) years from his date of re-employment or (B) his
incurring five (5) consecutive one-year Breaks in Service, the full amount
distributed to him upon his termination of employment. In such event, the amount
repaid plus the amount forfeited by such Participant upon his prior termination
of employment will be restored and credited to his Account as of such Accounting
Date. Any forfeited amounts restored shall be derived, to the extent necessary,
from:
VII-2
<PAGE> 26
a) The amount, if any, of Participant forfeitures that would
otherwise be allocated under Section 7.6;
b) The amount, if any, of the Trust Fund net income or gain for
the Plan Year; and
c) The amount, if any, of Employer contributions under Section
4.01 for the Plan Year, as the Trustees, in their discretion, directs. To the
extent possible, such restoration of forfeitures shall be made in the form of
Company Securities.
7.7
a) A Participant's Account balance shall be one hundred (100)
percent non-forfeitable upon his death or becoming disabled (A) while employed
by the Company or an ERISA Affiliate or (B) while on maternity or paternity
leave.
b) A Participant shall receive for each Year of Vesting Service a
non-forfeitable right to such Account balance according to the following
schedule:
<TABLE>
<CAPTION>
Years of Vesting Service % of Non-forfeitable
-------------------------- Accrued Benefit
---------------------
<S> <C>
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
</TABLE>
7.8 The following rules shall apply to the determination of Years of
Vesting Service:
a) Years of Vesting Service before any Break in Service shall be
disregarded if a Participant terminates employment without any non-forfeitable
interest in his Account and the number of consecutive one-year Breaks in Service
equals or exceeds the greater of:
VII-3
<PAGE> 27
i) the aggregate number of Years of Vesting Service
prior to such consecutive Breaks in Service; or
ii) five (5).
b) Years of Vesting Service after any five (5) consecutive
one-year Breaks in Service shall not increase the non-forfeitable percentage of
the Participant's account which accrued before such Break in Service.
VII-4
<PAGE> 28
ARTICLE EIGHT
MANNER OF PAYMENT
8.1 Except as otherwise provided herein, the Trustees shall direct that
the distribution of the benefits payable to a Participant upon his retirement
after attaining his Normal Retirement Date, or to his Beneficiary upon his
death, commence as soon as practicable after the Accounting Date coincident with
or next following such event based upon the balance in such Participant's
Accounts as of such Accounting Date.
8.2 When a Participant incurs a Termination of Employment or a Total
and Permanent Disability, his benefits shall be distributed as soon as is
practicable after the Accounting Date coincident with or next following such
event based upon the value of the Participant's Account as of such date;
provided however, that if the value of such benefit exceeds $3,500 then
distribution of such benefit may not commence until the earlier of (A) the later
of his Normal Retirement Date or 62nd birthday, or (B) his death, unless the
Participant, at the time he incurs a Termination of Employment, consents to such
distribution.
8.3 Benefits shall be distributed in accordance with the following
methods:
a) All benefits payable on account of a Participant reaching his
Normal Retirement Date or on account of his Total and Permanent Disability or
Termination of Employment shall be paid in the form of a lump sum.
b) All benefits payable on account of a Participant's death shall
be distributed to his Beneficiary or Beneficiaries in a lump sum as soon as
practicable after the Accounting Date coincident with or next following the date
of such death, but in no event later than 12 months following such Accounting
Date.
VIII-1
<PAGE> 29
Notwithstanding the foregoing, in the event a Participant dies
before the distribution of his Account has begun, a Beneficiary may request in
writing that said distribution be made in a lump sum at some later date within
five (5) years after the Participant's death.
8.4 All benefits payable under the Plan shall be paid or provided for
solely by the Trust Fund. Neither the Company nor any other Employer assumes any
liability or responsibility therefor. Notwithstanding any provision hereof, and
unless the Participant otherwise elects, in no event shall the payment of
benefits commence later than sixty (60) days after the close of the Plan Year in
which occurs the latest of:
a) the Participant reaching his Normal Retirement Date;
b) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or,
c) the Participant's Termination of Employment.
8.5 a) A Participant may, with the approval of the Trustees, elect to
postpone the payment of his benefits, provided, however, that (A) in the case of
a Participant who attains age seventy and one-half (70 1/2) after December 31,
1987, his benefits shall commence no later than April 1 of the calendar year
following the calendar year in which he attains age seventy and one-half (70
1/2)), and (B) in the case of a Participant who attains age seventy and one-half
(70 1/2) before January 1, 1988, his benefits shall commence no later than April
1 of the calendar year following the later of (i) the calendar year in which he
attains age seventy and one-half (70 1/2), or (ii) the earlier of (I) the
calendar year with or within which ends the Plan Year in which he becomes a "5
percent owner" or (II) the calendar year in which he retires. For purposes of
this Section 8.05, a Participant shall be considered to be a "5% owner" if
during the Plan Year in which such Participant attain age sixty-six and one-half
(66 1/2) or any subsequent Plan Year the
VIII-2
<PAGE> 30
Participant is a 5% owner within the meaning of Section 416 of the Code,
ignoring for this purpose Plan Years beginning before January 1, 1980.
8.6 Each Participant may designate one or more Beneficiaries and
contingent Beneficiaries by delivering a written designation thereof to the
Trustees. Upon the death of a Participant, his Beneficiaries shall be entitled
to payment of benefits in an amount and in the manner provided in the Plan. A
Participant may change his Beneficiary designation at any time by delivering a
new written designation to the Trustees. The most recent designation received by
the Trustees shall supersede all prior designations. A designation of
Beneficiary shall be effective only if the designated Beneficiary survives the
Participant.
Notwithstanding the foregoing, if a Participant has an Eligible
Spouse on the date of his death, such Eligible Spouse shall be his sole primary
Beneficiary, unless the spouse delivers a written consent to the Trustees
waiving her right to be the sole primary Beneficiary. Such consent shall be in
favor of a specific alternate beneficiary who may not be changed without the
further consent of such spouse; provided, however, that an Eligible Spouse's
consent may expressly permit the Participant to select any alternate Beneficiary
at any time without the need for any additional consent by such spouse. An
Eligible Spouse's consent shall be irrevocable and shall contain an
acknowledgement by the Eligible Spouse of the effect thereof, and shall be
witnessed by a representative of the Plan or by a notary public. Such consent of
an Eligible Spouse shall not be required if it is established to the
satisfaction of the Trustees that the required consent cannot be obtained
because there is no Eligible Spouse, or an Eligible Spouse cannot be located, or
in other circumstances that may be prescribed by Treasury regulations.
8.7 If a Participant fails to designate a Beneficiary, in accordance
with Section 8.6, or if no designated Beneficiary survives the Participant, the
Participant's spouse, if he is married at
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the date of his death, shall be deemed to be his designated Beneficiary. If,
under such circumstances, the Participant is not married at the date of his
death, his designated Beneficiary shall be deemed to be his estate.
8.8 Whenever the rights of a Participant are stated or limited in the
Plan, his Beneficiary or Beneficiaries shall be bound thereby.
8.9 The Plan does not require the Trustees to search for, or ascertain
the whereabouts of, any Participant or Beneficiary. The Employer, by certified
or registered mail addressed to his last known address of record with the
Trustees, shall notify any Participant or Beneficiary that he is entitled to a
distribution under the Plan. If the Participant or Beneficiary fails to claim
his Accounts or make his whereabouts known in writing to the Trustees within
twelve (12) months of the date of mailing of the notice, or before the
termination or discontinuance of the Plan, whichever should first occur, the
Trustees shall treat the Participant's or Beneficiary's unclaimed Accounts as
forfeited and shall reduce Employer contributions, made pursuant to Section
4.01, by the amount forfeited for the Plan Year in which such forfeiture occurs.
If a Participant or Beneficiary who has incurred a forfeiture of his Accounts
under the provisions of this Section 8.09 makes a claim, at any time, for its
forfeited Accounts, the Trustees shall direct the Employer to restore the
Participant's or Beneficiary's forfeited Accounts to the same dollar amount as
the dollar amount of the Accounts so forfeited, unadjusted for any gains or
losses occurring subsequent to the date of forfeiture. The Employer shall make
the restoration within sixty (60) days after the close of Plan Year in which the
Participant or Beneficiary makes such claim.
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<PAGE> 32
ARTICLE NINE
ADMINISTRATION
9.1 The Company will furnish the Trustee with such information as the
Trustee may deem necessary to carry out the Plan, but assumes no obligation to
any Employee, Participant or Beneficiary for any act, or failure to act, of the
Trustee, or the Plan Administrator.
9.2 The Company will indemnify and save each Trustee and the Plan
Administrator harmless from and against any and all loss resulting from
liability to which he may be subjected by any act or conduct (except willful
misconduct or gross negligence) in his official capacity in the administration
of the Trust or Plan, except, however, from any liability he may have under the
Act for breach of a fiduciary duty.
9.3 a) Subject to paragraph (b) below relating to qualified domestic
relations orders, neither a Participant nor a Beneficiary shall anticipate,
assign or alienate any benefit under the Plan, and the Trustees shall not
recognize any such anticipation, assignment or alienation. Furthermore, a
benefit under the Plan is not subject to attachment, garnishment, levy,
execution or other legal or equitable process.
b) Nothing contained in this Plan shall prevent the Trustees from
complying with the provisions of a qualified domestic relations order (as
defined in Code Section 4l4(p).
The Plan Administrator shall establish reasonable procedures to
determine the qualified status of a domestic relations order upon receiving a
domestic relations order. The Plan Administrator promptly shall notify the
Participant and any alternate payee named in the order, in writing, of the
specific alternative beneficiary designated by the Participant. Notwithstanding
the foregoing, a Participant's Eligible Spouse may irrevocably receipt of the
order and the Plan's procedures for determining the qualified status of the
order. Within a reasonable period of time after receiving the domestic relations
order, the Plan Administrator shall determine the qualified
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<PAGE> 33
status of the order and shall notify the Participant and each alternate payee,
in writing, of its determination. The Plan Administrator shall provide notice
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations. The Plan Administrator may treat as qualified any domestic
relations order entered prior to January 1, 1985, irrespective of whether it
satisfied all the requirements described in Code Section 414(p).
If any portion of the Participant's non-forfeitable Account balance
is payable during the period the Plan Administrator is making its determination
of the qualified status of the domestic relations order, the Trustees shall
segregate the amounts payable in a separate account and to invest the segregated
account solely in fixed income investments. If the Plan Administrator determines
the order is a qualified domestic relations order within eighteen (18) months of
receiving the order, the Trustees shall distribute the segregated account in
accordance with the order. If the Plan Administrator does not make its
determination of the qualified status of the order within eighteen (18) months
after receiving the order, the Trustees shall distribute the segregated account
in the manner the Plan would distribute if the order did not exist and shall
apply the order prospectively if the Plan Administrator later determines the
order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Trustees may invest any partitioned
amount in a segregated subaccount or separate account and to invest the account
in federally insured, interest-bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
subaccount shall remain a part of the Trust, but it alone shall share in any
income it earns, and it alone shall bear any expense or loss it incurs.
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<PAGE> 34
The Trustees shall make any payments or distributions required
under this Section 9.3 (b) by separate benefit checks or other separate
distribution to the alternate payee(s).
9.4 Any Participant in the Plan or any Beneficiary may examine copies
of the Plan description, latest annual report, this Plan and Trust or any other
instrument under which the Plan was established or is operated. The Plan
Administrator will maintain such copies on the premises of the Company for
examination during reasonable business hours and will furnish copies at a
reasonable charge upon request of a Participant or Beneficiary.
9.5 The Trustees shall establish a funding policy and method consistent
with the objectives of the Plan and the requirements of Title I of ERISA. The
Trustees shall meet at least annually to review such funding policy and method.
All actions of the Trustees, and the reasons therefor, taken pursuant to this
Section 9.6 shall be recorded in the minutes of the meeting of the Trustees.
9.6 The Trustees, or an Investment Manager appointed by the Trustees,
shall have the sole and complete discretion with respect to the management and
control of the Trust Fund. The Trustees may reserve from investment such amounts
of cash as they, from time to time, deem necessary or advisable in the
administration of the Trust.
9.7 The Trust Fund shall be primarily invested in shares of Company
Securities. Notwithstanding the foregoing, each "qualified Participant" in the
Plan may elect within 90 days after the close of each Plan Year in the qualified
election period to direct the Trustees as to the investment of at least 25
percent of such Participant's Account in the Plan (to the extent such portion
exceeds the amount to which a prior election under this Section applies). In the
case of the election year in which the Participant can make his last election,
the preceding sentence shall be applied by substituting "50 percent" for "25
percent".
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<PAGE> 35
The Plan shall be treated as meeting requirements of this Section if
I) the portion of the Participant's Account covered by the
foregoing election is distributed within 90 days after the period during which
the election may be made, or
II) the Plan offers at least 3 investment options (not
inconsistent with regulations prescribed by the Secretary or the Treasury or his
delegate) to each Participant making an election under this Section,
For purposes of this Section, the term "qualified Participant" means
any Participant who has completed at least 10 years of participation under the
Plan and has attained age 55.
For purposes of this Section, the term "qualified election period"
means the six (6) Plan Year period beginning with the later of the first Plan
Year in which the individual first becomes a qualified Participant or the first
Plan Year beginning after December 31, 1986.
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<PAGE> 36
ARTICLE TEN
CLAIMS PROCEDURE
10.1 The Trustees shall establish a procedure for the resolution of
disputes and dispositions of claims arising under the Plan. Until modified by
the Trustees, this procedure is as follows:
Any of the Employees, former Employees, or any Beneficiaries
of such Employees or former Employees may, if they so desire, file with the
Trustees a written claim for benefits under the Plan. Within ninety (90) days
after the filing of such a claim, the Trustees shall notify the claimant whether
his claim is upheld or denied. The Trustees may, under special circumstances,
extend the period of time for processing a claim by an additional ninety (90)
days. If such an extension of time is required written notice shall be furnished
to the claimant or his duly authorized representative prior to the termination
of the initial ninety (90) day period. Such notice will indicate the special
circumstance requiring an extension. In the event the claim is denied, the
Trustees shall state in writing:
a) the specific reasons for the denial;
b) specific references to pertinent Plan provisions on
which the denial is based;
c) a description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
d) an explanation of the claim review procedure set
forth in this Section 13.01.
Within sixty (60) days after receipt of notice that his claim
has been denied, the claimant or his duly authorized representative may file
with the Trustees a written request for a
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<PAGE> 37
review hearing and may, in conjunction therewith, submit written issues and
comments. The Trustees shall then schedule, within sixty (60) days after the
filing of such request, a full and fair hearing of the claim before the
Trustees. The Trustees may, under special circumstances, extend such period of
time by an additional sixty (60) days. Prior to said hearing, the claimant or
his representative shall have a reasonable opportunity to review a copy of the
Plan, the Trust agreement, and other pertinent documents in the possession of
the Trustees. The Trustees shall communicate their decision in writing to the
claimant within thirty (30) days after the hearing. Any claim for benefits and
any request for a review hearing hereunder must be filed on forms to be
furnished by the Trustees upon a Participant's request.
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<PAGE> 38
ARTICLE ELEVEN
TRUSTEES POWERS AND DUTIES
11.1 The Trustees accept the Trust created hereunder and agree to
perform the obligations imposed. The Trustees shall provide bond for the
faithful performance of their duties under the Trust to the extent required by
law.
11.2 The Trustees shall have full discretion and authority regarding
the investment of the Trust Fund. The Trustees shall have, but not by way of
limitation, the following powers, rights, and duties: (a) to invest the Trust
Fund primarily in Company Securities ("primarily" meaning the power and
authority to acquire from Company shareholders or the Company or any ERISA
Affiliate at prices not in excess of fair market value not more than one hundred
percent (100%) of the Trust Fund in Company Securities) and to invest the
balance, if any, of the Trust Fund in any common or preferred stocks, bonds,
shares of investment companies, common trust funds, insurance contracts,
mortgages, notes or other property of any kind, real or personal, as a prudent
man would do under like circumstances with due regard for the purposes of the
Plan; (b) to retain in cash so much of the Trust Fund as they may deem advisable
without liability for obtaining the highest rate of interest available; (c) to
manage, sell, exchange, transfer and lease for any term, and otherwise deal with
all Trust property, real or personal, in such manner, for such consideration,
and on such terms and conditions as they shall deem best; (d) to borrow money by
mortgage, pledge or otherwise; (e) to compromise, contest, arbitrate or abandon
claims and demands in their discretion; (f) to have with respect to the Trust
all of the rights of an individual owner, including the power to give proxies,
participate in voting trusts, mergers, consolidations or liquidations and to
exercise or sell stock subscriptions or conversion rights; (g) to hold any
securities or other property in the name of the Trustees or a nominee, or in
another form as they deem best, without disclosing the trust relationship; (h)
to furnish to the Company
XI-1
<PAGE> 39
an annual statement of account showing the condition of the Trust Fund and all
investments, receipts, disbursements and other transactions affected by the
Trustees during the Year covered by the statement, and the assets of the Trust
held at the end of the Year, which statement of account shall be conclusive on
all persons unless objected to within ninety (90) days after receipt; and (i) to
borrow money, to assume indebtedness, including installment obligations, extend
mortgages and encumber by mortgage or pledge; provided however, if any loan
transaction is with a Disqualified Person or a Disqualified Person guarantees a
loan to the Plan or Trust, the following terms and conditions shall apply to
such Exempt Loan:
(1) The Trustees shall use the proceeds of the Exempt Loan within
reasonable time after receipt only for any or all of the following purposes: (i)
to acquire Company Securities, (ii) to repay such Exempt Loan, or (iii) to repay
a prior Exempt Loan. Except as may be expressly provided under this Plan no
Company Security acquired with the proceeds of an Exempt Loan may be subject to
a put, call or other option, or buy-sell or similar arrangement while held by
and when distributed from this Plan, whether or not this Plan is then a
leveraged employee stock ownership plan.
(2) The interest rate of the Exempt Loan shall not be more than a
reasonable rate of interest.
(3) Any collateral the Trustees pledge to the creditor shall consist
only of the Company Securities purchased by the borrowed funds and Company
Securities the Trust used as collateral on the prior Exempt Loan repaid with the
proceeds of the current Exempt Loan.
(4) The creditor shall have no recourse against the Trust under the
Exempt Loan except with respect to such collateral given for the Loan,
contributions (other than contributions of Company Securities) that the Company
makes to the Trust to meet its
XI-2
<PAGE> 40
obligations under the Loan, and earnings attributable to such collateral and the
investment of such contributions. The payment made with respect to an Exempt
Loan by the Plan during a Plan Year must not exceed an amount equal to the sum
of such contributions and earnings received during or prior to the year less
such payments in prior years. The Trustees and the Trustees must account
separately for such contributions and earnings in the books of account of the
Plan until the Trust repays the Loan.
(5) In the event of default upon the Exempt Loan, the value of Plan
assets transferred in satisfaction of the Loan must not exceed the amount of the
default, and if the lender is a Disqualified person, the Loan must provide for
transfer of Plan assets upon default only upon and to the extent of the failure
of the Plan to meet the payment schedule of the Loan.
(6) The Trustees must add and maintain all assets acquired with the
proceeds of an Exempt Loan in a Suspense Account. In withdrawing assets from the
Suspense Account, the Trustees shall apply the provisions of Treasury Regulation
54.4975-7(b)(8) as if all securities in the Suspense Account were encumbered.
Upon the payment of any portion of the Loan, the Trustees shall effect the
release of assets in the Suspense Account from encumbrances, and the pledge
agreement must so provide. For each Plan Year during the duration of the loan,
the number of Company Securities released must equal the number of encumbered
Company Securities held immediately before release for the current Plan Year
multiplied by a fraction. The numerator of the fraction is the amount of
principal paid for the Plan Year. The denominator of the fraction is the sum of
the numerator plus the principal to be paid for all future Plan Years. The
number of future Plan Years under the loan must be definitely ascertainable and
must be determined without taking into account any possible extension or renewal
periods, and may not exceed 10 years. Further, any such loan must provide for
annual payments of principal and
XI-3
<PAGE> 41
interest at a cumulative rate that not be less rapid at any time than level
annual payments of such amounts for 10 years. In determining principal, interest
shall be disregarded only to the extent that it would be determined to the
interest under standard amortization tables. If the collateral includes more
than one (1) class of Company Securities, the number of Company Securities of
each class to be released from a Suspense Account for a Plan Year must be
determined by applying the same fraction to each such class. The Trustees shall
allocate shares of Company Securities released from the Suspense Account to the
Accounts of Participants in accordance with Section 6.2 for the Plan Year with
respect to which the Trustees have paid the corresponding portion of the Exempt
Loan.
(7) The Exempt Loan must be for a specific term and may not be
payable at the demand of any person except in the case of default.
(8) Notwithstanding the fact this Plan ceases to be an
employee stock ownership plan, Company Securities acquired with the proceeds of
an Exempt Loan shall continue after the Trustees repay the Loan to be subject to
the provisions of Treasury Regulation 54.4975-7(b)(4), (10), (11) and (12) as
provided under Article Fifteen.
11.3 The Trustees (except full-time employees of an Employer or ERISA
Affiliate) shall receive such reasonable annual compensation as may be agreed to
from time to time between the Company and the Trustees, and shall pay all
expenses reasonably incurred from the Trust Fund unless the Company pays such
expenses.
11.4 The Trustees may employ agents, attorneys, accountants and other
persons and pay their reasonable compensation from the Trust Fund. No person
dealing with the Trustees shall be obligated to see to the proper application of
any money paid or property delivered to
XI-4
<PAGE> 42
them. The certificate of the Trustees that they are acting in accordance with
the Plan shall be conclusive in favor of any person relying thereon.
11.5 Any Trustee may resign at any time by giving thirty (30) days
advance written notice to the Company and the Trustees. The Company, by giving
thirty (30) days advance written notice to the Trustees, may remove any Trustee.
In the event of resignation or removal of a Trustee, the Company may appoint a
successor Trustee who shall succeed to the title of Trustee by accepting his
appointment in writing and shall have and enjoy all of the powers conferred
under this Agreement upon his predecessor. No successor Trustee shall be
personally liable for any act or failure to act of any predecessor Trustee.
11.6 The Trustees shall value the Trust Fund as of each Accounting Date
to determine the Fair Market Value of each Participant's Account, and shall
credit (or debit) each Account with its proportionate share of gains, earnings,
income, losses or expenses of the Trust Fund.
11.7 If there shall be more than one Trustee, they shall act by a
majority of their number at a meeting, but may authorize one or more of them to
sign papers on their behalf. The Trustees may also act by unanimous written
consent in lieu of a meeting.
11.8 Except as otherwise provided by ERISA, only the Company, the Plan
Administrator, and the Trustees shall be necessary parties to any court
proceeding involving the Trustees or the Trust Fund. No Participant or
Beneficiary shall be entitled to any notice of process unless required by the
Act. Any final judgment entered in any proceeding shall be conclusive upon the
Company, the Plan Administrator, the Trustees, Participants, and Beneficiaries.
11.9 Every Participant shall have the right to direct the Trustees as
to the exercise of any voting rights for the shares of Company Securities then
allocated to his Account with respect
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<PAGE> 43
to any matter which involves the voting of such shares with respect to the
approval or disapproval of any corporate merger or consolidation,
recapitalization, re-classification, liquidation, dissolution, sale of
substantially all assets of a trade of business, or such similar transaction as
the Secretary of the Treasury may prescribe by regulation. On other matters the
Trustees shall solicit and follow voting instructions from a Participant with
respect to shares of Company Securities entitled to vote that are then allocated
to his Account if the Company has a registration type class of Securities (as
defined in Section 409(e)(4) of the Code).
11.10 On a matter involving the voting of shares of Company Securities,
the Trustees shall vote the shares of Company Securities then held in the Trust
Fund (A) but not released from a Suspense Account or (B) otherwise not yet
allocated to the Account of any Participant or (C) allocated to the Account of a
Participant who has not provided the Trustees with the relevant voting
instructions as described in Section 11.9, in proportion to the voting
instructions of Participants as received by the Trustees with respect to such
matter as described in Section 11.9, to the extent that such voting procedure
does not violate the Trustees' duties under ERISA or other relevant law. If no
voting instructions are received or are required from Participants with respect
to a voting matter, the Trustees shall vote the shares of Company Securities
held in the Trust Fund (including shares of Company Securities held in a
Suspense Account and shares that have been allocated to the Accounts of
Participants) in a manner that they choose.
11.11 The Trustees and their assistants and representatives shall
distribute benefits under the Plan in whole shares of Company Securities valued
at fair market value at the time of distribution, cash, or a combination of
both, as they were determined, provided, however, a Participant shall have the
right to demand distribution entirely in whole shares of Company Securities
(with the value of any fractional share paid in cash or with the balance in the
Account
XI-6
<PAGE> 44
applied to provide whole shares of Company Securities for distribution at the
then fair market value). If the Company's charter or by-laws restrict ownership
of substantially all shares of Company Securities to employees and the Trust,
the distribution may be made entirely in cash without granting the Participant
the right to demand distribution in shares of Company Securities.
11.12 All or any portion of any cash dividends declared by the Company
with respect to shares of Company Securities held by the Trust as of the
ex-dividend date with respect to such dividends (including shares held in a
Suspense Account and shares that have been allocated to the Accounts of
Participants) may, at the discretion of the Company, be distributed to those
individuals who are Participants (or to the Beneficiaries of such Participants)
in the Plan as of such ex-dividend date (A) directly to such Participants (or
their Beneficiaries), or (B) through the Trust provided that the Trust in such
case distributes such dividends to such Participants (or Beneficiaries) within
90 days after the close of the Plan Year in which such dividends are paid. Those
Participants (or Beneficiaries) entitled to a share in a distribution of cash
dividends pursuant to this Section 11.12 shall receive such a distribution of
dividends in proportion to the number of shares of Company Securities allocated
to their Accounts as of the relevant ex-dividend date.
If the Company chooses not to distribute to Participants a
portion of any cash dividends declared with respect to shares of Company
Securities held by the Trust, then all, or any part, as the Company decides, of
the portion of such dividends that are not to be distributed may be used to
repay all or a part of the interest and/or principal on an Exempt Loan then
outstanding; provided, however, that dividends on shares of Company Securities
that have been allocated to the Account of a Participant may not be used to pay
interest or principal on an
XI-7
<PAGE> 45
Exempt Loan unless shares of Company Securities having a Fair Market Value not
less than the amount of such dividends so used are allocated to such Account for
the Plan Year in which such dividends are so used. To the extent that dividends
are not distributed to Participants or used to repay interest or principal on an
Exempt Loan, such dividends, to the extent paid with respect to shares of
Company Securities held in a Suspense Account shall be treated as an investment
gain of the Trust, and to the extent paid with respect to shares of Company
Securities allocated to the Accounts of Participants shall themselves be
allocated to such Accounts as income.
11.13 The Trustees and their assistants and representatives and the
Trustees and its members, assistants and representatives shall be free from all
liability for their acts and conduct in the administration of the Plan and Trust
except for acts of willful misconduct; provided, however, that the foregoing
shall not relieve any party from any liability for any responsibility,
obligation or duty they may arise pursuant to ERISA or the Code.
11.14 In the event of and to the extent not insured against by any
insurance company pursuant to provisions of any applicable insurance policy, the
Company shall indemnify and hold harmless, to the extent permitted by law, any
individual, but not corporate, Trustees and their assistants and representatives
and the Trustees and their assistants and representatives from any and all
claims, demands, suits or proceedings which may in connection with the Plan or
Trust be brought by the Company's Employees, Participants or their Beneficiaries
or legal representatives, or by any other person, corporation, entity,
government or agency thereof; provided, however, that such indemnification shall
not apply to any such person for such person's acts of willful misconduct in
connection with the Plan or Trust.
11.15 If a tender offer is made for all or a portion of the outstanding
shares of Company Securities, the Trustees shall poll the Participants with
regard to such tender offer on the basis of
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<PAGE> 46
the number of shares of Company Securities then allocated to their Accounts and
shall, to the extent consistent with their duties under ERISA or other relevant
law, tender the shares of Company Securities held in the Trust Fund (including
shares held in a Suspense Account or shares allocated to the Accounts of
Participants) if, and only if, the number of votes of Participants in favor of a
tender is greater than the number of votes of Participants opposed to tender.
XI-9
<PAGE> 47
ARTICLE TWELVE
TOP HEAVY RULES
12.1 Special Definitions. For the purposes of this Article Twelve, the
following words and phrases shall have the meanings set forth below:
a) "Aggregate Account" means, as of the Determination
Date, the sum of:
i) a Participant's account balance as of the most
recent valuation occurring within a twelve (12) consecutive
month period ending on the Determination Date, including, in
the case of a plan subject to the minimum funding standards of
Section 412 of the Code, amounts that would be allocated to
such account as of a date not later than the Determination
Date even though such amounts are not yet required to be
contributed to the plan by such Determination Date;
ii) an adjustment for any contribution due as of the
Determination Date. In the case of a plan not subject to the
minimum funding standards of Section 412 of the Code, such
adjustment shall be the amount of any contributions actually
made after the valuation date but on or before the
Determination Date. In the case of a plan that is subject to
the minimum funding standards of Section 412 of the Code, such
adjustment shall include any contribution made, or due to be
made, after the valuation date but before the expiration of
the extended payment period described in Section 412(c)(10) of
the Code. In the first plan year, such adjustment shall also
reflect the amount of any contributions made after the
Determination Date that are allocated as of a date in the
first plan year;
iii) any plan distributions made within the plan year
that includes the Determination Date or within the four (4)
preceding plan years. However, in the
XII-1
<PAGE> 48
case of distributions made after the valuation date and prior
to the Determination Date, such distributions are not included
as distributions for the purposes of this Article Twelve to
the extent that such distributions are already included in the
Participant's Aggregate Account balance as of the valuation
date. Notwithstanding anything herein to the contrary, all
distributions, including distributions made prior to the first
Plan Year beginning after December 31, 1983 will be counted.
iv) any employee contributions, whether voluntary or
mandatory provided, however, that amounts attributable to
"deductible employee contributions", as defined in Section
72(o)(5)(A) of the Code, if any, shall not be considered to be
a part of the Participant's Aggregate Account balance.
v) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both initiated by the
employee and made from a plan maintained by one employer to a
plan maintained by another employer that is not an ERISA
Affiliate), if the Plan provides for rollovers or plan-to-plan
transfers, it shall always consider such rollovers or
plan-to-plan transfers as a distribution for the purposes of
this Article Twelve.
vi) If the plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider any such
rollovers or plan-to-plan transfers accepted after December
31, 1983 as part of the Participant's Aggregate Account
balance. However, rollovers or plan-to-plan transfers accepted
prior to January 1, 1984 shall be considered as part of the
Participant's Aggregate Account balance.
XII-2
<PAGE> 49
vi) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated by the
employee or made to a plan maintained by an ERISA affiliate),
if the plan provides for rollovers or plan-to-plan transfers,
they shall not be counted as a distribution for purposes of
this Article Twelve. If the plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date on which
such rollover or plan-to-plan transfer is accepted.
vii) If any individual is a non-key Employee with
respect to any Plan for any Plan Year, but such individual was
a Key Employee with respect to such Plan for any prior Plan
Year, any accrued benefit for such Employee (and the account
of such Employee) shall not be taken into account.
viii) If any individual has not performed services
for the Employer maintaining the Plan at any time during the
5-year period ending on the determination date, any accrued
benefit for such individual (and the account of such
individual) shall not be taken into account.
b) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group, as hereinafter determined.
i) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of the
Employer in which a Key Employee is a Participant, or has been
a Participant (regardless of whether the Plan has terminated)
during the plan year containing the Determination Date, or in
any of the four (4) preceding plan years, and each other plan
of the employer
XII-3
<PAGE> 50
which enables any plan in which a Key Employee participates to
meet the requirements of Sections 401(a)(4) or 410 of the Code
during such period, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group. In the
case of a Required Aggregation Group, each plan in the group
will be considered a "Top Heavy Plan" if the Required
Aggregation Group is a Top Heavy Group. No plan in the
Required Aggregation Group will be considered a Top Heavy Plan
if the Aggregation Group is not a Top Heavy Group.
ii) Permissive Aggregation Group: the employer may
also include any other plan which provides comparable benefits
but is not required to be included in the Required Aggregation
Group, provided the resulting group, taken as a whole, would
satisfy the provisions of Sections 401(a)(4) and 410 of the
Code. Such group shall be known as a Permissive Aggregation
Group. In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
iii) Only those plans of the employer, in which the
Determination Dates fall within the same calendar year, shall
be aggregated in order to determine whether such plans are Top
Heavy Plans.
c) "Determination Date" means (1) the last day of the
preceding plan year, or (2) in the case of the first plan year, the
last day of such plan year.
XII-4
<PAGE> 51
d) "Key Employee" means any employee (former employee, or the
beneficiary of such employee) who, at any time during the plan year
containing the Determination Date or any of the preceding four (4) plan
years, is or was:
i) an "officer of the employer" (as defined within
the meaning of the regulations issued under Section 416 of the
Code) having annual compensation that, for a plan year,
exceeds l50% of the amount referred to in Section 415(c)(l)(A)
of the Code as in effect for the calendar year in which the
plan year ends.
ii) one of the ten (10) Employees owning (or
considered as owning within the meaning of Section 318 of the
Code) the largest percentage ownership interest in value in
the employer or in any of the employers required to be
aggregated under Sections 414(b), (c) or (m) of the Code, if:
(A) such ownership interest exceeds one-half percent (1/2%)
and, (B) if such Employee's annual compensation during the
Plan Year of such ownership exceeds the amount referred to in
Section 415(c)(l)(A) of the Code as in effect for the calendar
year in which such plan year ends. For purposes of determining
ownership in an entity other than a corporation, the rules of
Section 318 of the Code shall apply in a manner similar to the
way in which they apply for purposes of determining ownership
in a corporation. For non-corporate interests, capital or
profits interest must be substituted for stock.
iii) a "5-percent owner" of the employer. "5-percent
owner" means any employee who owns (or is considered as owning
within the meaning of Section 318 of the Code) more than five
percent (5%) of the value of the
XII-5
<PAGE> 52
outstanding stock of the employer or stock possessing more
than five percent (5%) of the total combined voting power of
all stock of the employer. If the Employer is not a
corporation, a 5 percent (5%) owner is any Employee who owns
more than 5 percent (5%) of the capital or profit interest in
the Employer.
iv) a "1-percent owner" of the employer having an
annual compensation from the employer of more than $150,000.
"1-percent owner" means any employee who owns (or is
considered as owning within the meaning of Section 318 of the
Code) more than one percent (1%) of the value of the
outstanding stock of the employer or stock possessing more
than one percent (1%) of the total combined voting power of
all stock of the employer. If the Employer is not a
corporation, a 1-percent owner is any Employee who owns more
than 1 percent of the capital or profit interest in the
Employer.
v) For the purposes of determining percentage
ownership in accordance with the provisions of this Article
Twelve, employers that would otherwise be aggregated under
Sections 414(b), (c) or (m) of the Code shall be treated as
separate employers. However, in determining whether an
employee has compensation of more than $150,000, compensation
from all employers required to be aggregated under Sections
414(b), (c) or (m) the Code shall be taken into account.
e) "Non-key Employee" means any Employee who is not a Key
Employee.
f) "Top Heavy Plan Year" means that, for a particular plan
year commencing after December 31, 1983, the Plan is a Top Heavy Plan.
XII-6
<PAGE> 53
12.2 Determination of Top Heavy Status.
a) An Aggregation Group shall be a "Top Heavy Group" for any
plan year commencing after December 31, 1983 in which, as of the
Determination Date, the sum of the Present Value of Accrued Benefits of
Key Employees and the Aggregate Account balances of Key Employees under
the plan and all plans of an Aggregation Group exceeds sixty percent
(60%) of the sum of the Present Value of Accrued Benefits and the
Aggregate Account balances of all employees under the plan and all
plans of the Aggregation Group.
b) The plan shall be a "Super Top Heavy Plan" for any plan
year commencing after December 31, 1983 in which, at the Determination
Date, the sum of the Present Value of Accrued Benefits of Key Employees
and the Aggregate Account balances of Key Employees under the Plan and
all plans of an Aggregation Group exceeds ninety percent (90%) of the
sum of the Present Value of Accrued Benefits and the Aggregate Account
balances of all employees under the plan and all plans of the
Aggregation Group.
c) "Present Value of Accrued Benefit" means, in the case of a
defined benefit plan, the present value of an Accrued Benefit, as
determined under the provisions of the applicable defined benefit plan
and in compliance with Reg. Section 1.416-1 (T-25 and T-26).
d) In determining Top Heavy Status, the accrued benefit of (I)
an individual who is not a Key Employee with respect to any Plan in an
Aggregation Group for a Plan Year, but who was a Key Employee with
respect to a Plan in an Aggregation Group for a prior Plan Year, and
(II) an individual who performed no services for the Company of an
ERISA Affiliate during the 5 year period ending on the Determination
Date, shall be disregarded.
12.3 Top Heavy Plan Requirements. For any Top Heavy Plan Year, the Plan
shall provide the following:
XII-7
<PAGE> 54
a) Special minimum benefit and contribution requirements of
Section 416(c) of the Code, pursuant to Section 12.4 of the plan.
b) Special vesting requirements of Section 416(b) of the Code,
pursuant to Section 12.7 of the plan.
c) Special compensation requirements of Section 416(d) of the
Code, pursuant to Section 12.6 of the plan.
d) Special benefit limitations of Section 416(h) of the Code,
pursuant to Section 12.5 of the plan.
12.4 Minimum Allocations and Benefits.
a) In the case of a defined contribution plan, for any Top
Heavy Plan Year, the sum of employer contributions and forfeitures
allocated to the account of each Non-key Employee who is a Participant
and who has not terminated employment by the end of such Plan Year
(including (A) Participants who fail to complete at least 1,000 Hours
of Service during the Plan Year, (B) employees who are excluded from
the plan or accrue no benefit because their compensation is less than a
stated amount, and (C) employees who are excluded from the Plan or
accrue no benefit because they fail to make mandatory contributions,
or, in the case of a plan intended to qualify under Section 401(k) of
the Code, elective contributions shall be equal to at least three
percent (3%) of such Non-Key Employee's compensation. However, should
the sum of the Employer's contributions and forfeitures allocated to
the account of each Key Employee for such Top Heavy Plan Year be less
than three percent (3%) of each such Key Employee's compensation, the
sum of the Employer's contributions and forfeitures allocated to the
account of each Non-key Employee who is a Participant (including the
employees referred to in the preceding sentence) shall be equal to the
highest percentage allocated to the account of a Key
XII-8
<PAGE> 55
Employee. The preceding sentence shall not apply to any plan required
to be included in an aggregation group if such plan enables a defined
benefit plan required to be included in such group to meet the
requirements of Section 401(a)(4) or Section 410 of the Code. For plan
years beginning after December 31, 1984, amounts that an employee
elects to defer pursuant to a plan intended to qualify under Section
401(k) of the Code shall be treated as employer contributions for
purposes of this paragraph.
b) In the case of a defined benefit plan, for any Top Heavy
Plan Year, the Accrued Benefit, when expressed as an Annual Retirement
Benefit (as defined below), of a Participant who is a Non-key Employee
and who has completed at least one thousand (1,000) Hours of Service
during the plan year (including employees who are excluded from the
Plan or accrue no benefit because their compensation is less than a
stated amount and employees who are excluded from the plan or accrue no
benefit because they fail to make mandatory contributions) will be at
least equal to the lesser of (I) the product of (A) an Employee's
average annual compensation for the period of consecutive years (not
exceeding five) when the Employee had the highest aggregate
compensation from the Employer and (B) 2% per year of service with the
Employer, or (II) 20%.
i) The foregoing defined benefit minimum is
determined without regard to any Social Security contribution
or benefit.
ii) "Annual Retirement Benefit" means a benefit which
commences at age 65 and is payable annually in the form of a
single life annuity.
iii) "A year of Top Heavy Service" shall be a Year of
Service as determined under the rules of Section 411(a)(4)(5)
and (6) of the Code, provided, however, that a Plan may
disregard any year of service if the Plan was not top
XII-9
<PAGE> 56
heavy for any Plan Year ending during such year of service, or
if the year of service was completed in a Plan Year beginning
before January 1, 1984.
c) Notwithstanding anything herein to the contrary, in any
plan year in which both a defined benefit plan and a defined
contribution plan are part of a Top Heavy group the following rules
shall apply: For each Non-key Employee who is participating in the Top
Heavy defined contribution plan maintained by the employer, the defined
contribution minimum, as provided under Section 12.4(b) above, shall
accrue, and the defined benefit minimum shall not be applicable. For
each other Non-key Employee who is a participant in the Top Heavy
defined benefit plan maintained by the Employer, the employer shall
satisfy the minimum contribution requirement of Section 12.4(b).
12.5 Multiple Plan Reduction for Top Heavy Plan Years.
a) For any Top Heavy Plan Year, 1.0 shall be substituted for
1.25 in the multiple plan reduction provisions of the plan, unless (1)
the defined contribution minimum is made pursuant to Section 12.4(a)
with "four percent (4%)" substituted for "three percent (3%)", or (2)
the defined benefit minimum accrues pursuant to Section 12.4(b) with
"three percent (3%)" substituted for "two percent (2%)", and "thirty
percent (30%)" substituted for "twenty percent (20%)". However, for any
plan year in which the plan is a Super Top Heavy Plan, 1.0 shall be
substituted for 1.25 without exception.
b) For any Top Heavy Plan Year, $41,500 shall be substituted
for $51,875 in determining the "transition fraction" defined in Code
Section 415(e)(6)(b)(i) as it applies to this Plan, unless the extra
minimum benefit accrual is made pursuant to Section 12.5(a). However,
for any limitation year in which the Plan is a Super Top Heavy Plan,
$41,500 shall be substituted for $51,875 without exception.
XII-10
<PAGE> 57
12.6 Includible Compensation.
Compensation in excess of $200,000 (or such other amount as
the Secretary of the Treasury may prescribe by the regulations issued under
Section 416 of the Code) shall be disregarded in determining a Participant's
benefit with respect to Top Heavy Plan Years, and, in the case of a defined
benefit plan, with respect to years prior to and including such Top Heavy Plan
Years; provided, however, that this paragraph shall not reduce the accrued
annual benefit of any Participant determined as of the end of the last year
before the plan became a Top Heavy Plan (but ignoring any plan amendments
subsequent to the date).
12.7 Minimum Vesting.
For any Top Heavy Plan Year, the vested interest in his
Accrued Benefit of each Participant who has been credited with at least one (1)
Hour of Service during such Top Heavy Plan Year (including benefits accrued
before the effective date of Section 416 of the Code and before the plan became
a Top Heavy Plan, but not including benefits that were forfeited before the plan
became a Top Heavy Plan) shall not be less than the applicable percentage of
Section 7.7(b) of the Plan, nor less than the applicable percentage indicated by
the following schedule:
<TABLE>
<CAPTION>
Years of Vesting Service Minimum Vesting Percentage
- ------------------------ --------------------------
<S> <C>
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
</TABLE>
For purposes of this Section 12.7, Years of Vesting Service which may be
disregarded under Section 411(a)(4) of the Code shall not be taken into account.
Should the plan cease to be a Top Heavy Plan, this minimum
vesting schedule shall no longer apply provided, however, that: (a) a
Participant's vested percentage shall not be
XII-11
<PAGE> 58
less than his vested percentage determined pursuant to the above minimum vesting
schedule as of the end of the last Top Heavy Plan Year, and (b) such reversion
to the original vesting schedule of the plan shall be treated as change in the
plan's vesting schedule so that for each Participant with three (3) or more
years of service the provisions of Section 14.6 of the Plan shall apply.
XII-12
<PAGE> 59
ARTICLE THIRTEEN
MISCELLANEOUS
13.1 The Trustees and the Company in no way guarantee the Trust Fund
from loss or depreciation, and the Company does not guarantee the payment of any
money which may be or becomes due to any person from the Trust Fund. The
liability of the Trustees to make any payment from the Trust Fund at any time
and all times is limited to the then available assets of the Trust Fund.
13.2 Words used in the masculine hereunder shall apply to the feminine
where applicable and the plural shall be read as the singular, and the singular
as the plural, wherever the context dictates.
13.3 All questions with respect to the interpretation of this Agreement
shall be determined by the laws of the State of New York, except to the extent
Federal law controls.
13.4 Conditional upon prior approval by the Company, any ERISA
Affiliate may participate in this Plan as a participating company, provided it
shall make, execute and deliver such instruments as the Company and the Trustees
shall require. Such an ERISA Affiliate shall accept the Company as its agent to
act for it in all transactions in which the Company believes such agency will
facilitate the administration of the Plan. Any such ERISA Affiliate may withdraw
from participation in this Plan upon written notice to the Company and the
Trustees, and upon such withdrawal this Plan shall automatically terminate
insofar as it relates to such withdrawing participating organization and its
employees.
13.5 Nothing contained in this Plan, or with respect to the
establishment of the Trust, or any modification or amendment to the Plan or
Trust, or in the creation of any Account, or the payment of any benefit, shall
give any Employee, Employee-Participant or any Beneficiary any right to continue
employment, any legal or equitable right against the Company, or Employee of
XIII-1
<PAGE> 60
the Company, or against the Trustees, or their agents or employees, or against
the Plan Administrator, except as expressly provided by the Plan, the Trust, the
Act or by a separate agreement.
XIII-2
<PAGE> 61
ARTICLE FOURTEEN
AMENDMENT AND TERMINATION
14.1 The Company has the right to amend this Agreement at any time it
deems necessary or advisable in order to maintain qualification of this Plan and
Trust under the Code. It may further amend this Agreement for any other purpose
provided no such amendment shall permit the Trust Fund to be used for or
diverted to purposes other than for the exclusive benefit of the Participants or
their beneficiaries or estates, or cause or permit any portion of the trust Fund
to revert to or become the property of the Company.
14.2 The Company shall make all amendments in writing which shall state
the date on which they are retroactively or prospectively effective.
14.3 The Company or any Employer has the right to suspend or
discontinue its contributions under the Plan at any time. The Company may at any
time terminate this Plan. The Plan shall terminate upon the first to occur of
the following: (a) the date terminated by action of the Company; (b) the date
the Company is judicially declared bankrupt or insolvent; (c) the dissolution,
merger, consolidation or reorganization of the Company or the sale by the
Company of all or substantially all of its assets, unless the successor or
purchaser makes provisions to continue the Plan, in which event the successor or
purchaser shall substitute itself as the Company under the Plan.
14.4 Notwithstanding any other provision of this Plan to the contrary,
upon the date of either partial or full termination of the Plan, or of complete
discontinuance of contributions to the Plan, an affected Participant's right to
his Account shall be one hundred (100) percent non-forfeitable.
14.5 The Trustees shall not consent to, or be a party to, any merger or
consolidation with another Plan, or to a transfer of assets or liabilities to
another Plan unless immediately after
XIV-1
<PAGE> 62
the merger, consolidation or transfer, the surviving Plan provides each
Participant a benefit equal to or greater than the benefit each Participant
would have received had the Plan terminated immediately before the merger,
consolidation or transfer. Upon termination of the Plan, the Trust shall
continue until the Trustees have distributed all of its benefits under the Plan.
14.6 The Company shall not amend the vesting schedule (and no amendment
shall be effective) if the amendment reduces the non-forfeitable percentage of
any Participant's Account balance derived from Employer contributions
(determined as of the later of the date the Company adopts the amendment or the
date the amendment becomes effective) to a percentage less than the
non-forfeitable percentage computed under the Plan without regard to the
amendment. If the Company amends the vesting schedule, each Participant having
completed at least three (3) Years of Service with the Company before this
expiration of the election period may irrevocably elect during the election
period to have the non-forfeitable percentage of his Account balance computed
under the Plan without regard to the amendment. For purposes of the preceding
sentence the election period shall begin no later than the date the Plan
amendment is adopted and end no earlier than the latest of (i) the date which is
sixty (60) days after the day the Plan amendment is adopted; (ii) the date which
is sixty (60) days after the day the Plan amendment becomes effective, or (iii)
the date which is sixty (60) days after the day the participant is given written
notice of the Plan amendment by the Company or the Trustees. The Plan
Administrator, as soon as practicable, shall forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the
XIV-2
<PAGE> 63
time within which the Participant must make an election to remain under the
prior vesting schedule.
XIV-3
<PAGE> 64
ARTICLE FIFTEEN
REPURCHASE OF COMPANY SECURITIES
15.1 Shares of Company Securities distributed by the Trustees shall be
subject to a "right of first refusal" which shall provide that, prior to any
subsequent transfer, such shares must first be offered in writing to the Company
and then if refused by the Company, to the Trust at the then Fair Market Value,
or, if greater, at the purchase price offered by the first buyer making a good
faith offer to purchase. A bona fide written offer from an independent
prospective buyer shall be deemed to be the fair market value of such shares for
this purpose. The Company and the Trustees (on behalf of the Trust) shall have
fourteen (14) days from the date the Company receives notice of the offer to
exercise the right of first refusal on the same terms offered by the prospective
buyer. A Participant (or Beneficiary) entitled to a distribution of Company
Securities shall be required to execute an appropriate stock transfer agreement
evidencing the right of first refusal prior to receiving a certificate for
Company Securities. The right of first refusal shall only apply if the Company
Securities otherwise subject thereto are not publicly traded at the time the
right is to be exercised. The right of first refusal shall be administered in
accordance with Treasury Regulation Section 54.4975-7(b)(9).
15.2 The Company shall issue a "put option" to each Participant
receiving a distribution of Company Securities from the Trust if such Company
Securities are not readily tradeable on an established market when distributed,
or are subject to a trading limitation. The put option shall permit the
Participant (or his Beneficiary) to sell such Company Securities to the Company
at any time during two option periods at their then Fair Market Value.
The first put option period shall be a period of at least
sixty (60) days beginning on the date of distribution of Company Securities to
the Participant. The second put option period shall be a period of at least
sixty (60) days beginning after the new determination of the
XV-1
<PAGE> 65
fair market value of Company Securities by the Trustees (and notice to the
Participant) in the next following Plan Year. The Company may permit the
Trustees to direct the Trustee to purchase Company Securities tendered to the
Company under a put option. Payment for such securities shall be made in a lump
sum, over a period beginning not later than 30 days after the exercise of the
put option. The put option shall be administered in accordance with Treasury
Regulation Section 54.4975-7(b)(l0,)(11) and (12).
15.3 Shares of Company Securities held or distributed by the Trustees
may include such legend restrictions on transferability as the Company may
reasonably require to assure compliance with applicable Federal and state
securities laws. Except as otherwise provided herein, no shares of Company
Securities held or distributed by the Trustees may be subject to a put, call or
other option or buy--sell or other similar arrangement.
15.4 If shares of Company Securities are not readily tradeable on an
established securities market, all valuations of such shares with respect to an
activity carried on by the Plan shall be made by an independent appraiser
meeting requirements similar to the requirements for an appraiser under
regulations promulgated by the Secretary of the Treasury or his delegates
pursuant to Section 170(a)(l) of the Code.
15.5 The provisions of this Article Fifteen shall continue to apply to
shares of Company Securities even if this Plan ceases to be an Employee Stock
Ownership Plan under section 4975 (e)(7) of the Code.
XV-2
<PAGE> 66
IN WITNESS WHEREOF, this Plan has been executed this 5th day of
January, 1989.
STANDARD MOTOR PRODUCTS, INC.
By: /s/
-------------------------------
/s/
-------------------------------
(Trustee)
/s/
-------------------------------
(Trustee)
/s/
-------------------------------
(Trustee)
ATTEST:
/s/
- -------------------------------
XV-3
<PAGE> 67
APPENDIX I
LIST OF ADOPTING EMPLOYERS
Name Effective Date of Adoption
- ---- --------------------------
Stanric, Inc. January 1, 1989
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE ONE DEFINITIONS........................................... I-1
ARTICLE TWO PURPOSE............................................... II-1
ARTICLE THREE PARTICIPANTS.......................................... III-1
ARTICLE FOUR COMPANY CONTRIBUTIONS................................. IV-1
ARTICLE FIVE EMPLOYEE CONTRIBUTIONS................................ v-1
ARTICLE SIX ALLOCATIONS OF CONTRIBUTIONS AND FORFEITURES.......... VI-1
ARTICLE SEVEN TERMINATION OF EMPLOYMENT............................. VII-1
ARTICLE EIGHT MANNER OF PAYMENT..................................... VIII-1
ARTICLE NINE ADMINISTRATION........................................ IX-1
ARTICLE TEN CLAIMS PROCEDURE...................................... X-1
ARTICLE ELEVEN TRUSTEES POWERS AND DUTIES............................ XI-1
ARTICLE TWELVE TOP HEAVY RULES....................................... XII-1
ARTICLE THIRTEEN MISCELLANEOUS......................................... XIII-1
ARTICLE FOURTEEN AMENDMENT AND TERMINATION............................. XIV-1
ARTICLE FIFTEEN REPURCHASE OF COMPANY SECURITIES...................... XV-1
</TABLE>
-i-
<PAGE> 69
An extra section break has been inserted above this paragraph. Do not
delete this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
I-1
<PAGE> 1
FIRST AMENDMENT TO
REVOLVING CREDIT AGREEMENT
FIRST AMENDMENT, dated as of December 8, 1998 (the
"Amendment"), to the CREDIT AGREEMENT, dated as of November 30, 1998, among
STANDARD MOTOR PRODUCTS, INC., a New York corporation (the "Borrower"), the
Lenders party thereto, THE CHASE MANHATTAN BANK, as administrative agent (in
such capacity, the "Administrative Agent") for the Lenders and CANADIAN IMPERIAL
BANK OF COMMERCE, as documentation agent (in such capacity, the "Documentation
Agent") for the Lenders
WITNESSETH:
WHEREAS, the Borrower, the Lenders, the Administrative Agent
and the Documentation Agent are parties to that certain Credit Agreement, dated
as of November 30, 1998 (the "Credit Agreement") and
WHEREAS, the Borrower, the Lenders, the Administrative Agent
and the Documentation Agent have agreed to amend the Credit Agreement to, among
other things, effectuate (i) an increase in and reallocation of the aggregate
amount of the Commitments and (ii) the addition of Banco Popular de Puerto Rico
("Banco Popular") as a Lender thereunder;
NOW, THEREFORE, it is agreed:
1. As used herein all terms that are defined in the Credit
Agreement shall have the same meanings herein.
2. The first "Whereas" clause contained in the Credit
Agreement is hereby amended by replacing the dollar amount "$100,000,000"
contained therein with "$110,000,000."
3. Section 1.01 of the Credit Agreement is hereby amended by
replacing the dollar amount "$100,000,000" contained in the definition of
"Commitment" with "$110,000,000."
4. Section 6.17 of the Credit Agreement is hereby amended by
replacing the chart contained therein with the following:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Debt Service Coverage Ratio
------------------------------------------------------------ -------------------------------------
<S> <C>
December 31, 1998 1.1 to 1
March 31, 1999 1.1 to 1
June 30, 1999 1.1 to 1
September 30, 1999 through the Maturity Date 1.25 to 1
</TABLE>
5. Section 6.19 of the Credit Agreement is hereby amended by
replacing the first
<PAGE> 2
proviso contained therein with the following:
"provided, that the Borrower may carry forward to the next
following year an amount not to exceed 20% of the entire
amount allowed for Capital Expenditures for such fiscal year;"
6. Schedule 2.01 to the Credit Agreement is hereby replaced in
its entirety by Annex A hereto.
7. Upon the occurrence of the Effective Date (as hereinafter
defined) of this Amendment, (i) Banco Popular shall become a party to the Credit
Agreement as a Lender and shall have the rights and obligations of a Lender
thereunder, and (ii) the respective Commitment of each of the Lenders under the
Credit Agreement shall be in the amount set forth opposite its name on Annex A
hereto, as the same may be reduced from time to time pursuant to Section 2.09 of
the Credit Agreement;
8. Promptly following the occurrence of the Effective Date,
and in accordance with Section 9.04(c) of the Credit Agreement, the
Administrative Agent shall record in the Register the names and addresses of
each Lender and the principal amount equal to such Lender's Commitment reflected
on Annex A hereto.
9. By its execution and delivery hereof, Banco Popular agrees
that any interest, Commitment fees and Letter of Credit fees (pursuant to
Sections 2.12 and 2.13 of the Credit Agreement) that accrued prior to the
Effective Date shall not be payable to Banco Popular and authorizes and directs
the Administrative Agent to deduct such amounts from any interest, Commitment
fees or Letter of Credit fees paid after the date hereof and to pay such amounts
to the other Lenders (it being understood that interest, Commitment fees and
Letter of Credit fees respecting the Commitment of each Lender (including Banco
Popular) which accrue on or after the Effective Date shall be payable to such
Lender in accordance with its Commitment).
10. This Amendment shall not become effective until the date
(the "Effective Date") on which (i) this Amendment shall have been executed by
the Borrower, the Lenders whose consent is required pursuant to Section 9.02(b)
of the Credit Agreement, the Administrative Agent and the Documentation Agent,
the Guarantors shall have acknowledged and agreed to the terms hereof, and the
Administrative Agent shall have received evidence satisfactory to it of such
execution and acknowledgment, and (ii) the Administrative Agent shall have
received all fees and other amounts due and payable on or prior to the Effective
Date, including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Borrower under
the Credit Agreement or any other Loan Document.
11. The Borrower agrees that its obligations set forth in
Section 9.03 of the Credit Agreement shall extend to the preparation, execution
and delivery of this Amendment.
12. This Amendment shall be limited precisely as written and
shall not be deemed (i) to be a consent granted pursuant to, or a waiver or
modification of, any other term or condition
- 2 -
<PAGE> 3
of the Credit Agreement or any of the instruments or agreements referred to
therein or (ii) to prejudice any right or rights which the Administrative Agent,
the Documentation Agent or the Lenders may now have or have in the future under
or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein. Whenever the Credit Agreement is referred to in
the Credit Agreement or any of the instruments, agreements or other documents or
papers executed or delivered in connection therewith, such reference shall be
deemed to mean the Credit Agreement as modified by this Amendment.
13. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
14. This Amendment shall in all respects be construed in
accordance with and governed by the laws of the State of New York applicable to
contracts made and to be performed wholly within such State.
[SIGNATURE ON FOLLOWING PAGE]
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as of the
day and the year first above written.
STANDARD MOTOR PRODUCTS, INC.
By _________________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By _________________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
Individually and as Documentation Agent
By _________________________________________
Name:
Title:
BANKBOSTON, N.A.
By _________________________________________
Name:
Title:
- 4 -
<PAGE> 5
BANK LEUMI USA
By _________________________________________
Name:
Title:
By _________________________________________
Name:
Title:
MARINE MIDLAND BANK
By _________________________________________
Name:
Title:
COMERICA BANK
By _________________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By _________________________________________
Name:
Title:
BANCO POPULAR DE PUERTO RICO
By _________________________________________
- 5 -
<PAGE> 6
Name:
Title:
- 6 -
<PAGE> 7
ACKNOWLEDGMENT OF GUARANTORS
Each of the undersigned hereby acknowledges and agrees to the
terms of, and to the execution, delivery and performance by each of the parties
to, this Amendment, and irrevocably and unconditionally ratifies and confirms
that the Subsidiary Guaranty to which it is a party shall remain in full force
and effect in accordance with its terms.
RENO STANDARD INCORPORATED
By _________________________________________
Name:
Title:
MARDEVCO CREDIT CORP.
By _________________________________________
Name:
Title:
STANRIC, INC.
By _________________________________________
Name:
Title:
INDUSTRIAL & AUTOMOTIVE
ASSOCIATES, INC.
By _________________________________________
Name:
Title:
MARATHON AUTO PARTS AND PRODUCTS, INC.
- 7 -
<PAGE> 8
By _________________________________________
Name:
Title:
- 8 -
<PAGE> 9
MOTORTRONICS, INC.
By _________________________________________
Name:
Title:
- 9 -
<PAGE> 10
ANNEX A
TO
FIRST AMENDMENT
SCHEDULE 2.01
COMMITMENTS
<TABLE>
<S> <C>
The Chase Manhattan Bank $20,000,000
Canadian Imperial Bank of Commerce 17,000,000
Comerica Bank 15,000,000
Marine Midland Bank 17,000,000
First Union National Bank 15,000,000
BankBoston, N.A. 15,000,000
Bank Leumi USA 5,000,000
Banco Popular de Puerto Rico 6,000,000
</TABLE>
<PAGE> 1
SECOND AMENDMENT TO
REVOLVING CREDIT AGREEMENT
--------------------------
SECOND AMENDMENT, dated as of July 16, 1999 (the "Amendment"), to the
CREDIT AGREEMENT, dated as of November 30, 1998, among STANDARD MOTOR PRODUCTS,
INC., a New York corporation (the "Borrower"), the Lenders party thereto, THE
CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"Administrative Agent") for the Lenders and CANADIAN IMPERIAL BANK OF COMMERCE,
as documentation agent (in such capacity, the "Documentation Agent") for the
Lenders.
W I T N E S S E T H;
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the
Documentation Agent are parties to that certain Credit Agreement, dated as of
November 30, 1998, as amended by that certain First Amendment to Revolving
Credit Agreement, dated as of December 8, 1999 (as the same may be further
amended, modified or supplemented from time to time, the "Credit Agreement");
and
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the
Documentation Agent have agreed to amend the Credit Agreement subject to and
upon the conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. As used herein all terms that are defined in the Credit Agreement shall
have the same meanings herein.
2. Section 6.01 of the Credit Agreement is hereby amended (i) by deleting
the word "and" at the end of subsection (m) thereof, (ii) by deleting the period
at the end of subsection (n) thereof and inserting in lieu thereof a semicolon
and the word "and", and (iii) by inserting the following new subsection "(o)" at
the end thereof:
"(o) subordinated Indebtedness of the Borrower, in an aggregate amount
not to exceed $86,250,000, pursuant to the Borrower's Convertible
Subordinated Debentures due 2009."
3. Section 6.06(a) of the Credit Agreement is hereby amended by deleting
the amount "$4,500,000" appearing in subsection (ii) thereof and inserting in
lieu thereof the amount "$5,000,000".
4. Section 6.06(b) of the Credit Agreement is hereby amended (i) by
deleting the word "and" at the end of subsection (iii) thereof, (ii) by deleting
the period at the end of subsection (iv) thereof and inserting in lieu thereof a
semicolon and the word "and", and (iii) by inserting the following new
subsection "(v)" at the end thereof.
"(v) prepayment of the Note Agreement Indebtedness from the proceeds
of the subordinated Indebtedness permitted by
<PAGE> 2
Section 6.01(o)."
5. This Amendment shall not become effective until the date (the "Effective
Date") on which (i) this Amendment shall have been executed by the Borrower,
Lenders representing the Required Lenders, the Administrative Agent and the
Documentation Agent, the Guarantors shall have acknowledged and agreed to the
terms hereof, and the Administrative Agent shall have received evidence
satisfactory to it of such execution and acknowledgment, and (ii) the
Administrative Agent shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be reimbursed
or paid by the Borrower under the Credit Agreement or any other Loan Document.
6. The Borrower agrees that its obligations set forth in Section 9.03 of
the Credit Agreement shall extend to the preparation, execution and delivery of
this Amendment.
7. This Amendment shall be limited precisely as written and shall not be
deemed (i) to be a consent granted pursuant to, or a waiver or modification of,
any other term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or (ii) to prejudice any right or rights which
the Administrative Agent, the Documentation Agent or the Lenders may now have or
have in the future under or in connection with the Credit Agreement or any of
the instruments or agreements referred to therein. Whenever the Credit Agreement
is referred to in the Credit Agreement or any of the instruments, agreements or
other documents or papers executed or delivered in connection therewith, such
reference shall be deemed to mean the Credit Agreement as modified by this
Amendment.
8. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
9. This Amendment shall in all respects be construed in accordance with and
governed by the laws of the State of New York applicable to contracts made and
to be performed wholly within such State.
[SIGNATURE ON FOLLOWING PAGE]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
STANDARD MOTOR PRODUCTS, INC.
By
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
Individually and as Documentation Agent
By
Name:
Title:
BANKBOSTON, N.A.
By
Name:
Title:
BANK LEUMI USA
By
Name:
Title:
By
Name:
3
<PAGE> 4
Title:
HSBC USA
By
Name:
Title:
COMERICA BANK
By
Name:
Title:
FIRST UNION NATIONAL BANK
By
Name:
Title:
BANCO POPULAR NORTH AMERICA
By
Name:
Title:
4
<PAGE> 5
ACKNOWLEDGMENT OF GUARANTORS
Each of the undersigned hereby acknowledges and agrees to the terms of, and
to the execution, delivery and performance by each of the parties to, this
Amendment, and irrevocably and unconditionally ratifies and confirms that the
Subsidiary Guaranty to which it is a party shall remain in full force and effect
in accordance with its terms.
RENO STANDARD INCORPORATED
By
Name:
Title:
MARDEVCO CREDIT CORP.
By
Name:
Title:
STANRIC, INC.
By
Name:
Title:
INDUSTRIAL & AUTOMOTIVE ASSOCIATES
INC.
By
Name:
Title:
MARATHON AUTO PARTS AND PRODUCTS,
INC.
By
Name:
Title:
5
<PAGE> 6
MOTORTRONICS, INC.
By
Name:
Title:
6
<PAGE> 1
EXHIBIT 23.1
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
We consent to the use of our reports included herein and incorporated
herein by reference and to the reference to our firm under the headings
"Selected Consolidated Financial Data" and "Experts" in the prospectus.
KPMG LLP
New York, New York
May 21, 1999
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
HSBC BANK USA
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, NY 10005-1180
(212) 658-1000 (Zip Code)
(Address of principle executive offices)
Warren L. Tischler
Senior Vice President
HSBC Bank USA
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-5167
(Name, address and telephone number of agent for service)
STANDARD MOTOR PRODUCTS, INC.
(Exact name of obligor as specified in its charter)
New York 11-1362020
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
37-18 Northern Boulevard
Long Island City, New York 11101
(612) 903-7829 (Zip Code)
(Address of principal executive offices)
% Convertible Subordinated Debentures Due 2009
(Title of Indenture Securities)
1
<PAGE> 2
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority
to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None
2
<PAGE> 3
Item 16. List of Exhibits.
Exhibit
T1A(i)
- Copy of the Organization
Certificate of HSBC Bank USA as
amended on December 17, 1998.
T1A(ii)
- Certificate of the State of New
York Banking Department dated
December 31, 1993 as to the
authority of HSBC Bank USA to
commence business, as amended
effective on March 29, 1999.
T1A(iii)
- Not applicable.
T1A(iv)
- Copy of the existing By-Laws of
HSBC Bank USA as adopted on January
20, 1994 as amended on October 23,
1997.
T1A(v)
- Not applicable.
T1A(vi)
* - Consent of HSBC Bank USA required
by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of
condition of the trustee (March 31,
1999), published pursuant to law or
the requirement of its supervisory
or examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
3
<PAGE> 4
EXHIBIT T1A(i)
CERTIFICATE OF AMENDMENT
OF THE ORGANIZATION CERTIFICATE OF
MARINE MIDLAND BANK
UNDER SECTION 8005 OF THE BANKING LAW
1. The name of the corporation is Marine Midland Bank.
2. The Organization Certificate of Marine Midland Bank was filed by
the Superintendent of Banks on December 31, 1993, and amended effective February
28, 1997.
3. Section FIRST of the Organization Certificate of Marine Midland
Bank is hereby amended to read as follows:
FIRST. That the name by which the corporation is to be known is HSBC
Bank USA.
4. The foregoing amendment was authorized by the Board of Directors of
Marine Midland Bank at a regular meeting held on December 17, 1998, and by the
unanimous written consent of HSBC Americas, Inc., the sole shareholder of Marine
Midland Bank.
/s/ I. Malcolm Burnett
----------------------
I. Malcolm Burnett
President and Chief Executive Officer
/s/ Philip S. Toohey
--------------------
Philip S. Toohey
Secretary
4
<PAGE> 5
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 11th day of February 1999, before me personally came I. Malcolm
Burnett, to me known, who, being by me duly sworn, did depose and say that he
resides in East Aurora, New York, that he is President and Chief Executive
Officer of Marine Midland Bank, the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation; and he verified that the information
contained therein is true.
Vicki L. Barbus /s/ Vicki L. Barbus
Notary Public, State of New York -------------------
Qualified in Erie County Notary Public
My Commission Expires December 14, 1999
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 11th day of February, 1999, before me personally came Philip S.
Toohey, to me known, who, being by me duly sworn, did depose and say that he
resides in Orchard Park, New York, that he is Executive Vice President, General
Counsel and Secretary of Maxine Midland Bank, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation; and he verified that the
information contained therein is true.
Vicki L. Barbus /s/ Vicki L. Barbus
Notary Public, State of New York -------------------
Qualified in Erie County Notary Public
My Commission Expires December 14, 1999
5
<PAGE> 6
[seal] STATE OF NEW YORK
BANKING DEPARTMENT
Know all Men by these Presents, Whereas, the organization certificate
of MARINE MIDLAND BANK of Buffalo, New York has heretofore been duly approved
and said MARINE MIDLAND BANK has complied with the provisions of Chapter 2 of
the Consolidated Laws, in respect of the conversion of MARINE MIDLAND BANK, N.A.
into a state trust company under the name MARINE MIDLAND BANK,
Now Therefore, I, DERRICK D. CEPHAS, as Superintendent of Banks of the
State of New York, do hereby authorize the said MARINE MIDLAND BANK to transact
the business of a Trust Company at One Marine Midland Center, Buffalo, Erie
County within this State.
[seal] In Witness Whereof, I have hereunto set my
hand and affixed the official seal of the
Banking Department, this 31st day of
December in the year one thousand nine
hundred and ninety-three.
/s/ Derrick D. Cephas
---------------------
Superintendent
6
<PAGE> 7
STATE OF NEW YORK
BANKING DEPARTMENT
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New York, DO
HEREBY APPROVE the annexed certificate entitled "Certificate of Amendment of the
Organization Certificate of MARINE MIDLAND BANK under Section 8005 of the
Banking Law" dated February 28, 1997, providing for increase of capital stock
from $185,000,000 to $225,000,000.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the official seal of the
Banking Department at New York, New York,
this 28th day of February, 1997.
/s/ Manuel Kursky
-----------------
Deputy Superintendent of Banks
7
<PAGE> 8
ORGANIZATION CERTIFICATE
OF
Marine Midland Bank
We, the undersigned all being of full age, all but one of us being
citizens of the United States and all of us being residents of the State of New
York, having associated ourselves together for the purpose of forming a trust
company under and pursuant to the Banking Law of the State of New York, do
hereby certify:
First. That the name by which the corporation is to be known is Marine
Midland Bank
Second. That the place where its principal office is to be located is
Buffalo, New York
Third. That the amount of its capital stock is to be One Hundred
Eighty-five Million and no/100 Dollars ($185,000,000.00) and the number of
shares into which such capital stock is to be divided is 1,850,000 with a par
value of $100.00 each.
Fourth. The shares are not to be classified as preferred and common.
If the shares are to be so classified,
(a) The number and par value of shares to be included in
each class are as follows:
not applicable
(b) All the designations, preferences, privileges and
voting powers of the shares of each class, and the
restrictions or qualifications thereof are as follows:
not applicable
[attach additional pages if required]
8
<PAGE> 9
(c) The number of shares of common stock which are to be reserved for
issuance in exchange for preferred shares or otherwise to replace any
capital stock represented by preferred shares is none
Fifth. The name, place of residence and citizenship of each incorporator,
and the number of shares subscribed for by each are:
<TABLE>
<CAPTION>
Full name Residence *Citizenship No. of Shares
<S> <C> <C> <C>
James H. Cleave New York Canada 0
John M. Endries New York New York 0
Bernard J. Kennedy New York New York 0
Northrup R. Knox New York New York 0
Henry J. Nowak New York New York 0
</TABLE>
*If a citizen of New York or a contiguous state, insert name of each state.
Sixth. The term of existence of the corporation is to be perpetual
Seventh. The number of directors is to be not less than seven or more
than thirty
Eighth. The names of the incorporators who shall be the directors
until the first annual meeting of stockholders are:
James H. Cleave John M. Endries
Bernard J. Kennedy Northrup R. Knox Henry J. Nowak
9
<PAGE> 10
Ninth. The corporation is to exercise the powers conferred by Section 100
of the Banking Law.
IN WITNESS WHEREOF, We have made, signed and acknowledged this certificate
in duplicate this 16th day of September 1993
/s/ James H. Cleave
/s/ John M. Endries
/s/ Bernard J. Kennedy
/s/ Northrop R. Knox
/s/ Henry J. Nowak
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 16th day of September 1993 personally appeared before me James H.
Cleave, John M. Endries, Bernard J. Kennedy, Northrup R. Knox, Henry J. Nowak to
me known to be the persons described in and who executed the foregoing
certificate, and severally acknowledged that they executed the same.
<TABLE>
<S> <C>
/s/ Helen Kujawa
Attach County Clerk's certificate HELEN KUJAWA No. 4884275
authenticating signature of Notary Public who Notary Public, State of New York
takes acknowledgment. Qualified in Erie County
My Commission Expires March 9, 1995
</TABLE>
10
<PAGE> 11
Ninth. The corporation is to exercise the powers conferred by Section 100
of the Banking Law.
IN WITNESS WHEREOF, We have made, signed and acknowledged this certificate
in duplicate this 16th day of September 1993
/s/ James H. Cleave
/s/ John M. Endries
/s/ Bernard J. Kennedy
/s/ Northrop R. Knox
/s/ Henry J. Nowak
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 16th day of September 1993 personally appeared before me James H.
Cleave, John M. Endries, Bernard J. Kennedy, Northrup R. Knox, Henry J. Nowak.
[seal]
<TABLE>
<S> <C> <C>
STATE OF NEW YORK, I, David J. Swarts, Clerk of the County of Erie and
COUNTY OF ERIE ss also Clerk of the Superior and County Courts for said
[seal] County, the same being Courts of Record, do hereby
certify that
/s/ Helen Kujawa
----------------
whose name is subscribed to the deposition,
certificate of acknowledgement of proof of the
annexed instrument, was at the time of taking the
same a NOTARY PUBLIC in and for the State of New York
duly commissioned and sworn and qualified to act as
such throughout the State of New York; that pursuant
to law a commission, or a certificate of his
appointment and qualifications and his autograph
signature have been filed in my office; that as such
Notary Public he was duly authorized by the laws of
the State of New York to administer oaths and
affirmations to receive and certify the
acknowledgement of proof of deeds, mortgages, powers
of attorney and other written instruments for lands,
tenements and hereditaments to be read in evidence or
recorded in this State, to protect notes and to take
and certify affidavits and depositions; and that I am
well acquainted with the handwriting of such Notary
Public, or have compared the signature on the annexed
instrument with his autograph signature deposited in
my office, and believe that the signature is genuine.
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said
County and Courts at Buffalo, this 17 day of September 1993. NP No. 7502
/s/ David J. Swarts
-------------------
David J. Swarts
Clerk
11
<PAGE> 12
ORGANIZATION CERTIFICATE
OF
"Marine Midland Bank
___________________________________"
Received this______day of
_______________________________19__
___________________________________
Superintendent of Banks
Filed for examination this ________
day of_______________________ 19__
___________________________________
Superintendent of Banks
_____________by the Banking Board,
at a meeting held on the _________
day of_______________________ 19__
___________________________________
Secretary of the Banking Board
___________________________________
this _______ day of ________, 19__
___________________________________
Superintendent of Banks
Filed in the office of
___________________________________
this________day of___________19__
___________________________________
Recorded in the office of
___________________________________
this________day of___________19__
12
<PAGE> 13
EXHIBIT T1A(ii)
STATE OF NEW YORK
BANKING DEPARTMENT
I, ROBERT H. McCORMICK, Deputy Superintendent of Banks of the State of New York,
DO HEREBY APPROVE the annexed certificate entitled "Certificate of Amendment of
the Organization Certificate of MARINE MIDLAND BANK under Section 8005 of the
Banking Law" dated February 11, 1999, providing for a change of name from MARINE
MIDLAND BANK to HSBC BANK USA effective March 29, 1999.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 4th day of March in the Year of our Lord
one thousand nine hundred and ninety-nine.
/s/ Robert H. McCormick
-----------------------
13
<PAGE> 14
Exhibit T1A(iv)
(Adopted January 20, 1994;
Amended October 23, 1997;
Name Changed March 29, 1999)
BY-LAWS
Of
HSBC BANK USA
(Formerly known as MARINE MIDLAND BANK)
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1.1. ANNUAL MEETING.
The annual meeting of the stockholders for the election of
directors and the transaction of such other business as may properly come before
the meeting shall be held in April each year at the office of the Bank, One HSBC
Center, City of Buffalo, State of New York.
Section 1.2. SPECIAL MEETINGS.
Except as otherwise specifically provided by statute, special
meetings of the stockholders may be called for any purpose at any time by the
Board of Directors, the Chairman of the Board, the President, the Chief
Executive Officer or the Secretary at such place and time and on such day as may
be designated in the notice of meeting. Business transacted at all special
meetings of stockholders shall be confined to the purposes stated in the notice
of meeting.
Section 1.3. QUORUM.
The holders of a majority of the stock issued and outstanding,
and entitled to vote thereat present in person or represented by proxy, shall
constitute a quorum at all meetings of stockholders, unless otherwise provided
by law.
Section 1.4. VOTING.
a. At any meeting of the stockholders each stockholder may vote in person or by
proxy duly authorized in writing. Each stockholder shall at every meeting of
stockholders be entitled to one vote for each share of stock held by such
stockholder. A majority of the votes cast shall decide every question or matter
submitted to the stockholders at any meeting, unless otherwise provided by law
or by the Organization Certificate.
b. Any action required to be taken at an annual or special meeting of
stockholders may be taken without a meeting by written consent setting forth the
action and signed by the holders of all of outstanding shares entitled to vote
thereon.
14
<PAGE> 15
Section 1.5. NOTICE OF MEETING.
Written notice of each meeting of stockholders stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called and the person or persons
calling the meeting., shall be delivered personally or shall be mailed postage
prepaid to each stockholder entitled to vote at such meeting, directed to the
stockholder at his or her address as it appears on the records of the Bank, not
less than ten or more than fifty days before the date of the meeting.
ARTICLE II
DIRECTORS
Section 2.1. BOARD OF DIRECTORS.
The Board of Directors (the "Board") shall have power to
manage and administer the business and affairs of the Bank and, except as
expressly limited by law, all corporate powers of the Bank shall be vested in
and may be exercised by the Board unless such powers are required by statute,
the Organization Certificate or these By-Laws to be exercised by the
stockholders.
Section 2.2. NUMBER AND TERM.
The Board shall consist of not less than seven or more than
thirty directors, the exact number within such minimum and maximum limits to be
fixed and determined from time to time by resolution of a majority of the entire
Board or by resolution of the stockholders at any meeting of stockholders.
Unless sooner removed or disqualified, each director shall hold office until the
next annual meeting of the stockholders and until the director's successor has
been elected and qualified.
Section 2.3. ORGANIZATION MEETING.
At its first meeting after each annual meeting of
stockholders, the Board shall choose a Chairman of the Board, a President and a
Chief Executive Officer from its own members and otherwise organize the new
Board and appoint officers of the Bank for the succeeding year.
Section 2.4. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the
Board and of stockholders and perform such duties as shall be assigned from time
to time by the Board. In the absence of the Chairman of the Executive Committee,
the Chairman of the Board shall act as Chairman of the Executive Committee.
Except as may be otherwise provided by the By-Laws or the Board, the Chairman of
the Board shall be a member ex officio of all committees authorized by these
By-Laws or the Board. The Chairman of the Board shall be kept informed by the
executive officers about the affairs of the Bank.
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Section 2.5. REGULAR MEETINGS.
The regular meetings of the Board shall be held each month at
the time and location designated by the Board. No notice of a regular meeting
shall be required if the meeting is held according to a schedule of regular
meetings approved by the Board.
Section 2.6. SPECIAL MEETINGS.
Special meetings of the Board may be called by the Chairman of
the Board, the President, the Chief Executive Officer or the Secretary or at the
written request of any three or more directors. Each member of the Board shall
be given notice stating the time and place of each such special meeting by
telegram, telephone or similar electronic means or in person at least one day
prior to such meeting, or by mail at least three days prior.
Section 2.7. QUORUM.
One third of the entire Board shall constitute a quorum at any
meeting, except when otherwise provided by law. If a quorum is not present at
any meeting, a majority of the directors present may adjourn the meeting, and
the meeting may be held, as adjourned, without further notice provided that a
quorum is then present. The act of a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board, unless
otherwise specifically provided by statute, the Organization Certificate or
these By-Laws.
Section 2.8. VACANCIES.
When any vacancy occurs among the directors, the remaining
members of the Board may appoint a director to fill each such vacancy at any
regular meeting of the Board or at a special meeting called for that purpose.
Any director so appointed shall hold office until the next annual meeting of the
stockholders and until the director's successor has been elected and qualified,
unless sooner displaced.
Section 2.9. Removal of Directors
Any director may be removed either with or without cause, at
any time, by a vote of the holders of a majority of the shares of the Bank at
any meeting of stockholders called for that purpose. A director may be removed
for cause by vote of a majority of the entire Board.
Section 2.10. COMPENSATION OF DIRECTORS.
The Board shall fix the amounts to be paid directors for their
services as directors and for their attendance at the meetings of the Board or
of committees or otherwise. No director who receives a salary from the Bank
shall receive any fee for attending meetings of the Board or of any of its
committees.
Section 2.11. ACTION BY THE BOARD.
Except as otherwise provided by law, corporate action to be
taken by the Board shall mean such action at a meeting of the Board or the
Executive Committee of the Board. Any
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one or more members of the Board of any committee may participate in a meeting
of the Board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 2.12. WAIVER OF NOTICE.
Notice of a meeting need not be given to any director who
submits a signed waiver of notice before or after the meeting or who attends the
meeting without protesting the lack of such notice prior to or at the
commencement of the meeting.
Section 2.13. ADVISORY AND REGIONAL BOARDS.
The Board, the Chairman of the Board, the President, the Chief
Executive Officer or any Regional President may establish Advisory Boards or
Regional Boards and committees thereof for any one or more of the Bank's
regions, offices, or departments and make or authorize appointments to be made
thereto. Appointees to such boards and committees need not be stockholders,
directors or officers of the Bank, and they shall have and perform only such
functions as may be assigned to them by, shall serve at the pleasure of, and
shall be compensated by fees fixed by the Board, the Chairman of the Board, the
President, the Chief Executive Officer or the Regional President making the
appointment.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1. EXECUTIVE COMMITTEE.
a. There shall be an Executive Committee which shall be composed of at least
five members elected by the Board from among its members at its first meeting
following the annual meeting of stockholders to serve for the ensuing year and
shall include the Chairman of the Board, the President, the Chief Executive
Officer and the Chairman of the Executive Committee, all of which offices may be
held by one person. The Chairman of the Board may appoint one or more directors
as alternate members to serve in place of any absent members of the Executive
Committee. Any vacancy in the Executive Committee shall be filled by the Board,
but until its next regular Board meeting may be filled temporarily by the
Chairman of the Board.
b. The Executive Committee shall possess and exercise all of the powers of the
Board except (i) when the latter is in session and (ii) as provided otherwise in
the New York Banking Law.
Section 3.2. CHAIRMAN OF THE EXECUTIVE COMMITTEE.
The Board shall appoint one of its members to be Chairman of
the Executive Committee. The Chairman of the Board, the President or the Chief
Executive Officer may at the same time be appointed Chairman of the Executive
Committee. The Chairman of the Executive
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Committee. The Chairman of the Board, the President or the Chief Executive
Officer may at the same time be appointed Chairman of the Executive Committee.
The Chairman of the Executive Committee shall preside at all meetings of the
Executive Committee, and the Chairman of the Executive Committee shall, in the
absence of the Chairman of the Board, the President and the Chief Executive
Officer, preside at all meetings of stockholders and the-Board. The Chairman of
the Executive Committee shall also perform such other duties and be vested with
such other powers as may from time to time be conferred upon him or her by these
By-Laws or as shall be assigned to him or her from time to time by the Board or
the Chief Executive Officer.
Section 3.3. MEETINGS OF THE EXECUTIVE COMMITTEE.
Meetings of the Executive Committee may be called by the
Chairman of the Board, the Chairman of the Executive Committee, the President,
the Chief Executive Officer or the Secretary and may be held at any place and at
any time designated in the notice thereof. Each member of the Executive
Committee shall be given notice stating the time and place of each such meeting,
by telegram, telephone or similar electronic means or in person at least one day
prior to such meeting, or by mail at least three days prior.
Section 3.4. EXAMINING COMMITTEE.
The Board shall designate an Examining Committee, which shall
hold office until the next annual meeting of the Board following the annual
meeting of stockholders, consisting of not less than three of its members, other
than officers of the Bank, and whose duty it shall be to make an examination at
least once during each calendar year and within 15 months of the last such
examination into the affairs of the Bank including the administration of
fiduciary powers, or cause suitable examinations to be made by auditors
responsible only to the Board and to report the result of such examination in
writing to the Board. Such report shall state whether the Bank is in a sound
condition, whether adequate internal controls and procedures are being
maintained and shall recommend to the Board such changes in the manner of
conducting the affairs of the Bank as shall be deemed advisable. The committee
shall at such time ascertain whether the Bank's fiduciary responsibilities have
been administered in accordance with law and sound fiduciary principles.
Section 3.5. OTHER COMMITTEES.
The Board may appoint, from time to time, from its own
members, committees of the Board of three or more persons, for such purposes and
with such powers as the Board may determine.
ARTICLE IV
OFFICERS
Section 4.1. APPOINTMENT OF OFFICERS.
At its annual meeting following the annual meeting of
stockholders, the Board shall appoint from among its members a Chairman of the
Board, a President, a Chief Executive Officer and a Secretary. The Chairman of
the Board or the President may also be appointed as the Chief Executive Officer.
At such meeting, the Board shall also appoint one or more Vice
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Presidents, and may at such meeting or at other meetings of the Board appoint
such other officers as it may determine from time to time. The Board may also
authorize a committee of the Board to appoint such officers as are not required
to be appointed by the Board at a meeting.
Section 4.2. DUTIES OF PRESIDENT.
In the absence of the Chairman of the Board, the President
shall preside at all meetings of the Board and of stockholders and in the
absence of the Chairman of the Executive Committee and the Chairman of the Board
shall preside at all meetings of the Executive Committee. Except as may be
otherwise provided by the By-Laws or the Board, the President shall be a member
ex officio of all committees authorized by these By-Laws of the Board. The
President shall have general executive powers, shall participate actively in all
major policy decisions and shall have and may exercise any and all other powers
and duties pertaining by law, regulation or practice to the Office of President
or imposed by these By-Laws. The President shall also have and may exercise such
further powers and duties as from time to time may be conferred or assigned by
the Board or the Chief Executive Officer.
Section 4.3. DUTIES OF CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall exercise general supervision
over the policies and business affairs of the Bank and the carrying out of the
policies adopted or approved by the Board. Except as otherwise provided by these
By-Laws, the Chief Executive Officer shall have the power to determine the
duties of the officers of the Bank and to employ and discharge officers and
employees. Except as otherwise provided by the By-Laws or the Board, the Chief
Executive Officer shall be a member ex officio of all committees authorized by
these By-Laws or created by the Board. In the absence of the Chairman of the
Board and the President, the Chief Executive Officer shall preside at all
meetings of the Board and of stockholders.
Section 4.4. DUTIES OF VICE PRESIDENTS.
Each Vice President shall have such titles, seniority, powers
and duties as may be assigned by the Board, a committee of the Board, the
President or the Chief Executive Officer.
Section 4.5. SECRETARY.
The Secretary shall be Secretary of the Board and of the Bank
and shall keep accurate minutes of all meetings of stockholders and of the
Board. The Secretary shall attend to the giving of all notices required to be
given by these By-Laws; shall be custodian of the corporate seal, records,
documents and papers of the Bank; shall provide for the keeping of proper
records of all transactions of the Bank; shall have and may exercise any and all
other powers and duties pertaining by law, regulation or practice to the office
of Secretary or imposed by these By-Laws; and shall also perform such other
duties as may be assigned from time to time by the Board, the President or the
Chief Executive Officer.
Section 4.6. OTHER OFFICERS.
The President or the Chief Executive Officer or his or her
designee may appoint all officers whose appointment does not require approval by
the Board or a committee of the
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Board and assign to them such titles as from time to time may appear to be
required or desirable to transact the business of the Bank. Each such officer
shall have such powers and duties as may be assigned by the Board, the President
or the Chief Executive Officer.
Section 4.7. TENURE OF OFFICE.
The Chairman of the Board, the President, the Chief Executive
Officer, the Chairman of the Executive Committee, the Secretary and the Vice
Presidents shall hold office for the current year for which the Board was
elected and until their successors have been appointed and qualified, unless
they shall resign, become disqualified or be removed. All other officers shall
hold office until their successors have been appointed and qualify, unless they
shall resign, become disqualified or be removed. All other officers shall hold
office until their successors have been appointed and qualify, unless they shall
resign, become disqualified or be removed. The Board shall have the power to
remove the Chairman of the Board, the President, the Chief Executive Officer,
the Chairman of the Executive Committee and the Secretary. The Board or the
Chief Executive Officer or his or her designee shall have the power to remove
all other officers and employees. Any vacancy occurring in the offices of
Chairman of the Board, President or Chief Executive Officer shall be filled
promptly by the Board.
Section 4.8. COMPENSATION.
The Board shall by resolution determine from time to time the
officers whose compensation will require approval by the Board or a committee of
the Board. The Chief Executive Officer shall fix the compensation of all
officers and employees whose compensation does not require approval by the Board
or a committee of the Board.
Section 4.9. AUDITOR.
The Board or the Chief Executive Officer shall appoint an
officer to fill the position of Auditor for the Bank and assign to such officer
such title as is deemed appropriate. The Auditor shall perform all duties
incident to the audit of all departments and offices and of all affairs of the
Bank. The Auditor shall be responsible to the Chief Executive Officer. The
Auditor may at any time report to the Board any matter concerning the affairs of
the Bank that, in the Auditor's judgment, should be brought to its attention.
Section 4.10. REGIONAL PRESIDENTS.
The Board may appoint one or more Regional Presidents. Each
Regional President shall have such powers and duties as may be assigned by the
Board or the Chief Executive Officer.
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ARTICLE V
FIDUCIARY POWERS
Section 5.1. FIDUCIARY RESPONSIBILITY.
The Board shall appoint an officer or officers or a committee
or committees of this Bank whose duties shall be to manage, supervise and direct
the fiduciary activities of the Bank as assigned by the Board. Such officer or
committee shall do or cause to be done all things necessary or proper in
carrying on the assigned activities in accordance with provisions of law and
applicable regulations and shall act pursuant to opinion of counsel where such
opinion is deemed necessary. Opinions of counsel shall be retained on file in
connection with all important matters pertaining to fiduciary activities. The
officer or committee shall be responsible for all assets and documents held by
the Bank in connection with fiduciary matters assigned by the Board.
Section 5.2. FIDUCIARY FILES.
Files shall be maintained containing all fiduciary records
necessary to assure that fiduciary responsibilities have been properly
undertaken and discharged.
Section 5.3. FIDUCIARY INVESTMENTS.
Funds held in a fiduciary capacity shall be invested in
accordance with the instrument establishing the fiduciary relationship and
applicable law. Where such instrument does not specify the character and class
of investments to be made and does not vest in the Bank a discretion in the
matter, funds held pursuant to such instrument shall be invested in investments
in which corporate fiduciaries may invest under applicable law.
ARTICLE VI
STOCK AND STOCK CERTIFICATES
Section 6.1. TRANSFERS.
Shares of the stock of the Bank shall be transferable on the
books of the Bank, only by the person named in the certificate or by an
attorney, lawfully constituted in writing, and upon surrender of the certificate
therefor. Every person becoming a stockholder by such transfer shall, in
proportion to his or her shares, succeed to all rights of the prior holder of
such shares.
Section 6.2. STOCK CERTIFICATES.
The certificates of stock of the Bank shall be numbered and
shall be entered in the books of the Bank as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the Chairman of
the Board, the President, the Chief Executive Officer or any Vice President and
by the Secretary or an Assistant Secretary.
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ARTICLE VII
CORPORATE SEAL
Section 7.1. CORPORATE SEAL.
The Chairman of the Board, the President, the Chief Executive
Officer, the Secretary or any Assistant Secretary, a Vice President or Assistant
Vice President or other officer designated by the Board or the Chief Executive
Officer or his or her designee shall have authority to affix the corporate seal
to any document requiring such seal and to attest the same. Such seal shall be
substantially in the following form:
(impression of seal)
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. FISCAL YEAR.
The fiscal year of the Bank shall be the calendar year.
Section 8.2. EXECUTION OF INSTRUMENTS.
a. All agreements, indentures, mortgages, deeds, conveyances, transfers,
certificates, declarations, receipts, discharges, releases, satisfactions,
settlements, petitions, schedules, accounts, affidavits, bonds, undertakings,
proxies and other instruments or documents may be signed, executed,
acknowledged, verified, delivered or accepted in behalf of the Bank or in
connection with the exercise of the fiduciary powers of the Bank, by the
Chairman of the Board, the President, the Chief Executive Officer, the Secretary
or any other officer, employee (other than the Auditor) or agent designated by
the Board or the Chief Executive Officer or his or her designee. Any such
instruments may also be executed, acknowledged, verified, delivered or accepted
in behalf of the Bank in such other manner and by such other officers as the
Board may from time to time direct. The provisions of this Section 8.2 are
supplementary to any other provision of these By-Laws.
b. When required, the Secretary or any officer or agent designated by the Board
or the Chief Executive Officer or his designee shall countersign and certify all
bonds or certificates issued by the Bank as trustee, transfer agent registrar or
depository. The Chief Executive Officer or any officer designated by the Board
or the Chief Executive Officer or his or her designee shall have the power to
accept in behalf of the Bank any guardianship, receivership, executorship or
other special or general trust permitted by law. Each of the foregoing
authorizations shall be at the pleasure of the Board, and each such
authorization by the Chief Executive Officer or his or her designee also shall
be at the pleasure of the Chief Executive Officer.
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Section 8.3. RECORDS.
The By-Laws and the proceedings of all meetings of the
stockholders, the Board and standing committees of the Board shall be recorded
in appropriate minute books provided for the purpose. The minutes of each
meeting shall be signed by the Secretary or other officer appointed to act as
secretary of the meeting.
Section 8.4. EMERGENCY OPERATIONS.
In the event of war or warlike damage or disaster of
sufficient severity to prevent the conduct and management of the affairs,
business and property of the Bank by its directors and officers as contemplated
by these By-Laws, any two or more available members of the then-incumbent
Executive Committee shall constitute a quorum of that committee for the full
conduct and management of the affairs, business and property of the Bank. In the
event of the unavailability at such time of a minimum of two members of the
then-incumbent Executive Committee, any three available directors shall
constitute the Executive Committee for the full conduct and management of the
affairs, business and property of the Bank. This by-law shall be subject to
implementation by resolutions of the Board passed from time to time for that
purpose, and any provisions of these By-Laws (other than this section) and any
resolutions which are contrary to the provisions of this section or to the
provisions of any such implementary resolutions shall be suspended until it
shall be determined by any interim Executive Committee acting under this section
that it shall be to the advantage of the Bank to resume the conduct and
management of its affairs, business and property under all of the other
provisions of these By-Laws.
Section 8.5. INDEMNIFICATION.
a. The Bank shall indemnify each person made or threatened to be made a party to
any action or proceeding, whether civil or criminal, by reason of the fact that
such person or such person's testator or intestate is or was a director or
officer of the Bank, or, while a director or officer, serves or served, at the
request of the Bank, 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 director or officer
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 nonjudicated disposition of any threatened or pending action
or proceeding unless the Bank has given its prior consent to such settlement or
other disposition.
b. The Bank shall advance or promptly reimburse upon request any director or
officer seeking indemnification hereunder for all expenses, including attorneys'
fees reasonably incurred in defending any action or proceeding in advance or 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
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extent the expenses so advanced or reimbursed exceed the amount to which such
person is entitled.
c. This Section 8.5 shall be given retroactive effect, and the full benefits
hereof shall be available in respect of any alleged or actual occurrences, acts
or failures to act prior to the date of the adoption of this Section 8.5. The
right to indemnification of advancement of expenses under this Section 8.5 shall
be a contract right.
Section 8.6. AMENDMENTS.
These By-Laws may be added to, amended, altered or repealed at
any regular meeting of the Board by a vote of a majority of the total number of
the directors, or at any meeting of stockholders, duly called and held, by a
majority of the stock represented at such meeting.
I, Helen Kujawa CERTIFY that I am the duly appointed Assistant
Corporate Secretary of HSBC Bank USA, formerly known as Marine Midland Bank,
and, as such officer, have access to its official records and the foregoing
By-Laws are the By-Laws of the Bank, and all of them are now lawfully in force
and effect.
IN TESTIMONY WHEREOF, I have hereunto affixed my official
signature and the seal of the Bank, in New York, on June 30, 1999.
[SEAL] /s/ Helen Kujawa
-----------------------------
Assistant Corporate Secretary
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HSBC Bank USA, a banking corporation and trust company organized under the laws
of the State of New York, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York and State of New York on the day ___of July, 1999.
HSBC BANK USA
By:_____________________________
James M. Foley
Assistant Vice President
25
