<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-79177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 9, 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]
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 for up to 179
of 360 consecutive days 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.
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>
25
<PAGE> 26
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 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.
26
<PAGE> 27
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 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.
27
<PAGE> 28
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 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
28
<PAGE> 29
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 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.
29
<PAGE> 30
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 increased working capital requirements are funding by borrowings from our
lines of credit. Our peak borrowing for the second quarter of 1998 and 1999 were
$82.4 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
30
<PAGE> 31
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 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.
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<PAGE> 32
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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<PAGE> 33
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]
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<PAGE> 34
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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<PAGE> 35
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]
-------------------------
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%.
35
<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]
- ---------------
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
36
<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."
37
<PAGE> 38
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]
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
39
<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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<PAGE> 42
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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<PAGE> 44
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
48
<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
49
<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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<PAGE> 52
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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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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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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<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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(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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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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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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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.
CHARACTERIZATION OF CONVERTIBLE DEBENTURES AS DEBT
Under applicable authorities, we intend to treat the Convertible Debentures
as indebtedness for United States federal income tax purposes. However, it is
possible that the Service will contend that the Convertible Debentures should be
treated as an equity interest in Standard Motor Products, rather than
indebtedness of Standard Motor Products. In the event that the Service treats
the Convertible Debentures as equity, the amount of any actual or constructive
74
<PAGE> 75
payments on any such Convertible Debenture would first be taxable to the holder
as dividend income to the extent of our current or accumulated earnings and
profits, and next would be treated as a return of capital to the extent of the
holder's adjusted tax basis in the Convertible Debenture, with any remaining
amount treated as gain from the sale of a Convertible Debenture. As a result,
until such time as we have earnings and profits for United States federal income
tax purposes, payments on any Convertible Debenture treated as equity will be a
nontaxable return of capital and will be applied against and reduce the adjusted
tax basis of such Convertible Debenture in the hands of its holder (but not
below zero) and any excess will be treated as gain from the sale of the
Convertible Debenture. In addition, in the event of equity treatment, we would
not be entitled to deduct interest on the Convertible Debentures for United
States federal income tax purposes. The remainder of this discussion assumes
that the Convertible Debentures will constitute our indebtedness for United
States federal income tax purposes.
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.
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
75
<PAGE> 76
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 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.
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<PAGE> 77
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 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.
77
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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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<PAGE> 79
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.
Gabelli & Company, Inc., an affiliate of the Company, will participate in
the offering. Because of the relationship between Gabelli & Company, Inc. and
the Company, the Offering is being conducted in accordance with Rule 2720 of the
National Association of Securities Dealers. That rule requires that the public
offering price of the Convertible Debentures can be no higher than that
recommended by a "qualified independent underwriter", as defined by the NASD.
Goldman, Sachs & Co. will serve in that capacity and has performed due diligence
investigations and reviewed and participated in the preparation of the
registration statement of which this Prospectus forms a part. Goldman, Sachs &
Co. will receive $10,000 from the Company as compensation for such role.
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 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 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)
</TABLE>
II-3
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
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)
12** Statement relating to Computation of Ratios
23.1 Consent of KPMG LLP, Independent Auditors
23.2* Consent of Kelley Drye & Warren LLP
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>
- ---------------
* To be filed by amendment.
** Filed on May 24, 1999 as the same numbered exhibit to the initial filing of
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 shall be deemed
to be part of this registration statement as of the time it was
declared effective.
II-4
<PAGE> 120
(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. 1 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 9, 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. 1 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 9, 1999
- ------------------------------------------ Officer (Principal Executive Officer)
Lawrence I. Sills
* Senior Vice President, Administration and July 9, 1999
- ------------------------------------------ Finance, Chief Financial Officer
Michael J. Bailey (Principal Financial Officer)
* Director of Finance (Chief Accounting July 9, 1999
- ------------------------------------------ Officer)
James J. Burke
* Chairman, Director July 9, 1999
- ------------------------------------------
Nathaniel L. Sills
* Director July 9, 1999
- ------------------------------------------
Marilyn F. Cragin
* Director July 9, 1999
- ------------------------------------------
Arthur D. Davis
* Director July 9, 1999
- ------------------------------------------
Robert J. Swartz
* Director July 9, 1999
- ------------------------------------------
William H. Turner
* Director July 9, 1999
- ------------------------------------------
Susan F. Davis
* Director July 9, 1999
- ------------------------------------------
Robert M. Gerrity
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Director July 9, 1999
- ------------------------------------------
John L. Kelsey
* Director July 9, 1999
- ------------------------------------------
Andrew M. Massimilla
* Director July 9, 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 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 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)
12** Statement relating to Computation of Ratios
23.1 Consent of KPMG LLP, Independent Auditors
23.2* Consent of Kelley Drye & Warren LLP
24** Powers of Attorney of Directors and Certain Officers of
Standard Motor Products, Inc.
25* Statement of Eligibility of the Trustee
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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>
- ---------------
* To be filed by amendment.
** Filed on May 24, 1999 as the same numbered exhibit to the initial filing of
the Registration Statement on Form S-3 (333-79177).
<PAGE> 1
Exhibit 10.1
STANDARD MOTOR PRODUCTS, INC.
NOTE AGREEMENT
Dated as of October 15, 1989
Re: $30,000,000 9.47% Senior Notes
Due November 1, 2004
<PAGE> 2
STANDARD MOTOR PRODUCTS, INC..
37-18 NORTHERN BOULEVARD
LONG ISLAND, NEW YORK 11101
NOTE AGREEMENT
RE: $30,000,000 9.47% SENIOR NOTES
DUE NOVEMBER 1, 2004
Dated as of
October 15, 1989
To the Purchaser named in
Schedule I which is a signatory
to this Agreement
Gentlemen:
The undersigned, STANDARD MOTOR PRODUCTS, INC., a New York
corporation (the "Company"), agrees with you as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
1.1. Description of Notes. The Company will authorize the
issue and sale of $30,000,000 aggregate principal amount of its 9.47% Senior
Notes (the "Notes") to be dated the date of issue, to bear interest from such
date at the rate of 9.47% per annum, payable semiannually on the first day of
each May, and November in each year (commencing May 1, 1990) and at maturity and
to bear interest on overdue principal (including any overdue required or
optional prepayment of principal) and premium, if any, and (to the extent
legally enforceable) on any overdue installment of interest at the rate of
10.47% per annum after maturity, whether by acceleration or otherwise, until
paid, to be expressed to mature on November 1, 2004, and to be substantially in
the form attached hereto as Exhibit A. Interest on the Notes shall be computed
on the basis of a 360-day year of twelve 30-day months. The Notes are not
subject to prepayment or redemption, at the option of the Company prior to their
expressed maturity dates except on the terms and conditions and in the amounts
and with the premium, if any, set forth in Section 2 of this Agreement. The term
"Notes" as used herein shall include each Note delivered pursuant to this
Agreement and the separate agreements with the other purchasers named in
Schedule I. You and the other purchasers named in Schedule I are hereinafter
sometimes referred to as the "Purchasers".
1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to you, and you
agree to purchase from the Company, Notes of the Company in the aggregate
principal amount set forth opposite your name in Schedule I, at a price of 100%
of the principal amount thereof on the Closing Date hereinafter mentioned.
<PAGE> 3
Standard Motor Products, Inc. Note Agreement
Delivery of the Notes will be made at the offices of Bondy &
Schloss, 8 East 43rd Street, New York, New York 10017, against payment therefor
in Federal or other funds current and immediately available at the principal
office of Bankers Trust Company, One Bankers Trust Plaza, New York, New York,
ABA #021-001-033, for credit to Standard Motor Products, Inc., Account No.
00027748, in the amount of the purchase price at 11:00 A.M., New York time, on
December 12, 1989 or such later date (not later than December 21, 1989) as shall
be mutually agreed upon by the Company and the Purchasers (the "Closing Date").
The Notes delivered to you on the Closing Date will be delivered to you in the
form of a single registered Note for the full amount of your purchase (unless
different denominations are specified by you), registered in your name or in the
name of such nominee as you may specified and in substantially the form attached
hereto as Exhibit A, all as you may specify at any time prior to the date fixed
for delivery.
1.3. Other Agreements. Simultaneously, with the execution and
delivery of this Agreement, the Company is entering into similar agreements with
the other Purchasers under which such other Purchasers agree to purchase from
the Company the principal amount of Notes set opposite such Purchasers' names in
Schedule 1, and your obligation and the obligations of the Company hereunder are
subject to the execution and delivery of the similar agreements by the other
Purchasers. The obligations of each Purchaser shall be several and not joint and
no Purchaser shall be liable or responsible for the acts of any other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
2.1. Required Prepayments. The Company agrees that on the
first day of November in each year, commencing November 1, 1998 and ending
November 1, 2003, both inclusive (herein called "Fixed Payment Dates"), it will
prepay and apply and there shall become due and payable the sum of $4,250,000 on
the principal indebtedness evidenced by the Notes. The entire unpaid principal
amount of the Notes shall become due and payable on November 1, 2004. No premium
shall be payable in connection with any required prepayment made pursuant to
this Section2.1. For the purposes of this Section2.1, any prepayment of less
than all of the outstanding Notes (i) if made pursuant to Section2.2 shall be
deemed to be applied first, to the amount of principal scheduled to remain
unpaid on November 1, 2004, and then to the remaining scheduled principal
payments in inverse chronological order or (ii) if made pursuant to
SectionSection2.3, 2.4 or 5.13 shall be deemed to be applied to the payment at
maturity and all remaining principal payments required by this Section2.1 on a
pro raTA basis so that each such remaining payment of principal shall thereupon
be reduced in the same proportion that the principal amount of Notes outstanding
immediately preceding the payment pursuant to SectionSection2.3, 2.4 or 5.13 was
reduced by such repayment.
2.2. Optional Prepayment. In addition to the payments required
by Section2.1, upon compliance with Section2.5, and subject to the following
limitations:
(a) Without Premium. The Company shall have the privilege
(which shall be non-cumulative), of prepaying, outstanding Notes on any Fixed
Payment Date (in units of $100,000 or an integral multiple of $10,000 in excess
thereof), by payment of the principal amount of the Notes to be prepaid and
accrued interest thereon to the date of such prepayment and without premium;
provided, however, that (i) the principal amount of Notes prepaid pursuant to
this Section2.2(a) on any one Fixed Payment Date shall not exceed the principal
amount of Notes
-2-
<PAGE> 4
Standard Motor Products, Inc. Note Agreement
required to be prepaid pursuant to Section2.1 on such Fixed Payment Date, and
(ii) the aggregate principal amount of all Notes prepaid pursuant to this
Section2.2(a) shall not exceed $7,500,000; AND
(b) With Premium. In addition to the prepayments required by
Section2.1 and the right of prepayment set forth in Section2.2(a), the Company
shall have the privilege, at any time and from time to time, of prepaying the
outstanding Notes, either in whole or in part (but if in part then in units of
$100,000 or an integral multiple of $10,000 in excess thereof) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and accrued
interest thereon to the date of such prepayment, together with a premium
determined as follows:
(1) In the event of a prepayment made pursuant to the
provisions of this Section2.2(b) occurring on or prior to
September 30, 2001, the premium shall be an amount equal to
the Make Whole Premium Amount, determined as of five business
days prior to the date of such prepayment; and
(2) In the event of a prepayment made pursuant to the
provisions of this Section2.2(b) occurring on or after
November 1, 2001, the premium shall be an amount equal to the
applicable percentage of such principal amount of the Notes
then to be prepaid, as follows:
<TABLE>
<CAPTION>
If Prepaid During the
12-Month Period Percentage of
Beginning: Principal Amount
<S> <C>
November 1, 2001 1.3529%
November 1, 2002 0.6764%
November 1, 2003 Zero
</TABLE>
"Make-Whole Premium Amount" shall mean, in connection with any
prepayment, the excess, if any, of (i) the aggregate present value as of the
date of such prepayment of each dollar of principal being prepaid (taking into
account the application of such prepayment required by Section2.1) and the
amount of interest (excluding interest accrued through the date of prepayment)
that would have been payable in respect of such dollar if such prepayment had
not been made, determined by discounting such amounts (on a semiannual basis) at
the Reinvestment Rate from the respective dates on which they would have been
payable, over (ii) 100% of the principal amount of the outstanding Notes being
prepaid. If the Reinvestment Rate is equal to or higher than 9.47%, the
Make-Whole Premium Amount shall be zero.
"Reinvestment Rate" shall mean 0.50% plus the arithmetic mean
of the yields listed under the respective headings "This Week" and "Last Week"
published in the Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month) corresponding to the
Weighted Average Life to Maturity of the principal being prepaid (taking into
account the application of such prepayment required by Section2.1). If no
maturity exactly corresponds to such Weighted Average Life to Maturity, yields
for the two published maturities most closely corresponding to such Weighted
Average Life to Maturity
-3-
<PAGE> 5
Standard Motor Products, Inc. Note Agreement
shall be calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of such relevant periods to the nearest
month. For the purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the Make
Whole Premium Amount hereunder shall be used.
"Statistical Release" shall mean the statistical release
designated "H.15(519)" or any successor publication which is published weekly by
the Federal Reserve System and which establishes yields on actively traded U.S.
Government Securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination hereunder, then such
other reasonably comparable index which shall be designated by the holders of
66-2/3% in aggregate principal amount of the outstanding Notes.
"Weighted Average Life to Maturity" of the principal amount of
the Notes being prepaid shall mean, as of the time of any determination thereof,
the number of years obtained by dividing the then Remaining Dollar-Years of such
principal by the aggregate amount of such principal. The term "Remaining
Dollar-Years" of such principal shall mean the amount obtained by (i)
multiplying for each scheduled payment date of the Notes (1) the remainder of
(A) the amount of principal that would have become due on each scheduled payment
date if the subject prepayment had not been made, less (B) the amount of
principal on the Notes scheduled to become due on each such corresponding date,
after giving effect to the subject prepayment and the application thereof in
accordance with the provisions of Section2.1, by (2) the number of years
(calculated to the nearest one-twelfth) which will elapse between the date of
determination and such scheduled payment date, and (ii) totaling the products
obtained in (i).
2.3. Prepayment on Failure of Holders to Consent to Sale and
Leaseback. At least ninety (90) days in advance of any date on which the Company
proposes to enter (and does in fact enter) into a lease of the nature to which
Section5.10(b) relates, the Company shall give written notice to each holder of
Notes, stating (i) that the Company proposes to enter into a lease of that
nature, (ii) the essential terms of the proposed lease and of the preceding sale
of the property proposed to be leased, (iii) that such notice constitutes the
Company's offer to prepay all or any portion of the Notes held by such holder at
the principal amount thereof plus accrued interest to the date of prepayment,
and (iv) that such offer may be accepted by such holder giving written notice to
the Company (an "Acceptance") not later than thirty (30) days after the date of
receipt of the Company's notice (the "30-Day Period"), specifying in such
Acceptance the principal amount of Notes such holder wishes to have prepaid. The
Company shall then (x) give written notice of prepayment of the aggregate
principal amount of Notes so specified to each holder of Notes fixing the time
of prepayment, which shall be the time when such lease is entered into, and
setting forth the pro forma holdings of each holder of the Notes after giving
effect the subject prepayment of the Notes, and (y) make such prepayment in
accordance with such notice, without premium but together with all interest
accrued thereon to the date of prepayment.
2.4. Prepayment on Change of Control. In the event a Change of
Control shall occur, the Company will, within ten business days after such
Change of Control, give written notice (the "Company Notice") of such event to
all holders of the Notes. Any Company Notice pursuant to this Section2.4 shall
set forth, to the best knowledge and belief of the Company, (a) a summary in
reasonable detail of the transaction or transactions causing the Change of
Control
-4-
<PAGE> 6
Standard Motor Products, Inc. Note Agreement
and (b) the date set for prepayment of the Notes. Forty-five (45) days after the
date of the Company Notice, the Company will prepay all Notes held by all
holders that have requested prepayment in writing at least ten business days
prior to the date specified for prepayment, by payment of the principal amount
thereof, plus accrued interest thereon to the date of prepayment, but without
premium.
"Change of Control" shall mean any event which results in the
legal or beneficial ownership of less than 20% of the outstanding shares of
Voting Stock of the Company being owned of record and beneficially by (i)
Bernard Fife and Nathaniel Sills, (ii) their respective spouses or lineal
descendants, (iii) the estate of any such individual and/or (iv) any trust
exclusively for the benefit of any such individual.
2.5. Notice of Prepayments. The Company will give notice of
any prepayment of the Notes pursuant to Section2.2 to each holder thereof not
less than 30 days nor more than 60 days before the date fixed for such optional
prepayment specifying (i) such date set for prepayment, (ii) the section of this
Agreement under which the prepayment is to be made, (iii) the principal amount
of the holder's Notes to be prepaid on such date, (iv) whether a premium is or
may be payable, (v) if there is or may be a premium payable, the amount of the
premium or, if not determinable on the date of the giving of notice, the date
when such premium will be calculated, and (vi) the accrued interest applicable
to the prepayment. Such notice of prepayment shall also certify all facts which
are conditions precedent to any such prepayment. Notice of prepayment having
been so given, the aggregate principal amount of the Notes specified in such
notice, together with the premium, if any, and accrued interest thereon shall
become due and payable on the prepayment date. A computation of the amount, if
any, of the premium payable in connection with a prepayment shall be furnished
in writing by telecopy or other same-day written communication to each of the
holders of the Notes to be prepaid as soon as practicable after determination of
such premium and, in any event, at least three days prior to the date fixed for
such prepayment.
2.6. Allocation of Prepayments. All partial prepayments shall
be applied on all outstanding Notes ratably in accordance with the unpaid
principal amounts thereof but only in units of $1,000, and to the extent that
such ratable application shall not result in an even multiple of $10,000,
adjustment may be made by the Company to the end that successive applications
shall result in substantially ratable payments.
2.7. Direct Payment. Notwithstanding anything to the contrary
in this Agreement or the Notes, in the case of any Note owned by a Purchaser or
its nominee or owned by any other institutional holder who has given written
notice to the Company requesting that the provisions of this Section shall
apply, the Company will, by 11 A.M. New York time, punctually pay when due the
principal thereof and premium, if any, and interest thereon, without any
presentment thereof, directly to such Purchaser or such subsequent holder at the
address of' such Purchaser set forth in Schedule I or at such other address as
such Purchaser or such subsequent holder may from time to time designate in
writing to the Company (not less than five (5) days prior to the next payment)
or, if a bank account is designated for such Purchaser on Schedule I hereto or
in any written notice to the Company from such Purchaser or any such subsequent
holder (not less than five (5) days prior to the next payment), the Company will
make such payments in immediately available funds to such bank account, marked
for attention as
-5-
<PAGE> 7
Standard Motor Products, Inc. Note Agreement
indicated, or in such other manner or to such other account of such Purchaser or
such holder in any bank in the United States as the Purchaser or any such
subsequent holder may from time to time direct in writing (not less than five
(5) days prior to the next payment). The holder of any Notes to which this
Section applies agrees that in the event it shall sell or transfer any such
Notes (i) it will, prior to the delivery of such Notes (unless it has already
done so), make a notation thereon of all principal, if any, prepaid on such
Notes and will also note thereon the date to which interest has been paid on
such Notes, and (ii) it will promptly notify the Company of the name and address
of the transferee of any Notes so transferred. With respect to Notes to which
this Section applies, the Company shall be entitled to presume conclusively that
the original or such subsequent institutional holder as shall have requested the
provisions hereof to apply to its Notes remains the holder of such Notes until
(y) the Company shall have received written notice of the transfer of such
Notes, and of the name and address of the transferee, or (z) such Notes shall
have been presented to the Company as evidence of the transfer, whichever shall
occur earlier.
SECTION 3. REPRESENTATIONS.
3.1. Representations of the Company. The Company represents
and warrants that all representations set forth in the form of certificate
attached hereto as Exhibit B are true and correct as of the date hereof (except
as affected by the transactions contemplated by this Agreement) and are
incorporated herein by reference with the same force and effect as though herein
set forth in full.
3.2. Representations of the Purchasers. You represent, and in
entering into this Agreement the Company understands, that you are acquiring the
Notes for the purpose of investment and not with a view to the resale or
distribution thereof, and that you have no present intention of selling,
negotiating or otherwise disposing of the Notes; provided that the disposition
of your property shall at all times be and remain within your control. You
further represent that either (i) you are acquiring the Notes for your own
account and with your general corporate assets and not with the assets of any
separate account in which any employee benefit plan has any interest or (ii) if
any of the funds being used by you to purchase the Notes shall come from assets
allocated to such a separate account, you represent that no part of the funds to
be used by you to acquire the Notes constitutes assets allocated to any separate
account maintained by you with respect to which the assets of any employee
benefit plan (other than any employee benefit plan or plans disclosed to the
Company in writing) exceed five percent (5%) of the total of all assets in such
separate account. The Company acknowledges that your representation set forth in
clause (ii) of the preceding sentence is made in reliance upon and subject to
the accuracy of the representations of the Company set forth in paragraph 16 of
Exhibit B hereto. As used in this Section, the terms "separate account" and
"employee benefit plan" shall have the respective meanings assigned to them in
the Employee Retirement Income Security Act of 1974.
SECTION 4. CLOSING CONDITIONS.
Your obligation to purchase the Notes on the Closing Date
shall be subject to the performance by the Company of its agreements hereunder
which by the terms hereof are to be performed at or prior to the time of
delivery of the Notes and to the following further conditions precedent:
-6-
<PAGE> 8
Standard Motor Products, Inc. Note Agreement
4.1. Closing Certificate. Concurrently with the delivery of
Notes to you on the Closing Date, you shall have received a certificate dated
the Closing Date, signed by the President or a Vice President of the Company
substantially in the form attached hereto as Exhibit B, the truth and accuracy
of which shall be a condition to your obligation to purchase the Notes proposed
to be sold to you.
4.2. Legal Opinions. Concurrently with the delivery of Notes
to you on the Closing Date, you shall have received from Chapman and Cutler, who
are acting as your special counsel in this transaction, and from Bondy &
Schloss, counsel for the Company, their respective opinions dated the Closing
Date, in form and substance satisfactory to you, and covering the matters set
forth in Exhibits C and D, respectively, hereto.
4.3. Related Transactions. Prior to or concurrently with the
issuance and sale of Notes to you, the Company shall have consummated the sale
of the entire principal amount of the Notes scheduled to be sold on the Closing
Date pursuant to this Agreement and the other agreements referred to in
Section1.3.
4.4. Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents necessary to the consummation thereof, shall be satisfactory in form
and substance to you and your special counsel, and you shall have received a
copy (executed or certified as may be appropriate) of all legal documents or
proceedings taken in connection with the consummation of said transactions.
4.5. Legality. The Notes shall qualify as a legal investment
for you under the laws and regulations of each jurisdiction to which you are
subject (without reference to any so-called "basket" provision which permits the
making of an investment without restrictions as to the character of the
particular Investment being made) and you shall have received such information
as you shall reasonably request from the Company to establish such fact.
4.6. Waiver of Conditions. If on the Closing Date the Company
falls to tender to you the Notes to be issued to you on such date or if the
conditions specified in this Section4 have not been fulfilled, you may thereupon
elect to be relieved of all further obligations under this Agreement. Without
limiting the foregoing, if the conditions specified in this Section4 have not
been fulfilled, you may waive compliance by the Company with any such condition
to such extent as you may in your sole discretion determine. Nothing in this
Section4.6 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of your rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the Closing Date and continuing so long as any
amount remains unpaid on any Note:
5.1. Corporate Existence, etc. The Company will preserve and
keep in force and effect, and will cause each Restricted Subsidiary to preserve
and keep in force and effect, its corporate existence, rights and franchises
necessary to the proper conduct of its business, provided that the foregoing
shall not prevent (i) any transaction permitted by Section5.11 or (ii) the
abandonment or termination of the rights or franchises of the Company or of the
corporate existence, rights and franchises of any Restricted Subsidiary if, in
the opinion of the Board of
-7-
<PAGE> 9
Standard Motor Products, Inc. Note Agreement
Directors of the Company, such abandonment or termination is in the best
interest of the Company and of the holders of the Notes, and if such abandonment
or termination does not in any way constitute a Default or Event of Default
hereunder.
5.2. Insurance. The Company will maintain, and will cause each
Restricted Subsidiary to maintain, insurance coverage by financially sound and
reputable insurers in such forms and amounts and against such risks as are
customary for corporations of established reputation engaged in the same or a
similar business and owning and operating similar properties.
5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Restricted Subsidiary promptly to pay and discharge, all lawful taxes,
assessments, judgments and governmental charges or levies imposed upon the
Company or such Restricted Subsidiary, respectively, or upon or in respect of
all or any part of the property or business of the Company or such Restricted
Subsidiary, all trade accounts payable in accordance with usual and customary
business terms, and all claims for work, labor or materials, which if unpaid
might become a lien or charge upon any property of the Company or such
Restricted Subsidiary; provided the Company or such Restricted Subsidiary shall
not be required to pay any such tax, assessment, charge, levy, account payable
or claim if (i) the validity, applicability or amount thereof is being contested
in good faith by appropriate actions or proceedings which will prevent the
forfeiture or sale of any property of the Company or such Restricted Subsidiary
or any material interference with the use thereof by the Company or such
Restricted Subsidiary, and (ii) the Company or such Restricted Subsidiary shall
set aside on its books, reserves deemed by it to be adequate with respect
thereto. The Company will promptly comply and will cause each Subsidiary to
comply with all laws, ordinances or governmental rules and regulations to which
it is subject including, without limitation, the Occupational Safety and Health
Act of 1970, the Employee Retirement Income Security Act of 1974 and all laws,
ordinances, governmental rules and regulations relating to environmental
protection in all applicable jurisdictions, the violation of which would
materially and adversely affect the properties, business, prospects, profits or
condition of the Company and its Subsidiaries or would result in any lien or
charge upon any property of the Company or any Subsidiary which would materially
and adversely affect the properties, business, prospects, profits or condition
of the Company and its Subsidiaries.
5.4. Maintenance, etc. The Company will maintain, preserve and
keep, and will cause each Restricted Subsidiary to maintain, preserve and keep,
its properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order (normal
wear and tear excepted) and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency thereof
shall be maintained, provided, that nothing contained in this Section5.4 shall
be construed to require the Company or any Restricted Subsidiary to keep or
maintain any building, structure, machinery or other equipment the retention or
maintenance of which is determined by the Board of Directors of the Company or
of such Restricted Subsidiary not to be in the Company's or such Restricted
Subsidiary's best interest in the conduct of its business, if and so long as the
failure to so retain or maintain such building, structure, machinery or other
equipment would not constitute a Default or Event of Default hereunder.
-8-
<PAGE> 10
Standard Motor Products, Inc. Note Agreement
5.5. Nature of Business. Neither the Company nor any
Restricted Subsidiary will engage in any business if, as a result, the general
nature of the business, taken on a consolidated basis, which would than be
engaged in by the Company and its Restricted Subsidiaries would be substantially
changed from the general nature of the business engaged in by the Company and
its Restricted Subsidiaries on the date of this Agreement.
5.6. Consolidated Working Capital. The Company will at all
times keep and maintain Consolidated Working Capital in an amount not less than
50% of Consolidated Funded Debt.
5.7. Limitations on Indebtedness.
(a) The Company will not and will not permit any Restricted
Subsidiary to create, assume or incur or in any manner be or become liable in
respect of any Current Debt or Funded Debt, except:
(1) the Notes;
(2) Funded Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of this Agreement and
reflected on the consolidated balance sheet of the Company and
its Restricted Subsidiaries as at June 30, 1989;
(3) unsecured Senior Funded Debt of the Company and
unsecured Funded Debt of Restricted Subsidiaries, provided
that at the time of issuance thereof and after giving effect
thereto and to the application of the proceeds thereof:
(i) Consolidated Net Tangible Assets shall
not be less than 190% of Consolidated Senior Funded
Debt,
(ii) Consolidated Net Tangible Assets shall
not be less than 170% of Consolidated Funded Debt,
(iii) the total of Consolidated Net Tangible
Assets plus Average Daily Current Debt in excess of
$15,000,000 shall not be less than 175% of the total
of Consolidated Senior Funded Debt plus Average Daily
Current Debt in excess of $15,000,000; and
(iv) the aggregate outstanding amount of (a)
Funded Debt of Restricted Subsidiaries plus (b)
Current Debt of Restricted Subsidiaries shall not
exceed 7.5% of Consolidated Net Tangible Assets;
(4) Subordinated Debt of the Company, provided that
at the time of issuance thereof and after giving effect
thereto and to the application of the proceeds thereof,
Consolidated Net Tangible Assets plus Average Daily Current
Debt in excess of $15,000,000 shall not be less than 170% of
the total of Consolidated Funded Debt plus Average Daily
Current Debt in excess of $15,000,000;
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<PAGE> 11
Standard Motor Products, Inc. Note Agreement
(5) unsecured Current Debt of the Company and its Restricted
Subsidiaries, provided that
(i) either (x) during the period of the
twelve (12) calendar months then most recently ended,
there shall have been a period of at least 45
consecutive days in which the Company and its
Restricted Subsidiaries shall have had no Current
Debt (excluding current maturities of Funded Debt
otherwise included therein) outstanding in excess of
$15,000,000, or (y) the Company and its Restricted
Subsidiaries would have been permitted
underSection5.7(a)(3)(iii) hereof to incur additional
Senior Funded Debt during each and every day of the
most recent Designated Period, in an amount equal to
the amount by which the Average Daily Current Debt of
the Company and its Restricted Subsidiaries during
such Designated Period exceeds $15,000,000 (and for
all other purposes under this Agreement, the Company
shall be deemed to have remained liable with respect
to said amount of additional Senior Funded Debt for
the entire Designated Period); and
(ii) after giving effect to the principal
amount of Current Debt proposed to be incurred, (x)
the aggregate amount of Current Debt (excluding
current maturities of Funded Debt otherwise included
therein) of Restricted Subsidiaries shall not exceed
2.5% of Consolidated Net Tangible Assets, and (y) the
aggregate amount of Current Debt and Funded Debt of
Restricted Subsidiaries, outstanding as of such date,
shall not exceed 7.5% of Consolidated Net Tangible
Assets;
(6) Current Debt and Funded Debt of the Company and its
Restricted Subsidiaries secured by liens permitted by Sections5.8(a) (vi),
(vii) or (viii), provided that at the time of issuance thereof AND after giving
effect thereto and to the application of the proceeds thereof:
(i) the aggregate amount of (a) Current Debt
and Funded Debt of Restricted Subsidiaries plus (b)
all Current Debt and Funded Debt of the Company
secured by liens permitted by Sections5.8(A) (vi),
(vii) or (viii) shall not exceed 10% of Consolidated
Net Tangible Assets; and
(ii) the Company could incur $1.00 of
additional unsecured Senior Funded Debt pursuant to
the provisions of Section5.7(a) (3);
and
(7) Current Debt or Funded Debt of a Restricted Subsidiary to
the Company or to a Restricted Subsidiary.
(b) Any corporation which becomes a Restricted Subsidiary
after the date hereof shall for all purposes of this Section5.7 be deemed to
have created, assumed or incurred at the time it becomes a Restricted SubsidiarY
all Funded Debt and Current Debt of such corporation existing immediately after
it becomes a Restricted Subsidiary.
-10-
<PAGE> 12
Standard Motor Products, Inc. Note Agreement
5.8. Limitation on Liens. (a) The Company will not, and will
not permit any Restricted Subsidiary to, create or incur, or suffer to be
incurred or to exist, any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its or their general creditors, or acquire or agree
to acquire, or permit any Restricted Subsidiary to acquire, any property or
assets upon conditional sales agreements or other title retention devices,
except:
(i) liens for property taxes and assessments
or governmental charges or levies, provided that
payment thereof is not at the time required by
Section5.3;
(ii) liens of or resulting from any judgment
or award, the time for the appeal or petition for
rehearing of which shall not have expired, or in
respect of which the Company or a Restricted
Subsidiary shall at any time in good faith be
prosecuting an appeal or proceeding for a review and
in respect of which a stay of execution pending such
appeal or proceeding for review shall have been
secured;
(iii) liens, charges, encumbrances and
priority claims incidental to the conduct of business
or the ownership of properties and assets (including
warehousemen's and attorneys' liens and statutory
landlords' liens), liens securing claims and demands
of mechanics and materialmen, and deposits, pledges
or liens to secure the performance of bids, tenders
or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other liens of
like general nature incurred in the ordinary course
of business and not in connection with the borrowing
of money, provided in each case, the obligation
secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or
proceedings;
(iv) minor survey exceptions or minor
encumbrances, easements or reservations, or rights of
others for rights-of-way, utilities and other similar
purposes, or zoning or other restrictions as to the
use of real properties, which are necessary for the
conduct of the activities of the Company and its
Restricted Subsidiaries or which customarily exist on
properties of corporations engaged in similar
activities and similarly situated and which do not in
any event materially impair their current use in the
operation of the business of the Company and its
Restricted Subsidiaries;
(v) mortgages, liens or security interests
securing Indebtedness of a Restricted Subsidiary to
the Company;
(vi) mortgages, conditional sale contracts,
security interests or other arrangements for the
retention of title (including Capitalized Leases)
existing as of June 30, 1989, securing Current or
Funded Debt of the
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<PAGE> 13
Standard Motor Products, Inc. Note Agreement
Company or any Restricted Subsidiary outstanding on
such date (including any renewals, extensions or
replacements thereof, provided that there is no
increase in the aggregate principal amount of Funded
Debt secured thereby and no additional property is
encumbered); and
(vii) mortgages, conditional sale contracts,
security interests or other arrangements for the
retention of title (including Capitalized Leases)
incurred after the date hereof (including any
renewals, extensions or replacements thereof,
provided that there is no increase in the aggregate
principal amount of Funded or Current Debt secured
thereby and no additional property is encumbered)
given to secure the payment of the purchase price
incurred in connection with the acquisition or
construction of, or incurred to secure obligations in
respect of the financing or refinancing of, and
incurred within 180 days of the acquisition or
completion of construction of, fixed assets useful
and intended to be used in carrying on the business
of the Company or a Restricted Subsidiary, including
liens existing on such fixed assets at the time of
acquisition thereof or at the time of acquisition by
the Company or a Restricted Subsidiary of any
business entity then owning such fixed assets,
whether or not such existing liens were given to
secure the payment of the purchase price of the fixed
assets to which they attach so long as they were not
incurred, extended or renewed in contemplation of
such acquisition, provided that (i) the lien or
charge shall be created within 180 days of the
acquisition or completion of construction of such
property and shall attach solely to the property
acquired, purchased or constructed, (ii) at the time
of acquisition or construction of such fixed assets,
the aggregate amount remaining unpaid on all
Indebtedness secured by liens on such fixed assets
whether or not assumed by the Company or a Restricted
Subsidiary shall not exceed an amount equal to 100%
of the lesser of the total purchase price or fair
market value at the time of acquisition or
construction of such fixed assets (as determined in
good faith by the Board of Directors of the Company),
and (iii) all such Indebtedness shall have been
incurred within the applicable limitations provided
inSection5.7; and
(viii) liens securing Current Debt or Funded
Debt of the Company or any Restricted Subsidiary not
otherwise permitted by this Section5.8(a), provided
that the incurrence of such Current Debt oR Funded
Debt is permitted by the Applicable provisions of
Section5.7.
(b) Any corporation which becomes a Restricted Subsidiary
after the date hereof shall, for purposes of Section5.8(a)(vii), be deemed to
have been acquired at the time it becomes a Restricted Subsidiary.
(c) In the event that any property of the Company or its
Restricted Subsidiaries is subjected to a lien in violation of Section5.8(a)
(the Indebtedness secured by such lien being referred to as "Prohibited Secured
Indebtedness"), such violation of Section 5.8(a) shall not constitute an Event
of Default hereunder if the Company substantially simultaneously with the
incurrence of such lien,
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<PAGE> 14
Standard Motor Products, Inc. Note Agreement
makes or causes to be made a provision whereby the Notes will be secured equally
and ratably with all Prohibited Secured Indebtedness pursuant to security
arrangements satisfactory in form, scope and substance to the holder or holders
of not less than 66-2/3% in aggregate principal amount of the Notes then
outstanding, and, in any case, the Notes shall have the benefit, to the full
extent that, and with such priority as, the holders of the Notes may be entitled
thereto under applicable law, of an equitable lien to secure the Notes on such
property of the Company or its Restricted Subsidiaries that secures Prohibited
Secured Indebtedness.
5.9. Dividends, Stock Purchases. The Company will not except
as hereinafter provided:
(a) declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company); or
(b) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its capital
stock (other than in exchange for or out of the net cash proceeds to the Company
from the substantially concurrent issue or sale of other shares of capital stock
of the Company or warrants, rights or options to purchase or acquire any shares
of its capital stock); or
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock; or
(d) make, directly or indirectly, or through any Subsidiary or
Affiliate, any voluntary or optional payment, prepayment, redemption or
repurchase in respect of the principal amount of any Subordinated Debt of the
Company (except with the proceeds derived from the substantially concurrent
issuance of additional Subordinated Debt); or
(e) make or permit any Restricted Subsidiary to make any
Restricted Investment;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options, and all such other
distributions , payments, prepayments, redemptions or repurchases in respect of
Subordinated Debt and the making or authorization of Restricted Investments
being herein collectively called "Restricted Payments"), if after giving effect
thereto (A) the aggregate amount of Restricted Payments made during the period
from and after December 31, 1988 to and including the date of the making of the
Restricted Payment in question, would exceed the sum of (i) $36,000,000 plus
(ii) 100% of Consolidated Net Income for such period, computed on a cumulative
basis for said entire period (or if such Consolidated Net Income is a deficit
figure, then minus 100% of such deficit) and (B) the Company would be permitted
to incur at least $1.00 of additional Senior Funded Debt pursuant to the
provisions of Section5.7(a)(3).
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after the date of declaration
thereof.
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<PAGE> 15
Standard Motor Products, Inc. Note Agreement
For the purposes of this Section5.9 the amount of any
Restricted Payment declared, paid or distributed in property of the Company
shall be deemed to be the net book value (as determined by the Company's regular
independent public accounts in accordance with generally accepted accounting
principles consistently applied) of such property at the time of the making of
the Restricted Payment in question.
In valuing any investments, loans and advances for the purpose
of applying the limitations set forth in this Section5.9, such investments,
loans and advances shall be taken at the original cost thereof, without
allowance for any subsequent write-offs or appreciation or depreciation therein,
but less any amount repaid or recovered on account of capital or principal.
5.10. Limitation on Long-Term Leases, Sale and Leasebacks.
(a) The Company will not and will not permit any Restricted
Subsidiary to become obligated, as lessee, under any Long-Term Lease if at the
time of entering into any such Long-Term Lease and after giving effect thereto,
the aggregate Rentals payable by the Company and all of its Restricted
Subsidiaries on a consolidated basis in any one fiscal year thereafter under all
Long-Term Leases would exceed 10% of Consolidated Net Tangible Assets. For
purposes of this Section5.10, any Long-Term Lease, the lease payments of which
are, directly or indirectly, guaranteed by the Company or any Restricted
Subsidiary shall be deemed to be a Long-Term Lease entered into by the Company
or such Restricted Subsidiary.
(b) The Company will not, and will not permit any Restricted
Subsidiary to, enter into any arrangement whereby the Company or any Restricted
Subsidiary shall sell or transfer any property owned by the Company or any
Restricted Subsidiary to any Person other than the Company or a Restricted
Subsidiary and thereupon the Company or any Restricted Subsidiary shall lease or
intend to lease, as lessee, the same property where the aggregate book value of
all such assets then subject to any such arrangement shall exceed 10% of
Consolidated Net Tangible Assets, provided, however, the Company or any
Restricted Subsidiary may enter into such arrangements if both of the following
conditions are met:
(i) the net proceeds of the sale are not
less than the fair market value of the property sold,
as determined by the Board of Directors of the
Company; and
(ii) the Company complies with the
provisions of Section2.3.
5.11. Mergers, Consolidations and Sales of Assets.
(a) The Company will not, and will not permit any Restricted
Subsidiary to (i) consolidate with or be a party to a merger with any other
corporation or (ii) sell, lease or otherwise dispose of all or any substantial
part (as defined in paragraph (d) of this Section5.11) of the assets of the
Company and its RestricTED Subsidiaries, provided, however, that:
(1) any Restricted Subsidiary may merge or
consolidate with or into the Company or any Wholly-owned
Restricted Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the
surviving or continuing corporation;
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<PAGE> 16
(2) the Company may consolidate or merge with any
other corporation if (i) the Company shall be the surviving or
continuing corporation, (ii) at the time of such consolidation
or merger and after giving effect thereto no Default or Event
of Default shall have occurred and be continuing, (iii) after
giving effect to such consolidation or merger the Company
would be permitted to incur at least $1.00 of additional
Senior Funded Debt under the provisions of Section5.7(a)(3)
and (iv) at the time such merger or consolidation is effected,
the Company shall deliver to each holder of the Notes a
certificate indicating that after giving effect to the subject
transaction, there has been no violation of Section5.5 or this
Section5.11; and
(3) any Restricted Subsidiary may sell, lease or
otherwise dispose of all or any substantial part of its assets
to the Company or any Wholly-owned Restricted Subsidiary.
(b) Except in connection with a merger or consolidation
permitted by the provisions of Section5.11(a), the Company will not permit any
Restricted Subsidiary to issue or sell any shares of stock of any class
(including as "stock" for the purposes of this Section5.11, any warrants, rights
or options to purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock) of Such Restricted Subsidiary to any
Person other than the Company or a Restricted Subsidiary, except for the purpose
of qualifying directors, or except in satisfaction of the validly pre-existing
preemptive rights of minority shareholders in connection with the simultaneous
issuance of stock to the Company and/or a Restricted Subsidiary whereby the
Company and/or such Restricted Subsidiary maintain their same proportionate
interest in such Restricted Subsidiary, provided, in the case of shares issued
for the purpose of qualifying directors, such shares are subject to a written
agreement between the Company and each of such directors requiring the resale of
the shares to the Company at the time any such director ceases to be a director.
(c) The Company will not sell, transfer or otherwise dispose
of any shares of stock in any Restricted Subsidiary (except to qualify
directors, provided, such shares issued for the purpose of qualifying directors
are subject to a written agreement between the Company and each of such
directors requiring the resale of the shares to the Company at the time any such
director ceases to be a director) or any Indebtedness of any Restricted
Subsidiary, and will not permit any Restricted Subsidiary to sell, transfer or
otherwise dispose of (except to the Company or a Restricted Subsidiary) any
shares of stock or any Indebtedness of any other Restricted Subsidiary, unless:
(1) simultaneously with such sale, transfer, or
disposition, all shares of stock and all Indebtedness of such
Restricted Subsidiary at the time owned by the Company and by
every other Subsidiary shall be sold, transferred or disposed
of as an entirety;
(2) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the
retention of such stock and Indebtedness is no longer in the
best interests of the Company;
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<PAGE> 17
(3) such stock and Indebtedness is sold, transferred
or otherwise disposed of to a Person, for a cash consideration
and on terms reasonably deemed by the Board of Directors to be
adequate and satisfactory, provided, such stock and
Indebtedness may be sold, transferred or otherwise disposed of
for (i) shares of stock of another corporation if, after
giving effect to such transaction, the corporation whose stock
is given as consideration shall be a Restricted Subsidiary of
which the Company and its Restricted Subsidiaries own a
percentage of the outstanding shares of capital stock at least
equal to that which they owned in the Restricted Subsidiary
that was sold, transferred or otherwise disposed of or (ii)
Indebtedness of another Person if such Indebtedness shall be
secured by a pledge of or lien upon all Securities of the
Restricted Subsidiary being sold, transferred or otherwise
disposed of and such pledge or lien shall rank prior to all
other pledges thereof or liens thereon;
(4) the Restricted Subsidiary being disposed of shall
not have any continuing investment in the Company or any other
Subsidiary not being simultaneously disposed of;
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the
Company and its Restricted Subsidiaries; and
(6) immediately after giving effect to such sale,
transfer or disposal of such stock or Indebtedness, no Default
or Event of Default shall have occurred and be continuing and
the Company would be permitted to incur at least $1.00 of
additional Senior Funded Debt under the provisions of
Section5.7(a)(3).
(d) As used in this Section5.11, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part" of the assets
of the Company and its Restricted Subsidiaries only if the aggregate net book
value of such assets, when added to the aggregate net book value of all other
assets sold, leased or otherwise disposed of by the Company and its Restricted
Subsidiaries (other than in the ordinary course of business and as provided in
Section5.11(e)) hereof during the same fiscal year, exceeds 15% of the
Consolidated Net Tangible Assets of the Company and its Restricted Subsidiaries
determined as of the end of the immediately preceding fiscal year.
(e) Notwithstanding the foregoing provisions of this
Section5.11, the Company and its Restricted Subsidiaries may discount (without
recourse to the Company or its Restricted Subsidiaries), hypothecate or sell to
any commercial banking institution its trade accounts receivable arising in the
ordinary course of the Company's business; provided, that the Company and its
Restricted Subsidiaries shall receive no less than the greater of fair market
value or 80% of face value of such trade accounts receivable being discounted,
hypothecated or sold.
5.12. Guaranties. The Company will not and will not permit any
Restricted Subsidiary to become or be liable in respect of any Guaranty except
Guaranties of the Company or any Restricted Subsidiary which are limited in
amount to a stated maximum dollar exposure and included in Current Debt or
Consolidated Senior Funded Debt.
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<PAGE> 18
5.13. Repurchase of Notes. Neither the Company nor any
Restricted Subsidiary or Affiliate, directly or indirectly, may repurchase or
make any offer to repurchase any Notes, or portion thereof, unless the offer has
been made to repurchase Notes, pro rata, from all holders of the Notes at the
same time and upon the same terms. In case the Company repurchases any Notes,
such Notes shall thereafter be cancelled and no Notes shall be issued in
substitution therefor and the Company shall give prompt written notice of such
repurchases to all remaining holders of the Notes.
5.14. Transactions with Affiliates. The Company will not, and
will not permit any Restricted Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Company's or such Restricted Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Restricted Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person other than an Affiliate.
5.15. Restricted and Unrestricted Subsidiaries.
(a) The Company may designate each Subsidiary either a
Restricted Subsidiary or an Unrestricted Subsidiary. Any Subsidiary which is not
designated an Unrestricted Subsidiary within 60 days of its organization or
acquisition shall be a Restricted Subsidiary if such Subsidiary (i) is organized
under the laws of one of the United States or the District of Columbia, or
Canada, or a Canadian province, (ii) has a major part of its properties located
in, and does substantially all of its business in, the United States, Canada, or
Puerto Rico and (iii) has all of its voting capital stock or other Voting Stock,
other than directors' qualifying shares, owned by the Company or a Restricted
Subsidiary.
(b) The Board of Directors may at any time designate or
redesignate any Restricted Subsidiary as an Unrestricted Subsidiary if all of
the following conditions are met: (i) such Subsidiary does not own, directly or
indirectly, any capital stock or Indebtedness of the Company or any Restricted
Subsidiary; (ii) after giving effect to the proposed redesignation, the Company
would be permitted to incur at least $1.00 of additional Senior Funded Debt
pursuant to the provisions of Section5.7(a)(3); and (iii) immediately following
the proposed redesignation, there shall exist no condition constituting, or
which, after notice, lapse of time, or both could constitute, an Event of
Default. For purposes of this Section5.15(b), capital stock (or other Voting
Stock) of a corporation shall be deemed an asset not located in the United
States or Canada (regardless of location of the certificate evidencing the
same).
(c) The Board of Directors may at any time designate or
redesignate any Unrestricted Subsidiary as a Restricted Subsidiary if all of the
following conditions are met: (i) after giving effect to the proposed
redesignation, the Company would be permitted to incur at least $1.00 of
additional Senior Funded Debt pursuant to the provisions of Section5.7(a)(3);
(ii) immediately following the proposed redesignation, there shall exist no
condition constituting, or which, after notice, lapse of time, or both could
constitute, an Event of Default and (iii) such Subsidiary, while an Unrestricted
Subsidiary, has taken no action that it would have been
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<PAGE> 19
prohibited by the terms of this Agreement from taking had it been a Restricted
Subsidiary at the time it took such action.
5.16. Termination of Pension Plans. The Company will not and
will not permit any Subsidiary to permit any employee benefit plan maintained by
it to be terminated in a manner which could result in the imposition of a lien
on any property of the Company or any Subsidiary pursuant to Section 4068 of the
Employee Retirement Income Security Act of 1974, as amended.
5.17. Reports and Rights of Inspection. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Company or such Subsidiary, in
accordance with generally accepted principles of accounting consistently
maintained (except for changes disclosed in the financial statements furnished
to you pursuant to this Section5.17 and concurred in by the independent public
accountants referred to in Section5.17(b) hereof), and will furnish to you so
long as you are the holder of any Note and to each other institutional holder of
the then outstanding Notes (in duplicate if so specified below or otherwise
requested):
(a) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each quarterly fisca1 period (except the
last) of each fiscal year, duplicate copies of:
(1) consolidated and consolidating balance sheets of
the Company and its Restricted Subsidiaries as of the close of
such quarter setting forth in comparative form the
consolidated figures for the end of the preceding fiscal year,
(2) consolidated and consolidating statements of
income and retained earnings of the Company and its Restricted
Subsidiaries for such quarterly period, setting forth in
comparative form the consolidated figures for the
corresponding period of the preceding fiscal year, and
(3) consolidated and consolidating statements of cash
flows of the Company and its Restricted Subsidiaries for the
portion of the fiscal year ending with such quarter, setting
forth in comparative form the consolidated figures for the
corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct, by an authorized
financial officer of the Company;
(b) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company, duplicate
copies of:
(1) consolidated and consolidating balance sheets of
the Company and its Restricted Subsidiaries as of the close of
such fiscal year, and
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<PAGE> 20
(2) consolidated and consolidating Statements of
income and retained earnings and of cash flows of the Company
and its Restricted Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by a report
thereon of a firm of independent public accountants of recognized national
standing selected by the Company to the effect that the consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and present fairly, in all material respects, the financial condition
of the Company and its Restricted Subsidiaries and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards and accordingly includes
such tests of the accounting records and such other auditing procedures as were
considered necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the books of
the Company or any Restricted Subsidiary;
(d) SEC and Other Reports. Promptly, upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each regular or
periodic report, and any registration statement or prospectus filed by the
Company or any Subsidiary with any securities exchange or the Securities and
Exchange Commission or any successor agency, and copies of any orders in any
proceedings to which the Company or any of its Subsidiaries is a party, issued
by any governmental agency, Federal or state, having jurisdiction over the
Company or any of its Subsidiaries;
(e) Requested Information. With reasonable promptness, such
other data and information as may be reasonably requested from (i) you or (ii)
any Person holding 10% or more in aggregate principal amount of the Notes or
(iii) any Person holding 100% of the Notes originally issued to any Purchaser
that are, on the date of such request, then outstanding;
(f) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial officer
of the Company stating that such officer has reviewed the provisions of this
Agreement and setting forth: (i) the information and computations (in sufficient
detail) required in order to establish whether the Company was in compliance
with the requirements of Section5.6 through Section5.11, inclusive, at the end
of the period covered by the financial statements then being furnished, (ii)
whether there existed as of the date of such financial statements and whether,
to the best of such officer's knowledge, there exists on the date of the
certificate or existed at any time during the period covered by such financial
statements any Default or Event of Default and, if any such condition or event
exists on the date of the certificate, specifying the nature and period of
existence thereof and the action the Company is taking and proposes to take with
respect thereto, (iii) one of the following (as appropriate): (x) the period
within the most recent year during which the Company and its Restricted
Subsidiaries had no Current Debt exceeding $15,000,000 or (y) the Designated
Period and the amount of Current Debt deemed to be Senior Funded Debt pursuant
to Section 5.7(a)(5).
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<PAGE> 21
(g) Accountants' Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion with
respect to such financial statements, stating (i) that they have reviewed this
Agreement, (ii) whether, in making their audit, such accountants have become
aware of any Default or Event of Default under any of the terms or provisions of
this Agreement insofar as any such terms or provisions pertain to or involve
accounting matters or determinations, and if any such condition or event then
exists, specifying the nature and period of existence thereof, (iii) specifying
the amount available as at the end of such period for Restricted Payments in
compliance with Section5.9, and showing in reasonable detaIL the calculation of
such amount, (iv) demonstrating compliance during such period with clause (x) of
Section5.7(a)(5)(i) by specifying the period within the most recent year during
which the Company and its Restricted Subsidiaries had no Current Debt exceeding
$15,000,000 or, alternatively, specifying the amount of Current Debt deemed to
be Senior Funded Debt pursuant to Section5.7(5)(i)(y) and the period during
which this was deemed to be the case, and (v) demonstrating in reasonable detail
compliance, during and as at the end of such period, with Section5.5,
Section5.7(a)(3), Section5.7(a)(4), Section5.10 and Section5.11; and
(h) Unrestricted Subsidiaries. Within the respective periods
provided in paragraph (b) above, financial statement of the character and for
the dates and periods as in said paragraph (b) provided covering each
Unrestricted Subsidiary (or groups of Unrestricted Subsidiaries on a
consolidated basis).
Without limiting the foregoing, the Company will permit (i) you, so long as you
are the holder of any Note, and (ii) each institutional holder of not less than
5% in aggregate of the then outstanding Notes and (iii) each institutional
holder holding 100% of the outstanding Notes originally issued to any Purchaser
that are, as of the date of such proposed inspection, then outstanding (or such
Persons as you or any such holder may designate), to visit and inspect, under
the Company's guidance, any of the properties of the Company or any Subsidiary,
to examine all their books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers, employees, and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss with you the finances and affairs of the Company and its
Subsidiaries) all at such reasonable times and as often as may be reasonably
requested. Notwithstanding the foregoing, any holder of Notes who is a
Competitor shall have no rights of inspection pursuant to this paragraph so long
as it is a Competitor. If (and only if) an Event of Default shall at the time
have occurred and be continuing, the Company shall be required to pay or
reimburse you or any such holder for expenses which you or any such holder may
incur in connection with any such visitation or inspection.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
6.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as the term is used herein:
(a) Default shall occur in the payment of interest on any Note
when the same shall have become due and such default shall continue for more
than ten days; or
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<PAGE> 22
(b) Default shall occur in the making of any required
prepayment on any of the Notes as provided in Section2.1; or
(c) Default shall occur in the making of any other payment of
the principal of any Note or the premium thereon at the expressed or any
accelerated maturity date or at any date fixed for Prepayment; or
(d) Default shall be made in the payment of the principal of
or interest on any Material Indebtedness of the Company or any Restricted
Subsidiary for borrowed money, as and when the same shall become due and payable
by the lapse of time, by declaration, by call for redemption or otherwise, and
such default shall continue beyond the period of grace, if any, allowed with
respect thereto; or
(e) Default or the happening of any event shall occur under
any indenture, agreement, or other instrument under which any Material
Indebtedness of the Company or any Restricted Subsidiary for borrowed money may
be issued and such default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any Material
Indebtedness of the Company or any Restricted Subsidiary outstanding thereunder;
or
(f) Default shall occur in the observance or performance of
any covenant or agreement contained in Section5.6 through Section5.15, hereof;
or
(g) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within 30 days after
notice thereof to the Company by the holder of any Note; or
(h) Any representation or warranty made by the Company herein,
or made by the Company in any statement or certificate furnished by the Company
in connection with the consummation of the issuance and delivery of the Notes or
furnished by the Company pursuant hereto, is untrue in any material respect as
of the date of the issuance or making thereof; or
(i) The Company or any Restricted Subsidiary becomes insolvent
or bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Restricted
Subsidiary applies for or consents to the appointment of a custodian, trustee or
receiver for the Company or such Restricted Subsidiary or for the major part of
the property of either; or
(j) A custodian, trustee or receiver is appointed for the
Company or any Restricted Subsidiary or for the major part of the property of
either and is not discharged within 60 days after such appointment; or
(k) Final judgment or judgments for the payment of money
aggregating in excess of $500,000 is or are outstanding against the Company or
any Restricted Subsidiary or against any property or assets of either and any
one of such judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of 60 days from the date of its entry; or
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<PAGE> 23
(l) Bankruptcy reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any Restricted Subsidiary and, if instituted against the Company or any
Restricted Subsidiary, are consented to or are not dismissed within 60 days
after such institution.
6.2. Notice to Holders. When any Event of Default described in
the foregoing Section6.1 has occurred, or if the holder of any Note or of any
other evidence of Indebtedness of the Company gives any notice or takes any
other action with respect to a claimed default, the Company agrees to give
notice within three business days of such event to all holders of the Notes then
outstanding, such notice to be in writing and sent by registered or certified
mail, by telegram or by telecopy (with a return telecopied confirmation of
receipt).
6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section6.1 has happened and is
continuing, any holder of any Note may, and when any Event of Default described
in paragraphs (d) through (k), inclusive, of said Section6.1 has happened and is
continuing, the holder or holders of 25% or more of the principal amount of
Notes at the time outstanding may, by notice in writing sent by registered or
certified mail to the Company, declare the entire principal and all interest
accrued on all Notes to be, and all Notes shall thereupon become, forthwith due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. When any Event of Default
described in paragraph (i), (j) and (l) of Section6.1 has occurred, then all
outstanding Notes shall immediately become due and payable without presentment,
demand or notice of any kind. Upon the Notes becoming due and payable as a
result of any Event of Default as aforesaid, the Company will forthwith pay to
the holders of the Notes the entire principle and interest accrued on the Notes
and, to the extent permitted by law, a premium in the amount, if any, which
would be payable if the Company then had elected to prepay the Notes pursuant to
Section2.2(b). No course of dealing on the part of any Noteholder nor any delay
or failure on the part of any Noteholder to exercise any right shall operate as
a waiver of such right or otherwise prejudice such holder's rights, powers and
remedies. The Company further agrees, to the extent permitted by law, to pay to
the holder or holders of the Notes all costs and expenses incurred by them in
the collection of any Notes upon any default hereunder or thereon, including
reasonable compensation to such holder's or holders' attorneys for all services
rendered in connection therewith.
6.4. Rescission of Acceleration. The provisions of Section6.3
are subject to the condition that if the principal of and accrued interest on
all or any outstanding Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (h) and (k), inclusive, of Section6.1, the holders of 66-2/3% in
aggregate principal amount of the Notes then outstanding may, by written
instrument filed with the Company, rescind and annul such declaration and the
consequences thereof, provided that at the time such declaration is annulled and
rescinded:
(a) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement;
(b) all arrears of principal and interest upon all the Notes
and all other sums payable under the Notes and under this Agreement (except any
principal, interest or premium on
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<PAGE> 24
the Notes which has become due and payable solely by reason of such declaration
under Section6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to Section7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default, or Event of Default or impair any right
consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
7.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 66-2/3% in aggregate principal
amount of outstanding Notes; provided that without the written consent of the
holders of all of the Notes then outstanding, no such waiver, modification,
alteration or amendment shall be effective (i) which will change the time of
payment (including any prepayment required by Section2.1) of the principal of or
the interest on any Note or reduce the principal amount thereof or change the
rate of interest thereon, or (ii) which will change any of the provisions with
respect to optional prepayments, or (iii) which will change the percentage of
holders of the Notes required to consent to any such amendment, alteration or
modification or any of the provisions of Section6 or this Section7.
7.2. Solicitation of Noteholders. The Company will not
solicit, request or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions of this Agreement or the Notes unless each
holder of the Notes (irrespective of the amount of Notes then owned by it) shall
be informed thereof by the Company and shall be afforded the opportunity of
considering the same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with respect thereto.
Executed or true and correct copies of any waiver or consent effected pursuant
to the provisions of this Section7 shall be delivered by the Company to each
holder of outstanding Notes forthwith following the date on which the same shall
have been executed and delivered by the holder or holders of the requisite
percentage of outstanding Notes. The Company will not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of the Notes for any waiver
or amendment of any of the terms and provisions of this Agreement unless such
remuneration is concurrently paid, on the same terms, ratably to the holders of
all of the Notes then outstanding.
7.3. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
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<PAGE> 25
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
8.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Restricted
Subsidiary) (i) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company,
(ii) which beneficially owns or holds 5% or more of any class of the Voting
Stock of the Company or (iii) 5% or more of the Voting Stock (or in the case of
a Person which is not a corporation, 5% or more of the equity interest) of which
is beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Average Daily Current Debt" shall mean, with respect to any
Designated Period, the sum of the aggregate amounts of Current Debt (excluding
current maturities of Funded Debt otherwise included therein) of the Company and
its Restricted Subsidiaries outstanding at the close of each day of such
Designated Period, divided by 45.
"Capitalized Lease" shall mean any lease the obligation for
Rentals with respect to which is required to be capitalized on a balance sheet
of the lessee in accordance with generally accepted accounting principles.
"Capitalized Rentals" shall mean as of the date of any
determination the amount at which the aggregate Rentals due and to become due
under all Capitalized Leases under which the Company or any Restricted
Subsidiary is a lessee would be reflected as a liability on a consolidated
balance sheet of the Company and its Restricted Subsidiaries.
"Competitor" shall mean any Person (and any Affiliate of such
Person) which, at the time it owns and holds any Notes, in the ordinary course
of its business offers to furnish substantially the same merchandise or render
substantially the same services as the Company and its Subsidiaries taken as a
whole furnish or render at such time in the ordinary course of their business
taken as a whole provided, that, neither any Purchaser or any Affiliate or
subsidiary thereof shall be deemed to be a Competitor and, provided further,
that no Person (or any Affiliate of such Person) which is substantially in the
business of insurance and/or financial services (and financial activities
reasonably related thereto) and is not in the business of manufacturing
automobile parts shall be deemed to be a Competitor.
"Consolidated Current Assets" and "Consolidated Current
Liabilities" shall mean such assets and liabilities of the Company and its
Restricted Subsidiaries on a consolidated basis as shall be determined in
accordance with generally accepted accounting principles to constitute current
assets and current liabilities, respectively.
"Consolidated Net Income" for any period shall mean the gross
revenues of the Company and its Restricted Subsidiaries for such period less all
expenses and other proper charges (including taxes on income), determined on a
consolidated basis in accordance with
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<PAGE> 26
Standard Motor Products, Inc. Note Agreement
generally accepted accounting principles consistently applied and after
eliminating earnings or losses attributable to outstanding Minority Interests,
but excluding in any event:
(a) any gains or losses on the sale or other disposition of
investments or fixed or capital assets (excluding any Consolidated Current
Assets), and any taxes on such excluded gains and any tax deductions or credits
on account of any such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(d) net earnings and losses of any corporation (other than a
Restricted Subsidiary), substantially all the assets of which have been acquired
in any manner, realized by such other corporation prior to the date of such
acquisition;
(e) net earnings and losses of any corporation (other than a
Restricted Subsidiary) with which the Company or a Restricted Subsidiary shall
have consolidated or which shall have merged into or with the Company or a
Restricted Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest unless such net earnings shall have actually been received by
the Company or such Restricted Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment of dividends to the
Company or any other Restricted Subsidiary;
(h) earnings resulting from any reappraised, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over the amount
invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities of
the Company or any Restricted Subsidiary;
(k) extraordinary gains and losses (including, without
limitation, capital gains or losses in aggregate amounts exceeding $100,000 in
any one fiscal year, and extraordinary charges or credits) and any taxes on such
excluded gains and any tax deductions or credits on account of any such excluded
losses; and
(l) any amounts paid or payable in any currency that at the
time of determination of Consolidated Net Income is not fully convertible into
United States dollars.
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Standard Motor Products, Inc. Note Agreement
"Consolidated Net Tangible Assets" shall mean as of the date
of any determination thereof the total amount of all Tangible Assets of the
Company and its Restricted Subsidiaries after deducting (i) all investments in
and loans, advances and extensions of credit to Unrestricted Subsidiaries (ii)
Restricted Investments (other than the Limited Dividend Rollover Investments)
(iii) Minority Interests, and (iv) all items which in accordance with generally
accepted accounting principles would be included on the liability side of a
consolidated balance sheet, except deferred income taxes, deferred investment
tax credits, capital stock of any class, surplus, and Funded Debt.
"Consolidated Working Capital" shall mean the excess of
Consolidated Current Assets over Consolidated Current Liabilities of the Company
and its Restricted Subsidiaries.
"Current Debt" shall mean, as of the date of any determination
thereof, (i) all Indebtedness for money borrowed other than Funded Debt and (ii)
Guaranties of Current Debt of others.
"Default" shall mean any event or condition the occurrence of
which would, with the lapse of time or the giving of notice, or both, constitute
an Event of Default as defined in Section 6.1.
"Designated Period" shall mean, at any time, a period of 45
consecutive days (i) all of which are included within the period of the twelve
calendar months then most recently ended, and (ii) specified by the Company.
"Funded Debt" of any Person shall mean (i) all indebtedness
for borrowed money or which has been incurred in connection with the acquisition
of assets in each case having a final maturity of one or more than one year from
the date of determination thereof (or which is renewable or extendible at the
option of the obligor for a period or periods more than one year from the date
of determination), (ii) all Capitalized Rentals, and (iii) all Guaranties of
Funded Debt of others. "Consolidated" when used as a prefix to any Funded Debt
shall mean the aggregate amount of all such Funded Debt of the Company and its
Restricted Subsidiaries on a consolidated basis eliminating intercompany items.
"Guaranties" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing or in effect guaranteeing
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against
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Standard Motor Products, Inc. Note Agreement
loss in respect thereof. For the purposes of all computations made under this
Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be
deemed to be Indebtedness equal to the principal amount of such Indebtedness for
borrowed money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Indebtedness" of any Person shall mean and include all
obligations of such Person which in accordance with generally accepted
accounting principles shall be classified upon a balance sheet of such Person as
liabilities of such Person, and in Any event shall include all (i) obligations
of such Person for borrowed money or which has been incurred in connection with
the acquisition of property or assets, (ii) obligations secured by any lien or
other charge upon property or assets owned by such Person, even though such
Person has not assumed or become liable for the payment of such obligations,
(iii) obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person,
notwithstanding the fact that the rights and remedies of the seller, lender or
lessor under such agreement in the event of default are limited to repossession
or sale of property, and (iv) Capitalized Rentals under any Capitalized Lease.
For the purpose of computing the "Indebtedness" of any Person, there shall be
excluded any particular Indebtedness to the extent that, upon or prior to the
maturity thereof, there shall have been deposited with the proper depositary in
trust the necessary funds (or evidences of such Indebtedness, if permitted by
the instrument creating such Indebtedness) for the payment, redemption or
satisfaction of such Indebtedness; and thereafter such funds and evidences of
Indebtedness so deposited shall not be included in any computation of the assets
of such Person.
"Limited Dividend Rollover Investments" shall mean all amounts
invested by the Company and/or Mardevco Credit Corp. in dividend rollover
programs managed by independent professional investment managers of recognized
national standing, but only to the extent the aggregate amount of all such
investments does not exceed $15,000,000.
"Long-Term Lease" shall mean any lease of real or personal
property (other than a Capitalized Lease) having an original term, including any
period for which the lease may be renewed or extended at the option of the
lessor, of more than three years.
"Material Indebtedness" shall mean at any time one or more
obligations of the Company or any Restricted Subsidiary for borrowed money or in
respect of interest rate swaps, interest rate exchange agreements, currency
swaps or currency exchange agreements (however denominated) which, individually
or in the aggregate, have or relate to an unpaid principal amount of more than
$250,000.
"Minority Interests" shall mean any shares of stock of any
class of a Restricted Subsidiary (other than directors' qualifying shares as
required by law) that are not owned by the Company and/or one or more of its
Restricted Subsidiaries. Minority Interests shall be valued by valuing Minority
Interests constituting preferred stock at the voluntary or involuntary
liquidating value of such preferred stock, whichever is greater, and by valuing
Minority Interests constituting common stock at the book value of capital and
surplus applicable thereto adjusted, if
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Standard Motor Products, Inc. Note Agreement
necessary, to reflect any changes from the book value of such common stock
required by the foregoing method of valuing Minority Interests in preferred
stock.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, and a government or agency or political
subdivision thereof.
"Rentals" shall mean and include all fixed rents (including as
such all payments which the lessee is obligated to make to the lessor on
termination of the lease or surrender of the property) payable by the Company or
a Restricted Subsidiary, as lessee or sublessee under a lease of real or
personal property, but shall be exclusive of any amounts required to be paid by
the Company or a Restricted Subsidiary (whether or not designated as rents or
additional rents) on account of maintenance, repairs, insurance, taxes and
similar charges. Fixed rents under any so-called "percentage leases" shall be
computed solely on the basis of the minimum rents, if any, required to be paid
by the lessee regardless of sales volume or gross revenues.
"Restricted Investment" shall mean any investment in any
Person or property, whether directly or indirectly made, and whether by purchase
or other acquisition of shares or Indebtedness or other securities or by loan,
advance, extension of credit, capital contribution or otherwise, other, than:
(i) investments made by the Company or a Restricted
Subsidiary in any Restricted Subsidiary after the Closing
Date;
(ii) investments in direct obligations of the United
States of America or any agency thereof, or obligations
guaranteed or insured by the United States of America or any
agency thereof, provided that such obligations shall mature
within one (1) year from the date of acquisition thereof;
(iii) investments in commercial paper of issuers
organized under the laws of the United States of America or
any state thereof which is given a rating of at least P-2 by
Moody's Investor Services, Inc. or A-2 by Standard and Poor's
Inc. and which matures not more than two hundred seventy (270)
days from the date of creation thereof;
(iv) investments in certificates of deposit maturing
within one (1) year from the date of acquisition thereof by
the Company or a Restricted Subsidiary which are issued by a
commercial bank or trust company (i) organized and doing
business under the laws of the United States of America or any
state thereof, (ii) having combined capital, surplus and
undivided profits aggregating at least One Hundred Million
Dollars ($100,000,000) and (iii) which is a member of the
Federal Deposit Insurance Corporation;
(v) investments in so called auction rate or money
market preferred stock (a) which is rated A or the equivalent
to A or higher by a credit rating agency of recognized
national standing and (b) the issuer of
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Standard Motor Products, Inc. Note Agreement
which was, at the time of the issuance of such preferred
stock, subject to and in compliance with, and is, at the time
of the investment in such preferred stock, subject to and in
compliance with, all applicable guidelines and regulations of
the Federal Deposit Insurance Corporation;
(vi) investments in tax-exempt, floating rate, tender
option bonds rated A (or the equivalent of A) or higher by a
credit rating agency of recognized national standing and which
are backed by a letter of credit issued by a commercial bank
which would qualify as an issuer under clause (iv) above;
(vii) investments in Eurodollar deposits in a
commercial bank given a rating of P-1 by Moody's Investor
Services Inc. or A-1 by Standard and Poor's Inc., provided
that (i) such Investments are purchased in the United States
of America and mature within ninety (90) days of the date of
the acquisition thereof, (ii) the aggregate amount of such
Investments in any one bank shall not at any time exceed Three
Million Dollars ($3,000,000), and (iii) the aggregate amount
of all such Investments shall not at any time exceed Five
Million Dollars ($5,000,000);
(viii) other investments provided that the funds used
to acquire such investment have been obtained from the
concurrent sale of capital stock of the Company;
(ix) advances to suppliers in the ordinary course of
business in connection with the purchase of machinery,
equipment or other supplies, not in excess of $500,000 in the
aggregate; and
(x) investments in property to be used in the
ordinary course of business.
"Restricted Subsidiary" shall mean:
(i) any Subsidiary so designated on Annex A to
Exhibit B hereto,
(ii) any other Subsidiary designated as a Restricted
Subsidiary pursuant to and in accordance with the provisions
of Section 5.15.
"Security" shall have the same meaning as in Section 2(l) of
the Securities Act of 1933, as amended.
"Senior Funded Debt" shall mean all Funded Debt other than
Subordinated Debt.
"Subordinated Debt" shall mean all unsecured Current Debt or
Funded Debt of the Company (a) which shall have (i) a final maturity later than
November 1, 2004 and (ii) an Average Life as at the date of issuance that is
greater than the Average Life of Notes at such date
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Standard Motor Products, Inc. Note Agreement
and (b) which shall contain or have applicable thereto subordination provisions
substantially in the form set forth in Exhibit E attached hereto or such other
provisions as may be approved in writing by the holders of not less than 66-2/3%
in aggregate principal amount of the outstanding Notes, "Average Life" of any
Indebtedness, as used in this definition of "Subordinated Debt," shall mean the
number obtained by dividing the then Remaining Dollar-Years of such Indebtedness
by the then outstanding principal amount of such Indebtedness; "Remaining Dollar
Years" being the sum of the individual products obtained by multiplying the
amount of each required payment and prepayment of the principal amount of such
Indebtedness by the number of years (to the nearest one-twelfth) between the
date of any determination and the date on which such payment or prepayment is
required to be made.
The term "subsidiary" shall mean, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.
"Tangible Assets" shall mean, as of the date of any
determination thereof, the total amount of all assets of the Company and its
Restricted Subsidiaries (less depreciation, depletion and other properly
deductible valuation reserves) after deducting good will, patents, trade names,
trademarks, copyrights, franchises, experimental expense, organization expense,
unamortized debt discount and expense, write-ups to the book value of assets
occurring after December 31, 1975 relating to assets owned on December 31, 1975,
write-ups to the book value of assets acquired by the Company or its Restricted
Subsidiaries after December 31, 1975 in excess of the cost thereof, deferred
assets other than prepaid insurance and prepaid taxes, the excess of cost of
shares acquired over book value of related assets and such other assets as are
properly classified as "intangible assets" in accordance with generally accepted
accounting principles.
"Unrestricted Subsidiary" shall mean:
(i) any Subsidiary so designated on Annex A to
Exhibit B hereto, and
(ii) any other Subsidiary designated as an
Unrestricted Subsidiary pursuant to and in accordance with the
provisions of Section 5.15.
"Voting Stock" shall mean Securities of any class or classes
the holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and outstanding shares of
stock (except shares required as directors' qualifying shares) and all
Indebtedness for borrowed money shall be owned by the Company and/or one or more
of its Wholly-owned Subsidiaries.
8.2. Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same
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Standard Motor Products, Inc. Note Agreement
shall be done in accordance with generally accepted accounting principles, to
the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
8.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
9.1. Registered Notes. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register"), and the Company will register or
transfer or cause to be registered or transferred, as hereinafter provided and
under such reasonable regulations as it may prescribe, any Note issued pursuant
to this Agreement.
At any time and from time to time the registered holder of any
Note which has been duly registered as hereinabove provided may transfer such
Note upon surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in writing.
The Person in whose name any registered Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes of this Agreement. Payment of or on account of the principal, premium,
if any, and interest on any registered Note shall be made to or upon the written
order of such registered holder.
9.2. Exchange of Notes. At any time and from time to time,
upon not less than ten days' notice to that effect given by the holder of any
Note initially delivered or of any Note substituted therefor pursuant to Section
9.1, this Section 9.2 or Section 9.3, and, upon surrender of such Note at its
office, THE Company will deliver in exchange therefor, without expense to the
holder, except as set forth below, Notes for the same aggregate principal amount
as the then unpaid principal amount of the Note so surrendered, in the
denomination of $100,000 or any amount in excess thereof as such holder shall
specify, dated as of the date to which interest has been paid on the Note so
surrendered or, if such surrender is prior to the payment of any interest
thereon, then dated as of the date of issue, payable to such Person or Persons,
or registered assigns, as may be designated by such holder, and otherwise of the
same form and tenor as the Notes so surrendered for exchange. The Company may
require the payment of a sum sufficient to cover any stamp tax or governmental
charge imposed upon such exchange or transfer.
9.3. Loss, Theft, etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If the Purchaser or any subsequent institutional holder is the
owner of any such lost, stolen or
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Standard Motor Products, Inc. Note Agreement
destroyed Note, then the affidavit of an authorized officer of such owner,
setting forth the fact of loss, theft or destruction and of its ownership of the
Note at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of a new Note other than the written
agreement of such owner to indemnify the Company.
9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
directly all of your out-of-pocket expenses in connection with the preparation,
execution and delivery of this Agreement and the transactions contemplated
hereby, including but not limited to the reasonable charges and disbursements of
Chapman and Cutler, your special counsel, costs incurred in obtaining a Private
Placement Number, from Standard and Poor's, duplicating and printing costs and
charges for shipping the Notes, adequately insured to you at your home office or
at such other place as you may designate, and all such expenses relating to any
amendment, waivers or consents pursuant to the provisions hereof, including,
without limitation, any amendments, waivers or consents resulting from any
work-out, restructuring or similar proceedings relating to the performance by
the Company of its obligations under this Agreement and the Notes. Without
limiting the provisions of the last sentence of Section 9.2, the Company also
agrees that it will pay and save you harmless against any and all liability with
respect to stamp and other taxes, if any, which may be payable or which may be
determined to be playable in connection with the execution and delivery of this
Agreement or the Notes, whether or not any Notes are then outstanding. The
Company agrees to protect and indemnify you against any liability for any and
all brokerage fees and commissions payable or claimed to be payable to any
Person engaged by the Company in connection with the transactions contemplated
by this Agreement.
9.5. Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Note in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent, given
or extended pursuant to Section 7 hereof, shall extend to or affect any
obligation or right not expressly waived or consented to.
9.6. Notices. All communications provided for hereunder shall
be in writing and, if to you, delivered or mailed by registered or certified
mail or by overnight air courier, in each case prepaid and addressed to you at
your address appearing on Schedule I to this Agreement or such other address as
you or the subsequent holder of any Note initially issued to you may designate
to the Company in writing, and if to the Company, delivered or mailed by
registered or certified mail or by overnight air courier, in each case prepaid
and addressed to the Company at 37-18 Northern Boulevard, Long Island, New York
11101, Attention: Mark S. Chanko, Vice President, or to such other address as
the Company may in writing designate to you or to a subsequent holder of the
Note initially issued to you.
9.7. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to your benefit
and to the benefit of your successors and assigns, including each successive
holder or holders of any Notes.
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Standard Motor Products, Inc. Note Agreement
9.8. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
9.9. Severability. Should any part of this Agreement for any
reason be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in force and effect as
if this Agreement had been executed with the invalid portion thereof eliminated
and it is hereby declared the intention of the parties hereto that they would
have executed the remaining portion of this Agreement without including therein
any such part, parts, or portion which may, for any reason, be hereafter
declared invalid.
9.10. Governing Law. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with New York
law.
9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this Agreement
may be executed in any number of counterparts, each executed counterpart
constituting an original but all together only one agreement.
STANDARD MOTOR PRODUCTS, INC.
By________________________________
Its
Accepted as of October 15, 1989.
[VARIATION]
By________________________________
Its
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TABLE OF CONTENTS
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT............................................................1
1.1. Description of Notes...........................................................................1
1.2. Commitment, Closing Date.......................................................................1
1.3. Other Agreements...............................................................................2
SECTION 2. PREPAYMENT OF NOTES............................................................................2
2.1. Required Prepayments...........................................................................2
2.2. Optional Prepayment............................................................................2
2.3. Prepayment on Failure of Holder to Consent to Sale and Leaseback...............................4
2.4. Prepayment on Change of Control................................................................4
2.5. Notice of Prepayments..........................................................................5
2.6. Allocation of Prepayments......................................................................5
2.7. Direct Payment.................................................................................5
SECTION 3. REPRESENTATIONS................................................................................6
3.1. Representations of the Company.................................................................6
3.2. Representations of the Purchasers..............................................................6
SECTION 4. CLOSING CONDITIONS.............................................................................6
4.1. Closing Certificate............................................................................7
4.2. Legal Opinions.................................................................................7
4.3. Related Transactions...........................................................................7
4.4. Satisfactory Proceedings.......................................................................7
4.5. Legality.......................................................................................7
4.6. Waiver of Conditions...........................................................................7
SECTION 5. COMPANY COVENANTS..............................................................................7
5.1. Corporate Existence, etc.......................................................................7
5.2. Insurance......................................................................................8
5.3. Taxes, Claims for Labor and Materials, Compliance with Laws....................................8
5.4. Maintenance, etc...............................................................................8
5.5. Nature of Business.............................................................................9
5.6. Consolidated Working Capital...................................................................9
</TABLE>
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<TABLE>
<CAPTION>
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5.7. Limitations on Indebtedness....................................................................9
5.8. Limitation on Liens...........................................................................11
5.9. Dividends, Stock Purchases....................................................................13
5.10. Limitation on Long-Term Leases, Sale and Leasebacks...........................................14
5.11. Mergers, Consolidations and Sales of' Assets..................................................14
5.12. Guaranties....................................................................................16
5.13. Repurchase of Notes...........................................................................17
5.14. Transactions with Affiliates..................................................................17
5.15. Restricted and Unrestricted Subsidiaries......................................................17
5.16. Termination of Pension Plans..................................................................18
5.17. Reports and Rights of Inspection..............................................................18
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.......................................................20
6.1. Events of Default.............................................................................20
6.2. Notice to Holders.............................................................................22
6.3. Acceleration of Maturities....................................................................22
6.4. Rescission of Acceleration....................................................................22
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS..............................................................23
7.1. Consent Required..............................................................................23
7.2. Solicitation of Noteholders...................................................................23
7.3. Effect of Amendment or Waiver.................................................................23
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS......................................................23
8.1. Definitions...................................................................................24
8.2. Accounting Principles.........................................................................30
8.3. Directly or Indirectly........................................................................31
SECTION 9. MISCELLANEOUS.................................................................................31
9.1. Registered Notes..............................................................................31
9.2. Exchange of Notes.............................................................................31
9.3. Loss, Theft, etc. of Notes....................................................................31
9.4. Expenses, Stamp Tax Indemnity.................................................................32
9.5. Powers and Rights Not Waived; Remedies Cumulative.............................................32
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9.6. Notices.......................................................................................32
9.7. Successors and Assigns........................................................................32
9.8. Survival of Covenants and Representations.....................................................33
9.9. Severability..................................................................................33
9.10. Governing Law.................................................................................33
9.11. Captions......................................................................................33
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<PAGE> 1
Exhibit 10.2
STANDARD MOTOR PRODUCTS, INC.
NOTE AGREEMENT
Dated as of November 15, 1992
To Each of the Purchasers
Named in the Attached Schedule I
Ladies and Gentlemen:
STANDARD MOTOR PRODUCTS, INC., a New York corporation (the "Company"),
agrees with you as follows:
Section 1. DESCRIPTION OF NOTES AND COMMITMENT
1.1 Description of Notes. The Company has authorized the issuance and sale of
$65,000,000 aggregate principal amount of its Senior Notes (the "Notes"), to be
dated the date of issuance, to bear interest from such date (computed on the
basis of a 360-day year comprised of twelve 30-day months) , payable
semi-annually on June 15 and December 15 of each year, commencing June 15, 1993,
and at maturity, at the rate of 7.85% per annum prior to maturity and to bear
interest on any overdue principal (including any overdue optional or required
prepayment), on any overdue Make-Whole Amount, and (to the extent legally
enforceable) on any overdue installment of interest at a per annum rate equal to
the greater of the rate of 9.85% and the reference rate of Chemical Bank from
time to time in effect plus 2%. The Notes shall be expressed to mature on
December 15, 2002 and shall be substantially in the form attached as Exhibit A.
The term "Notes" as used herein shall include each Note delivered pursuant to
this Note Agreement (the "Agreement") and each Note delivered in substitution or
exchange therefor and, where applicable, 5 hall include the singular number as
well as the plural. Any reference to you in this Agreement shall in all
instances be deemed to include any nominee of yours or any separate account or
other person on whose behalf you are purchasing Notes. You and the other
purchasers are sometimes referred to herein individually as a "Purchaser" and
collectively as the "Purchasers."
1.2 Commitment; Closing Date. Subject to the terms and conditions hereof and on
the basis of the representations and warranties hereinafter set forth, the
Company agrees to issue and sell to you, and you agree to purchase from the
Company, Notes in the aggregate principal amount set forth opposite your name in
the attached Schedule I at a price of 100% of the principal amount thereof.
Delivery of and payment for the Notes shall be made at the offices of
Gardner, Carton & Douglas, 321 North Clark Street, Quaker Tower, Chicago,
Illinois 60610, at 9:00 a.m., Chicago Time, on December 15, 1992, or at such
later time or on such later date, not later than Noon, Chicago Time, on December
30, 1992 as may be mutually agreed upon by the Company and the Purchasers (the
"Closing Date"). The Notes shall be delivered to you in the form of one or more
Notes in fully registered form, issued in your name or in the name of your
nominee. Delivery of
<PAGE> 2
the Notes to you on the Closing Date shall be against payment of the purchase
price thereof in Federal funds or other funds in U.S. dollars immediately
available at Chemical Bank, 270 Park Avenue, 7th Floor, New York, New York,
A.B.A. No. 021000128, for deposit in the Company's Account No. 027-022048. If on
the Closing Date the Company shall fail to tender the Notes to you, you shall be
relieved of all remaining obligations under this Agreement. Nothing in the
preceding sentence shall relieve the Company, of any liability occasioned by
such failure to deliver the Notes. The funding and other obligations of the
Purchasers under this Agreement shall be several and not joint.
Section 2. PREPAYMENT OF NOTES
2.1 Required Prepayments. In addition to payment of all outstanding principal of
the Notes at maturity and regardless of the amount of Notes which may be
outstanding from time to time, the Company shall prepay and there shall become
due and payable on December 15 in each year, $9,285,714 of the principal amount
of the Notes or such lesser amount as would constitute payment in full on the
Notes, commencing December 15, 1996 and ending December 15, 2001, inclusive,
with the remaining principal payable on December 15, 2002. Each such prepayment
shall be at a price of 100% of the principal amount prepaid, together with
interest accrued thereon to the date of prepayment.
2.2 Optional Prepayments. (a) Upon notice as provided in Section 2.3, the
Company may prepay the Notes, in whole or in part, at any time, in an amount not
less than $1,000,000, an integral multiple of $100,000 in excess thereof or such
lesser amount as shall constitute payment in full of the Notes, provided that a
prepayment pursuant to this Section 2.2(a) shall be made only in conjunction
with the contemporaneous pro rata prepayment of the 6.01% Notes. Each such
prepayment shall be at a price of 100% of the principal amount to be prepaid,
plus interest accrued thereon to the date of prepayment, plus the Make-Whole
Amount.
(b) Promptly following the day on which the Company first learns of a
proposed Change of Control, the Company shall give notice thereof to the holders
of the Notes, which notice shall include the estimated date (if known) on which
such Change of Control may occur. In the event of a Change of Control, the
Company shall immediately and in any event not later than 5 calendar days after
such date, give written notice to each holder of a Note of the Change of
Control, accompanied by a certificate of an authorized officer of the Company
specifying the nature of the Change of Control. Such notice shall (i) contain
the written, irrevocable offer of the Company to prepay, on a date specified in
such notice which shall be not less than 30 or more than 45 calendar days after
the effective date of such Change of Control, the entire principal amount of the
Notes held by each holder at a price equal to 100% thereof, plus interest
accrued thereon to the date of prepayment, (ii) state that notice of acceptance
of the Company's offer to prepay under this Section 2.2(b) must be delivered to
the Company not later than 10 calendar days prior to the date fixed for
prepayment, and (iii) contain the information specified in clauses (iii), (iv)
and (v) of the first sentence of Section 2.3. Upon receipt by the Company of
such notice of acceptance from any holder, but subject to the following
sentence, the aggregate principal amount of Notes held by such holder plus the
interest accrued thereon shall become due and payable on the day specified in
the Company's notice. Not earlier than 7 calendar days prior to the date fixed
for prepayment, the Company shall give written notice to each holder of those
holders who have given notices of acceptance of the Company's offer and
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<PAGE> 3
the principal amount of Notes held by each, and thereafter any holder may change
its response to the Company's offer by written notice to such effect delivered
to the Company not less than 3 business days prior to the date fixed for
prepayment.
(c) Any optional prepayment of less than all of the Notes outstanding
pursuant to Section 2.2(a) or 2.2(b) shall be applied to reduce, pro rata the
prepayments and payment at maturity required by Section 2.1.
(d) Except as provided in Section 2.1 and this Section 2.2, the Notes
shall not be prepayable in whole or in part.
2.3 Notice of Prepayments. (a) The Company shall give notice of any
optional prepayment of the Notes pursuant to Section 2.2(a) to each holder of
the Notes not less than 30 days nor more than 60 days before the date fixed for
prepayment, specifying (i) such date, (ii) the principal amount of the holder's
Notes to be prepaid on such date, (iii) the Determination Date for calculating
the Make Whole Amount, (iv) a calculation of the estimated amount of the
Make-Whole Amount showing in detail the method of calculation and (v) the
accrued interest applicable to the prepayment. Notice of prepayment having been
so given, the aggregate principal amount of the Notes specified in such notice,
together with the Make-Whole Amount, if any, and accrued interest thereon shall
become due and payable on the prepayment date.
(b) The Company also shall give notice to each holder of the Notes to
be prepaid pursuant to Section 2.2(a) by telecopy, telegram, telex or other
same-day written communication, confirmed by notice delivered by overnight
courier, as soon as practicable but in any event no less than 2 Business Days
prior to the prepayment date, of the Make-Whole Amount applicable to such
prepayment and the details of the calculations used to determine the amount of
such Make-Whole Amount.
2.4 Surrender of Notes on Prepayment or Exchange. Subject to Section
2.5, upon any partial prepayment of a Note pursuant to this Section 2 or partial
exchange of a Note pursuant to Section 10.3, such Note may, at the option of the
holder thereof, (i) be surrendered to the Company pursuant to Section 10.3 in
exchange for a new Note or Notes equal to the principal amount remaining unpaid
on the surrendered Note, or (ii) be made available to the Company, at the
Company's principal office, for notation thereon of the portion of the principal
so prepaid or exchanged. In case the entire principal amount of any Note is
prepaid or exchanged, such Note shall be surrendered to the Company for
cancellation and shall not be reissued, and no Note shall be issued in lieu of
such Note.
2.5 Direct Payment and Deemed Date of Receipt. Notwithstanding any
other provision contained in the Notes or this Agreement, the Company will pay
all sums becoming due on each Note held by you or any subsequent Institutional
Holder by wire transfer of immediately available funds to such account as you or
such subsequent Institutional Holder have designated in Schedule I, or as you or
such subsequent Institutional Holder may otherwise designate by notice to the
Company, in each case without presentment and without notations being made
thereon, except that any such Note so paid or prepaid in full shall be
surrendered to the Company for cancellation following such payment. Any wire
transfer shall identify such payment in the manner set forth in Schedule I and
shall identify the payment as principal, Make-
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<PAGE> 4
Whole Amount, if any, and/or interest. You and any subsequent Institutional
Holder of a Note to which this Section 2.5 applies agree that, before selling or
otherwise transferring any such Note, you or it will make a notation thereon of
the aggregate amount of all payments of principal theretofore made and of the
date to which interest has been paid and, upon written request of the Company,
will provide a copy of such notations to the Company. Any payment made pursuant
to this Section 2.5 shall be deemed received on the payment date only if
received before 10:00 A.M., Chicago time. Payments received after 10:00 A.M.,
Chicago Time, shall be deemed received on the next succeeding Business Day.
2.6 Allocation of Payments. In the case of a prepayment pursuant to
Section 2.1 or Section 2.2(a), if less than the entire principal amount of all
of the Notes Outstanding is to be paid, the Company will prorate the aggregate
principal amount to be prepaid among the outstanding Notes in proportion to the
unpaid principal amounts thereof.
2.7 Payments Due on Saturdays, Sundays and Holidays. In any case where
the date of any required prepayment of the Notes or any interest payment date on
the Notes or the date fixed for any other payment of any Note or exchange of any
Note is a Saturday, Sunday or a legal holiday or a day on which banking
institutions in the United States of America generally are authorized by law to
close, then such payment, prepayment or exchange need not be made on such date
but may be made on the next succeeding Business Day which is not a Saturday,
Sunday or a legal holiday or a day on which banking institutions in the United
States of America generally are authorized by law to close, with the same force
and effect as if made on the due date, except that interest shall be payable to
the actual date of payment.
Section 3. REPRESENTATIONS
3.1 Representations of the Company. As an inducement to, and as part of
the consideration for, your purchase of the Notes pursuant to this Agreement,
the Company represents and warrants to you as follows:
(a) Corporate Organization and Authority. The Company is a solvent
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, has all requisite corporate power and authority to own
and operate its properties, to carry on its business as now conducted and as
presently proposed to be conducted, to enter into and perform the Agreement and
to issue and sell the Notes as contemplated in the Agreement.
(b) Qualification to Do Business. The Company is duly qualified or
licensed and in good standing as a foreign corporation authorized to do business
in each jurisdiction where the nature of, the business transacted by it or the
character of its properties owned or leased makes such qualification or
licensing necessary, except for jurisdictions, individually or in the aggregate,
where the failure to be so licensed or qualified could not have a material
adverse effect on the business, properties, profits, prospects, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole.
(c) Subsidiaries. The Company has no Subsidiaries except those listed
in the attached Annex I, which correctly sets forth the jurisdiction of
incorporation and the percentage of the outstanding voting Stock or equivalent
interest of each Subsidiary which is owned, of
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<PAGE> 5
record or beneficially, by the Company and/or one or more Subsidiaries. Each
Subsidiary which is a Restricted Subsidiary is so designated in Annex I. Each
Subsidiary has been duly organized and is validly existing and in good standing
under the laws of its jurisdiction of incorporation and is duly licensed or
qualified and in good standing as a foreign corporation in each other
jurisdiction where the nature of the business transacted by it or the character
of its properties owned or leased makes such qualification or licensing
necessary, except for jurisdictions, individually or in the aggregate, where the
failure to be so licensed or qualified would not have a material adverse effect
on the business, properties, profits, prospects, operations or condition,
financial or otherwise, of the Company and its Subsidiaries, taken as a whole.
Each Subsidiary has full corporate or other power and authority to own and
operate its properties and to carry on its business as now conducted and as
presently proposed to be conducted. The Company and each Subsidiary have good
and marketable title to all of the shares they purport to own of the capital
stock or equivalent interest of each Subsidiary, free and clear in each case of
any Lien, except as otherwise disclosed in the attached Annex II, and all such
shares have been duly issued and are fully paid and nonassessable.
(d) Financial Statements. The consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1990 and 1991, and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for each of the years ended December 31, 1987, 1988, 1989, 1990 and 1991,
accompanied by the reports and unqualified opinions of (i) Peat Marwick,
independent public accountants, with respect to the financial statements for the
years ended December 31, 1987, 1988 and 1989 and (ii) David Berdon & Co.,
independent public accountants, with respect to the financial statements for the
years ended December 31, 1990 and 1991, copies of which have heretofore been
delivered to you, were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein) and present fairly the consolidated financial condition
of the Company and its Subsidiaries on such dates and their consolidated results
of operations and cash flows for the years then ended. The unaudited condensed
consolidated balance sheets of the Company and its Subsidiaries as of September
30, 1992 and the related unaudited condensed consolidated statements of earnings
for the three months and nine months, and cash flows for the nine months, ended
September 30, 1991 and 1992, copies of which have heretofore been delivered to
you, were prepared in accordance with generally accepted accounting principles
and present or will present fairly the consolidated financial condition of the
Company and its Subsidiaries as of such dates and the consolidated results of
their operations and changes in their cash flows for the periods then ended.
(e) No Contingent Liabilities or Adverse Changes. Neither the Company
nor any of its Subsidiaries has any contingent liabilities which, individually
or in the aggregate, are material to the Company and its Subsidiaries taken as a
whole, other than as indicated in the most recent audited and unaudited
financial statements described in the foregoing paragraph (d) of this Section
3.1, and, since September 30, 1992, there have been no changes in the condition,
financial or otherwise, of the Company and its Subsidiaries except changes
occurring in the ordinary course of business, none of which, individually or in
the aggregate, has been materially adverse.
(f) No Pending Litigation or Proceedings. There are no actions, suits
or proceedings pending or threatened against or affecting the Company or any of
its Subsidiaries, at
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<PAGE> 6
law or in equity or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could have a material adverse effect, either
individually or in the aggregate, on the business, properties, profits,
prospects, operations or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole.
(g) Compliance with Law. (i) Neither the Company nor any of its
Subsidiaries is: (x) in default with respect to any order, writ, injunction or
decree of any court to which it is a named party; or (y) in default under any
law, rule, regulation, ordinance or order relating to its or their respective
businesses, the sanctions and penalties resulting from which defaults described
in clauses (x) and (y) could have a material adverse effect on the business,
properties, profits, prospects, operations or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole, or on the Company's
ability to perform its obligations under this Agreement or the Notes.
(ii) Neither the Company nor any Subsidiary nor any Affiliate
of the Company is an entity defied as a "designated national" within
the meaning of the Foreign Assets Control Regulations, 31 C.F.R.
Chapter V, or is in violation of any Federal statute or Presidential
Executive Order, or any rules or regulations of any department, agency
or administrative body promulgated under any such statute or Order,
concerning trade or other relations with any foreign country or any
citizen or national thereof or the ownership or operation of any
property and no restriction or prohibition under any such statute,
Order, rule or regulation has a material adverse effect on the
business, properties, profits, prospects, operations or condition,
financial or otherwise, of the Company and its Subsidiaries taken as a
whole.
(h) Pension Reform Act of 1974. Neither the purchase of the Notes by
you nor the consummation of any of the other transactions contemplated by this
Agreement is or will constitute a "prohibited transaction" within the meaning of
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Internal Revenue Service has issued a determination that each
"employee pension benefit plan," as defined in Section 3 of ERISA (a "Plan"),
established, maintained or contributed to by the Company or any Subsidiary
(except for any Plan which is unfunded and maintained primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees) is qualified under Section 401(a) and related provisions
of the Code and that each related trust or custodial account is exempt from
taxation under Section 501(a) of the Code. All Plans of the Company or any
Subsidiary comply in all material respects with ERISA and other applicable laws.
There exist with respect to the Company or any Subsidiary no "multi-employer
plans," as defined in the Multiemployer Pension Plan Amendments Act of 1980, for
which a material withdrawal or termination liability may be incurred. There
exist with respect to all Plans or trusts established or maintained by the
Company or any Subsidiary: (i) no accumulated funding deficiency within the
meaning of ERISA; (ii) no termination of any Plan or trust which could result in
any liability to the Pension Benefit Guaranty Corporation ("PBGC") or any
"reportable event," as that term is defined in ERISA, which could constitute
grounds for termination of any Plan or trust by the PBGC; and (iii) no
"prohibited transaction," as that term is defined in ERISA, which could
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<PAGE> 7
subject any Plan, trust or party dealing with any such Plan or trust to any tax
or penalty on prohibited transactions imposed by Section 4975 of the Code.
(i) Title to Properties. Except as disclosed on the most recent audited
consolidated balance sheet described in the foregoing paragraph (d) of this
Section 3.1, the Company and each Subsidiary has (i) good and marketable title
in fee simple or its equivalent under applicable law to all the real property
owned by it and (ii) good and marketable title to all of the other property
reflected in such balance sheet or subsequently acquired by the Company or any
Subsidiary (except as sold or otherwise disposed of in the ordinary course of
business), in each case free from all Liens or defects in title except Liens
permitted by Section 7.5.
(j) Leases. The Company and each Subsidiary enjoy peaceful and
undisturbed possession under all leases under which the Company or such
Subsidiary is a lessee or is operating, except for leases which, if terminated,
would not, individually or in the aggregate, have a material adverse effect on
the business, properties, profits, prospects, operations or condition, financial
or otherwise, of the Company and its Subsidiaries, taken as a whole.
(k) Franchises, Patents, Trademarks and Other Rights. The Company and
each Subsidiary have all franchises, permits, licenses and other authority
necessary to carry on their businesses as now being conducted, and none are in
default under any of such franchises, permits, licenses or other authority which
are material to their businesses, properties, profits, prospects, operations or
condition, financial or otherwise. The Company and each Subsidiary own or
possess all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to the foregoing necessary for the present
conduct of their businesses, without any known conflict with the rights of
others which could have, individually or in the aggregate, a material adverse,
effect on their businesses, properties, profits, prospects, operations or
condition, financial or otherwise.
(l) Authorization. This Agreement and the Notes have been duly
authorized on the part of the Company and the Agreement does, and the Notes when
issued will, constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms, except to the extent that
enforcement of the Notes may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to or
affecting the enforcement of the rights of creditors or by equitable principles,
regardless of whether enforcement is sought in equity or at law. The sale of the
Notes and compliance by the Company with all of the provisions of this Agreement
and of the Notes (i) are within the corporate powers of the Company, (ii) have
been duly authorized by proper corporate action, (iii) are legal and will not
violate any provisions of any law or regulation or order of any court,
governmental authority or agency and, (iv) will not result in any breach of any
of the provisions of, or constitute a default under, or result in the creation
of any Lien on any property of the Company or any Subsidiary under the
provisions of, any charter document, by-law, loan agreement or other agreement
or instrument to which the Company or any Subsidiary is a party or by which any
of them or their property may be bound.
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<PAGE> 8
(m) No Defaults. No event has occurred and no condition exists which,
upon the issuance of the Notes, would constitute a Default or an Event of
Default under this Agreement. Neither the Company nor any Subsidiary is in
default under any charter document, by-law, loan agreement or other material
agreement or material instrument to which it is a party or by which it or its
property may be bound.
(n) Governmental Consent. Neither the nature of the Company or any of
its Subsidiaries, their respective businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstances in connection with the offer, issuance, sale or
delivery of the Notes is such as to require a consent, approval or authorization
of, or withholding of objection on the part of, or filing, registration or
qualification with, any governmental authority on the part of the Company in
connection with the execution and delivery of this Agreement or the offer,
issuance, sale or delivery of the Notes.
(o) Taxes. All income tax returns and all other material tax returns
required to be filed by the Company or any Subsidiary in any jurisdiction have
been filed, and all taxes, assessments, fees and other governmental charges upon
the Company or any Subsidiary, or upon any of their respective properties,
income or franchises, which are due and payable, have been paid timely or within
appropriate extension periods or contested in good faith by appropriate
proceedings and the collection thereof has been stayed by the applicable
governmental authority during the period of the contest. The Company does not
know of any proposed additional tax assessment against it or any Subsidiary for
which adequate provision has not been made on its books. The statute of
limitations with respect to Federal income tax liability of the Company and its
Subsidiaries has expired for all taxable years up to and including the taxable
year ended December 31, 1988 and no material controversy in respect of
additional taxes due since such date is pending or, to the Company's knowledge,
threatened. To the best knowledge of the Company, the provisions for taxes on
the books of the Company and each Subsidiary are adequate for all open years and
for the current fiscal period.
(p) Statues under Certain Statutes. Neither the Company nor any
Subsidiary is: (i) a "public utility company" or a "holding company," or an
"affiliate" or a "subsidiary company" of a "holding company," or an "affiliate"
of such a "subsidiary company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended, or (ii) a "public utility" as defined
in the Federal Power Act,, as amended, or (iii) an "investment company" or an
"affiliated person" thereof or an "affiliated person" of any such "affiliated
person," as such terms are defined in the Investment Company Act of 1940, as
amended.
(q) Private Offering. Neither the Company, Chemical Bank, NBD Bank,
N.A., nor SPP Hambro & Company (the only Persons authorized or employed by the
Company as agent, broker, dealer or otherwise in connection with the offering of
the Notes or any similar security of the Company) has offered any of the Notes
or any similar security of the Company for sale to, or solicited offers to buy
any thereof from, or otherwise approached or negotiated with respect thereto
with, any prospective purchaser, other than institutional investors, including
the Purchasers, each of whom was offered all or a portion of the Notes at
private sale for investment. Neither the Company nor anyone acting on its
authorization will offer the Notes or any part thereof or any similar security
for issuance or sale to, or solicit any offer to acquire any
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<PAGE> 9
of the same from, anyone so as to bring the issuance and sale of the Notes
within the provisions of Section 5 of the Securities Act.
(r) Effect of Other Instruments. Neither the Company nor any Subsidiary
is bound by any agreement or instrument or subject to any charter or other
corporate restriction which (i) in any way restricts the Company's ability to
perform its obligations under this Agreement or the Notes or any Subsidiary's
ability to pay dividends or make advances to the Company or (ii) materially and
adversely affects the business, properties, profits, prospects, operations, or
condition, financial or otherwise, of the Company and its Subsidiaries, taken as
a whole.
(s) Use of Proceeds. The Company will apply the net proceeds from the
sale of the Notes, together with the net proceeds from the contemporaneous sale
of the 6.01% Notes, to the repayment of Indebtedness to banks and Funded Debt.
None of the transactions contemplated in this Agreement (including, without
limitation thereof, the use of the proceeds from the sale of the Notes) will
violate or result in a violation of Section 7 of the Exchange Act, or any
regulations issued pursuant thereto, including, without limitation, Regulations
G, T, U and X of the Board of Governors of the Federal Reserve System (12
C.F.R., Chapter II). Neither the Company nor any Subsidiary owns or intends to
carry or purchase any "margin stock" within the meaning of Regulation G, and
none of the proceeds from the sale of the Notes will be used to purchase or
carry or refinance any borrowing the proceeds of which were used to purchase or
carry any "margin stock" or "margin security" in violation of Regulations G, T,
U or X.
(t) Condition of Property. All of the facilities of the Company and its
Subsidiaries are in sound operating condition and repair, except for facilities
being repaired in the ordinary course of business or facilities which,,
individually or in the aggregate, are not material to the Company and its
Subsidiaries taken as a whole.
(u) Books and Records. The Company and each of its Subsidiaries (i)
maintain books, records and accounts in reasonable detail which accurately and
fairly reflect their respective transactions and business affairs, and (ii)
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are executed in accordance with
management's general or specific authorization and to permit preparation of
financial statements in accordance with generally accepted accounting
principles.
(v) Environmental Compliance. The Company and each Subsidiary
(including their operations and the conditions at or in their Facilities) comply
in all material respects with all Environmental Laws, except for instances of
alleged noncompliance which the Company or such Subsidiary is contesting in good
faith and which, individually or in the aggregate, if determined adversely to
the Company or such Subsidiary, would not have a material adverse effect an the
business, properties, profits, prospects, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole; the Company and
each Subsidiary have obtained all permits under Environmental Laws necessary to
their respective operations, all such permits are in good standing, and the
Company and each Subsidiary are in compliance with all material terms and
conditions of such permits; and neither the Company nor any of its Subsidiaries
has any liability (contingent or otherwise) in connection with any Release of
any Hazardous Material or the existence of any Hazardous material on,
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under or about any Facility that could give rise to an Environmental Claim that
could have a material adverse effect on the business, properties, profits,
prospects, operations or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole.
(w) NAIC Rating. The Notes have received a preliminary rating of "2"
from The National Association of Insurance Commissioners.
(x) Full Disclosure. Neither the Private Placement Memorandum dated
October 1992 (including the attachments and enclosures), the financial
statements referred to in paragraph (d) of this Section 3.1, nor this Agreement,
nor any other written statement or document furnished by the Company to you in
connection with the negotiation of the sale of the Notes, taken together,
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances under which they were made. There is no fact
(exclusive of general economic, political or social conditions or trends)
particular to the Company and known by the Company that the Company has not
disclosed to you in writing and that has a material adverse effect on or, so far
as the Company can now foresee, will have a material adverse effect on the
business, properties, profits, prospects, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or on the
ability of the Company to perform its undertakings under and in respect of this
Agreement and the Notes.
3.2 Representations of the Purchasers. You represent, and in entering
into this Agreement the Company understands, that you are acquiring the Notes
for your own account and not with a view to any distribution thereof, provided
that the disposition of your property shall at all times be and remain within
your control, subject, however, to compliance with Federal securities laws. You
acknowledge that the Notes have not been registered under the Securities Act and
you understand that the Notes must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. You have been advised that the Company does not
contemplate registering, and is not legally required to register, the Notes
under the Securities Act.
You further represent that either: (i) no part of the funds to be used
by you to purchase the Notes will constitute assets allocated to any separate
account maintained by you; or (ii) no part of the funds to be used by you to
purchase the Notes will constitute assets allocated to any separate account
maintained by you such that the application of such funds will constitute a
prohibited transaction under Section 406 of ERISA; or (iii) all or a part of
such funds will constitute assets of one or more separate accounts maintained by
you, and you have disclosed to the Company the names of such employee benefit
plans whose assets in such separate account or accounts exceed 10% of the total
assets or are expected to exceed 10% of the total assets of such account or
accounts as of the date of such purchase, and the Company has advised you in
writing that the Company is not a party-in-interest nor are the Notes employer
securities with respect to the particular employee benefit plans disclosed to
the Company by you as aforesaid. (For the purpose of this clause (iii), all
employee benefit plans maintained by the same employer or employee organization
are deemed to be a single plan.) As used herein, the terms "separate account,"
"party-in-interest," "employer securities," and "employee benefit plan" have the
meanings assigned to them in ERISA.
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Section 4. CLOSING CONDITIONS
Your obligation to purchase the Notes on the Closing Date shall be
subject to the performance by the Company of its agreements hereunder, which are
to be performed at or prior to the time of delivery of the Notes, and to the
following conditions to be satisfied on or before the Closing Date:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in this Agreement or otherwise made in writing in
connection herewith shall be true and correct on or as of the Closing Date and
the Company shall have delivered to you a certificate to such effect, dated the
Closing Date and executed by the president, the chief financial officer or the
chief accounting officer of the Company.
4.2 Legal Opinions. You shall have received from Gardner, Carton &
Douglas, who is acting as your special counsel in this transaction, and from
Bondy & Schloss, counsel for the Company, their respective opinions, dated such
Closing Date, in form and substance satisfactory to you and covering
substantially the matters set forth or provided in the attached Exhibits B and
C.
4.3 Events of Default. No event shall have occurred and be continuing
on the Closing Date which would constitute a Default or an Event of Default, and
the Company shall have delivered to you a certificate to such effect, dated the
Closing Date and executed by the president or the chief financial officer of the
Company.
4.4 Payment of Fees and Expenses. The Company shall have paid all fees,
expenses, costs and charges, including the fees and expenses of Gardner, Carton
& Douglas, your special counsel, incurred by you through the Closing Date and
incident to the proceedings in connection with, and transactions contemplated
by, this Agreement and the Notes.
4.5 Sale of Notes to Other Purchasers; Sale of 6.01% Notes. The Company
shall have consummated the sale of the entire $65,000,000 principal amount of
the Notes to be sold on the Closing Date pursuant to this Agreement and shall
have consummated the sale of the entire $15,000,000 principal amount of the
6.01% Notes.
4.6 Legality of Investment. Your acquisition of the Notes shall
constitute a legal investment as of the Closing Date under the laws and
regulations of each jurisdiction to which you may be subject (without resort to
any "basket" or "leeway" provision which permits the making of an investment
without restrictions as to the character of the particular investment being
made), and such acquisition shall not subject you to any penalty or other
onerous condition in or pursuant to any such law or regulation; and you shall
have received such certificates or other evidence as you may reasonably request
to establish compliance with this condition.
4.7 Private Placement Number. A Private placement number with respect
to the Notes shall have been issued by Standard & Poor's Corporation.
4.8 Consent of NBD. N.A. NBD, N.A., as assignee of Chemical Bank, shall
have granted its consent in writing to the issuance of the Notes and the 6.01%
Notes pursuant to the
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Credit Agreement dated as of March 10, 1989, among the Company, as borrower, and
certain of its subsidiaries, as guarantors, and Chemical Bank, as lender, as
amended.
4.9 Proceedings and Documents. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents necessary to
the consummation of such transactions shall be satisfactory in form and
substance to you and your special counsel, and you and your special counsel
shall have received copies (executed or certified as may be appropriate) of all
legal documents or proceedings which you and they may reasonably request.
Section 5. INTERPRETATION OF AGREEMENT
5.1 Certain Terms Defined. The terms hereinafter set forth when used in
this Agreement shall have the following meanings:
Affiliate - Any Person (other than a Restricted Subsidiary) (i) who is
a director or executive officer of the Company or any Subsidiary, (ii) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (iii) which
beneficially owns or holds securities representing 5% or more of the combined
voting power of the Voting Stock of Company or any Subsidiary or (iv) of which
securities representing 5% or more of the combined voting power of its Voting
Stock (or in the case of a Person not a corporation, 5% or more of its equity)
is beneficially owned or held by the Company or any Subsidiary. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
Agreement - As defined in Section 1.1.
Business day - Any day, other than Saturday, Sunday or a legal holiday
or any other day on which banking institutions in the United States of America
generally are authorized by law to close.
Capital Losses - Capital losses in the amount of $1,464,152 as of
September 30, 1992 in the investment portfolio of Mardevco Credit Corp.
Capitalized Lease - Any lease the obligation for Rentals with respect
to which, in accordance with generally accepted accounting principles, would be
required to be capitalized on a balance sheet of the lessee or for which the
amount of the asset and liability thereunder, as if so capitalized, would be
required to be disclosed in a note to such balance sheet.
Change of Control - The acquisition, through purchase or otherwise, by
any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act), other than Bernard Fife, Nathaniel Sills and Lawrence Sills,
their spouses and heirs and trusts created for the exclusive benefit of their
families, who is or becomes a "beneficial owner" (as such term is defined in
Rule 13d-3 under the Exchange Act) of shares of Voting Stock representing more
than 50% of' the combined voting power of all classes of Voting Stock of the
Company.
Closing Date - As defined in Section l.2.
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Code - As defined in Section 3.1(h).
Consolidated Capitalization - The sum of Consolidated Debt and
Consolidated Tangible Net Worth.
Consolidated Current Assets and Consolidated Current Liabilities - Such
consolidated assets and liabilities of the Company and its Restricted
Subsidiaries as shall be determined to constitute current assets and current
liabilities, respectively, in accordance with generally accepted accounting
principles.
Consolidated Debt - The sum of Current Debt and Funded Debt of the
Company and its Restricted Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
Consolidated Net Income - For any period, the consolidated net income
(or net loss) of the Company and its Restricted Subsidiaries determined in
accordance with generally accepted accounting principles, but excluding
therefrom (i) the net income of any Subsidiary (other than a Restricted
Subsidiary) or any other Person in which the Company or a Restricted Subsidiary
has an interest to the extent that such income has not been received by the
Company or a Restricted Subsidiary in the form of cash dividends or other
similar cash distributions, or the net loss of any Subsidiary (other than a
Restricted Subsidiary) or any other Person in which the Company or a Restricted
Subsidiary has an interest, (ii) the net income or net loss of any Restricted
Subsidiary for any period prior to the date it becomes a Restricted Subsidiary,
(iii) any gain or loss (net of any tax effect) resulting from the reappraisal,
reevaluation or write-up of assets, (iv) any extraordinary, unusual or
nonrecurring gain or loss, (v) earnings or losses attributable to minority
interests, (vi) proceeds of any life insurance policy, (vii) net income of a
Restricted Subsidiary which for any reason cannot be distributed as a dividend,
(viii) reversal of a contingency reserve except to the extent that provision
therefor was made from income during such period, and (ix) one-time and
recurring non-cash charges for post-retirement benefits made in accordance with
Financial Accounting Standards Board Bulletin No. 106).
Consolidated Operating Cash Flow - For any period, the sum of (i)
Consolidated Net Income or such period, (ii) all provisions for federal, state
and other income taxes made by the Company and its Restricted Subsidiaries for
such period, (iii) Interest Charges for such period and (iv) depreciation and
amortization expense for such period.
Consolidated Tangible Net Worth - The consolidated stockholders' equity
of the Company and its Restricted Subsidiaries determined in accordance with
generally accepted accounting principles, less all goodwill, trade names,
trademarks, patents, organization expense, unamortized debt discount and expense
and similar intangibles properly classified as intangibles in accordance with
generally accepted accounting principles.
Consolidated Total Assets - The total assets of the Company and its
Restricted Subsidiaries determined on a consolidated basis in accordance with
generally accepted principles.
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Current Debt - All indebtedness for borrowed money and Capitalized
Leases other than Funded Debt.
Default - Any event which, with the lapse of time or the giving of
notice, or both, would become an Event of Default.
Determination Date - The day 3 Business Days before the date fixed for
a prepayment pursuant to Section 2.2(a) or (b) or the date of declaration
pursuant to Section 8.2.
Environmental Claim - Any notice of violation, claim, demand, abatement
order or other order by any Person for any damage, including personal injury
(including sickness, disease or death), tangible or intangible property damage,
contribution, indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or based
upon (i) the existence of a Release (whether sudden or non-sudden or accidental
or nonaccidental) of, or exposure to, any Hazardous Material in, into or onto
the environment at, in, by, from or related to any Facility, (ii) the use,
handling, transportation, storage, treatment or disposal of Hazardous Materials
in connection with the operation of any Facility, or (iii) the violation, or
alleged violation, of any statutes, rules, regulations, ordinances, orders,
permits, licenses or authorizations of or from any governmental authority,
agency or court relating to environmental matters pertaining to the Facilities.
Environmental Laws. All laws relating to environmental matters,
including those relating to (i) files, orders, injunctions, penalties, damages,
contribution, cost recovery compensation, losses or injuries resulting from the
Release or threatened Release of Hazardous Materials and to the generation, use,
storage, transportation, or disposal of Hazardous Materials, in any manner
applicable to the Company or any of its Subsidiaries or any of their respective
properties, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Material Transportation Act (49 U.S.C. S Section 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean
Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), and the Emergency Planning and Community Right-to Know Act
(42 U.S.C. Section 11001 et seq.), and (ii) environmental protection, including
the National Environmental Policy Act (42 U.S.C. Section 4321 et seq.), and
comparable state laws, each as amended or supplemented, and any similar or
analogous local, state and federal statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of determination.
ERISA - As defined in Section 3.1(h).
Event of Default - As defined in Section 8.1.
Exchange Act - The Securities Exchange Act of 1934, as amended, and as
it may be further amended from time to time.
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Facility - Any and all real property (including all buildings, fixtures
or other improvements located thereon) now or heretofore owned, leased, operated
or used (under permit or otherwise) by the Company or any of its Subsidiaries.
Fixed Charges - For any period, the sum of Interest Charges and Rentals
paid or accrued.
Forward Conversion - The purchase of common stock of a company
satisfying the conditions of the following sentence together with the
contemporaneous purchase of a put option and writing of a call option, having
identical expirations and striking prices, covering shares of such common stock.
The common stock subject to such transactions must be listed on the New York or
American Stock Exchange or reported on the National Association of Securities
Dealers, Inc. National Market Automated Quotation System and shall be issued by
a corporation with outstanding senior unsecured Indebtedness rated "A" or better
by Standard & Poor's Corporation or the equivalent by Moody's Investors Service,
Inc.
Funded Debt - All Indebtedness for borrowed money and Capitalized
Leases which by their terms matures more than one year from the date of creation
(including any portion thereof payable within a year) or which may be renewed or
extended at the option of the obligor for more than one year from such date
whether or not theretofore renewed or extended.
Guaranties - All obligations (other then endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) of a
Person guaranteeing or, in effect, guaranteeing any Indebtedness, dividend or
other obligation of any other Person in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of
such Indebtedness or obligation, (y) to maintain working capital or other
balance sheet condition or (z) otherwise to advance or make available funds for
the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation against
loss in respect thereof, or (iv) otherwise to assure the owner of the
Indebtedness or obligation against loss in respect thereof. For the purposes of
all computations made under this Agreement, Guaranties in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which has been
guaranteed, and Guaranties in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
Hazardous Materials - (i) Any chemical, material or substance defined
as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous waste," "restricted hazardous
waste," or "toxic substances" or words of similar import under any Environmental
Laws; (ii) any oil, petroleum or petroleum derived substance, any drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, any flammable substances or explosives,
any radioactive materials, any hazardous wastes or substances, any toxic wastes
or substances or any other materials or pollutants that (x) pose a hazard to any
property of the Company or any of its Subsidiaries or to
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Persons on or about such property or (y) cause such property to be in violation
of any Environmental Law; (iii) friable asbestos, urea formaldehyde foam
insulation, electrical equipment which contains any oil or dielectric fluid with
levels of polychlorinated biphenyls in excess of fifty parts per million; and
(iv) any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority.
Indebtedness - Without duplication, (i) all items of borrowings,
including Capitalized Leases, which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet as of the date at which
Indebtedness is to be determined, (ii) all obligations secured by any Lien
whether or not a Person has assumed or become liable for the payment thereof,
(iii) all obligations under conditional sale or other title retention agreements
and (iv) all Guaranties of obligations of other Persons of the character
referred to in clauses (ii) and (iii) of this definition.
Institutional Holder - Any bank, trust company, insurance company,
pension fund, mutual fund or other similar financial institution, including,
without limiting the foregoing, any "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act, which is or becomes a holder of
any Note.
Interest Charges - For any period, all amounts paid or accrued which
are properly classifiable as interest expense in accordance with generally
acceptable accounting principles.
Investments- All investments made, in cash or by delivery of property,
directly or indirectly, in any Person or any property, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include investments in property to be used or
consumed in the ordinary course of business permitted by Section 7.13.
Lien - Any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any agreement to grant any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, or the filing of or agreement to file any financing statement under the
Uniform Commercial Code of any jurisdiction in connection with any of the
foregoing.
Make-Whole Amount - As of any Determination Date, to the extent that
the Reinvestment Yield on such Determination Date is lower than the interest
rate payable on or in respect of the Notes, the excess of (a) the present value
of the principal and interest payments to be foregone by any prepayment
(exclusive of accrued interest on such Notes through the date of prepayment) on
such Notes to be prepaid (taking into account the manner of application of such
prepayment required by section 2.2(c)), determined by discounting (semi-annually
on the basis of a 360-day year composed of twelve 30-day months), such payments
at a rate that is equal to the Reinvestment Yield over (b) the aggregate
principal amount of such Notes then to be paid or prepaid. To the extent that
the Reinvestment Yield on any Determination Date is equal to or higher than the
interest rate payable on or in respect of such Notes, the Make-Whole Amount is
zero.
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Notes - As defined in Section 1.1.
PBGC - As defined in Section 3.1(h).
Permitted Investments - (i) Investments in Restricted Subsidiaries,
including any Investment in a Person which, after giving effect to such
Investment, immediately becomes a Restricted Subsidiary; (ii) Investments in
direct obligations of the U.S. government or obligations of any U.S. government
agency backed by the full faith and credit if the U.S. government, in each case
having maturities of one year or less from the date of acquisition thereof;
(iii) Investments in certificates of deposit or banker's acceptances in each
case maturing within one year of the date of issuance issued by commercial banks
or trust companies located and organized in the United States having combined
capital, surplus and undivided profits aggregating at least $500 million and
whose parent company has senior unsecured Indebtedness rated "A+" or better by
Standard & Poor's Corporation or the equivalent by Moody's Investors Service,
Inc.; (iv) Investments not exceeding $2,000,000 in the aggregate in preferred
stock listed on the New York or American Stock Exchange, rated "A" or better by
Standard & Poor's Corporation or the equivalent by Moody's Investors Service,
Inc. and the payment of which is secured by one or more letters of credit issued
by a commercial bank or trust company satisfying the requirements of clause
(iii); (v) Investments in commercial paper maturing within 270 days from the
date of issuance and rated A-1 or P-1 at the date of acquisition by Standard &
Poor's Corporation or Moody's Investors Service, Inc.; (vi) Investments in money
market mutual funds having assets in excess of $2,000,000,000; (vii) Investments
in Forward Conversions (A) not exceeding $1,000,000 with respect to the common
stock of a single issuer or $10,000,000 in the aggregate, (B) no more than
$1,000,000 of which expire during any 10 day period and (C) only to the extent
that Capital Losses are available to offset capital gains arising from such
Investments in Forward Conversions; (viii) relocation, travel and miscellaneous
advances not exceeding $1,500,000 in the aggregate to directors, officers and
employees made in the ordinary course of business; (ix) Investments not
exceeding $10,000,000 in the aggregate in receivables arising from the sale of
goods and services in the ordinary course of business; and (x) Investments in
addition to those described in clauses (i) through (ix) (including Investments
in Forward Conversions which do not fall within the parameters of (vii) above)
not exceeding $15,000,000 in the aggregate; provided, however, that if any
Forward Conversion results in a loss, Forward Conversions thereafter will be
Permitted Investments only if permitted by clause (x) and clause (vii) shall be
of no further force and effect.
Person - Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any governmental authority, agency or political subdivision.
Plan - As defined in Section 3.1(h).
Purchaser - As defined in Section 1.1.
Reinvestment Yield - The sum of (i) 0.50% plus (ii) the yield as set
forth on page "USD" of the Bloomberg Financial Markets Service (or other
on-the-run service acceptable to the holders of not less than a majority in
principal amount of the outstanding Notes) at 10:00 A.M.
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(Chicago time) on the Determination Date for actively traded U.S. Treasury
securities having a maturity equal to the then remaining Weighted Average Life
to Maturity of the Notes then being prepaid or paid as of the date of prepayment
or payment, rounded to the nearest month, or if such yields shall not be
reported as of such time or the yields reported as of such time are not
ascertainable in accordance with the preceding clause, then the arithmetic mean
of the yields published in the statistical release designated H.15(5179) of the
Board of Governors of the Federal Reserve System under the caption "U.S.
Government Securities -- Treasury Constant Maturities" (the "statistical
release") for the maturity corresponding to the remaining Weighted Average Life
to Maturity of the Notes then being prepaid or paid as of the date of such
prepayment or payment rounded to the nearest month. For purposes of calculating
the Reinvestment Yield, the most recent weekly statistical release published
prior to the applicable Determination Date shall be used. If no maturity exactly
corresponding to such rounded Weighted Average Life to Maturity shall appear
therein, yields for the two most. closely corresponding published maturities
(one of which occurs prior and the other subsequent to the Weighted Average Life
to Maturity) shall be calculated pursuant to the foregoing sentence and the
Reinvestment Yield shall be interpolated from such yields on a straight-line
basis (rounding, in each of such relevant periods, to the nearest month).
Release - Any release, spill, emission, leaking, pumping, pouring,
emptying, dumping, injection, escaping, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including the
abandonment or disposal of any barrel, container or other closed receptacle
containing any Hazardous Material), or into or out of any Facility, including
the movement of any Hazardous Material through the air, soil, surface water,
groundwater or property.
Rentals - As of the date of any determination thereof, all fixed
payments (including all payments which the lessee is obligated to make to the
lessor on termination of the lease or surrender of the property) payable by the
Company or a Subsidiary, as lessee or sublessee under a lease of real or
personal property, but exclusive of any amounts required to be paid by the
Company or a Subsidiary (whether or not designated as rents or additional rents)
on account of maintenance, repairs, insurance, taxes, assessments, amortization
and similar charges. Fixed rents under any so-called "percentage leases" shall
be computed on the basis of the minimum rents, if any, required to be paid by
the lessee, regardless of sales volume or gross revenues.
Restricted Subsidiary - Any Subsidiary of which shares of Voting Stock
representing 100% of the combined voting power of each outstanding class of
Voting Stock are owned by the Company and/or one or more Wholly-Owned
Subsidiaries and which has been designated as a Restricted Subsidiary in the
attached Annex I or is subsequently designated as a Restricted Subsidiary by the
Board of Directors of the Company and accompanied by written notice to each
holder of a Note. No Subsidiary designated as a Restricted Subsidiary may
thereafter be re-designated as an Unrestricted Subsidiary.
Sale and Leaseback - Any arrangement, directly or indirectly, with any
Person whereby a seller or a transferor shall sell or otherwise transfer any
real or personal property and then or thereafter lease (whether or not by means
of a Capitalized Lease), or repurchase under an
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extended purchase contract, the same or similar property from the purchaser or
the transferee of such property.
Securities Act - The Securities Act of 1933, as amended, and as it may
be further amended from time to time.
6.01% Notes - The $15,000,000 aggregate principal amount of the
Company's 6.01% Senior Notes due December 15, 1995 being issued and sold by the
Company pursuant to a Note Agreement dated as of November 15, 1992 between the
Company and the Purchasers named in Schedule I thereto.
Subsidiary - Any corporation of which shares of Voting Stock
representing more than 50% of the combined voting power of each outstanding
class of Voting Stock are owned or controlled, directly or indirectly, by the
Company.
Unrestricted Subsidiary - Any Subsidiary which is not designated a
Restricted Subsidiary.
Voting Stock - Capital stock of any class of a corporation having power
to vote for the election of members of the board of directors of such
corporation, or persons performing similar functions.
Weighted Average Life to Maturity - As applied to any payment or
prepayment of principal of the Notes, at any date, the number of years obtained
by dividing (a) the principal amount of the Notes to be paid or prepaid into (b)
the sum of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity, or other required payment,
including payment at final maturity, foregone by virtue of such payment or
prepayment by (ii) the number of years (calculated to the nearest 1/12th) which
would have elapsed between such date and the making of such required payment.
Wholly-Owned - When applied to a Subsidiary, any Subsidiary 100% of the
Voting Stock of all classes of which is owned by the Company and/or its
Wholly-Owned Subsidiaries.
Terms which are defined in other Sections of this Agreement shall have
the meanings specified therein.
5.2 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with United
States generally accepted accounting principles as in effect from time to time,
except where such principles are inconsistent with the requirements of this
Agreement.
5.3 Valuation Principles. Except where indicated expressly to the
contrary by the use of terms such as "fair value", "fair market value" or
"market value," each asset, each liability and each capital item of any Person,
and any quantity derivable by a computation involving any of such assets,
liabilities or capital items, shall be taken at the net book value thereof for
all purposes of this Agreement. "Net book value" with respect to any asset,
liability or capital item of any Person shall mean the amount at which the same
is recorded or, in effect from time to
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time in accordance with generally accepted accounting principles, should have
been recorded in the books of account of such Person, as reduced by any reserves
which have been or, in accordance with generally accepted accounting principles,
should have been set aside with respect thereto, but in every case (whether or
not permitted in accordance with generally accepted accounting principles)
without giving effect to any write-up, write-down or write-off (other than any
write-down or write-off the entire amount of which was charged to Consolidated
Net Income or to a reserve which was a charge to Consolidated Net Income)
relating thereto which was made after the date of this Agreement.
5.4 Direct or Indirect Actions. Where any provision in this Agreement refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
Section 6. AFFIRMATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on
any Note:
6.1 Corporate Existence. The Company will maintain and preserve, and will cause
each Restricted Subsidiary to maintain and preserve, its corporate existence and
right to carry on its business and maintain, preserve, renew and extend all of
its rights, powers, privileges and franchises necessary to the proper conduct of
its business; provided, however, that the foregoing shall not prevent any
transaction permitted by Section 7.7 or Section 7.8 or the termination of the
corporate existence of any Restricted Subsidiary if, in the opinion of the Board
of Directors of the Company, such termination is in the best interests of the
Company, is not disadvantageous to holders of the Notes and is not otherwise
prohibited by this Agreement.
6.2 Insurance. The Company will, and will cause each Restricted
Subsidiary to, maintain insurance coverage with financially sound and reputable
insurers in such forms and amounts, with such deductibles and against such risks
as are required by law or sound business practice and are customary for
corporations engaged in the same or similar businesses and owning and operating
similar properties as the Company and its Restricted Subsidiaries. All such
insurances shall be carried with insurers in Financial Site Category Class XII
or higher that are accorded an A rating or better from A.M. Best Company, Inc.
6.3 Taxes, Claims for Labor and Materials. The Company will pay and
discharge when due, and will cause each Restricted Subsidiary to pay and
discharge when due, all taxes, assessments and governmental charges or levies
imposed upon it or its property or assets, or upon properties leased by it (but
only to the extent required to do so by the applicable lease), other than taxes
which individually and in the aggregate are not material in amount and the
non-payment of which could not have a material adverse effect on the business,
properties, profits, prospects, operations or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become a
Lien upon its property or assets, provided that neither the Company nor any
Restricted Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim, the payment of which is being contested in good faith and by
proper proceedings that will stay the forfeiture or sale of any property and
with respect to which adequate reserves are maintained in accordance with
generally accepted accounting principles.
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6.4 Maintenance of Properties. The Company will maintain, preserve and
keep, and will cause each Restricted Subsidiary to maintain, preserve and keep,
its properties (whether owned in fee or a leasehold interest) in good repair and
working order, ordinary wear and tear excepted, and from time to time will make
all necessary repairs, replacements, renewals and additions.
6.5 Maintenance of Records. The Company will keep, and will cause each
Restricted Subsidiary to keep, at all times proper books of record and account
in which full, true and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Restricted Subsidiary, in accordance with generally accepted accounting
principles consistently applied throughout the period involved (except for such
changes as are disclosed in such financial statements or in the notes thereto
and concurred in by the independent certified public accountants), and the
Company will, and will cause each Restricted Subsidiary to, provide reasonable
protection against loss or damage to such books of record and account.
6.6 Financial Information and Reports. The Company will furnish to the
Securities Valuation Office of the National Association of Insurance
Commissioners, 195 Broadway, New York, New York 10007, a copy of the financial
statements referred to in Sections 6.6(a) and (b) as soon as they are available.
The Company will furnish to you and to any other Institutional Holder (in
duplicate if you or such other holder so request) the following:
(a) As soon as available and in any event within 45 days after the end
of each of the first three quarterly accounting periods of each fiscal year of
the Company, a consolidated balance sheet of the Company and its Restricted
Subsidiaries as of the end of such period and consolidated statements of income
and retained earnings and cash flows of the Company and its Restricted
Subsidiaries for the periods beginning on the first day of such fiscal year and
the first day of such quarterly accounting period and ending on the date of such
balance sheet, setting forth in comparative form the corresponding consolidated
figures for the corresponding periods of the preceding fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved (except for
changes disclosed in such financial statements or in the notes thereto and
concurred in by the Company's independent certified public accountants) and
certified by the chief financial officer or chief accounting officer of the
company (i) outlining the basis of presentation, and (ii) stating that the
information presented in such statements presents fairly the financial condition
of the Company and its Restricted Subsidiaries and the results of operations for
the period, subject to customary year-end audit adjustments;
(b) As soon as available and in any event within 90 days after the last
day of each fiscal year, a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income and changes in stockholders' equity, and cash
flows for such fiscal year, in each case setting forth in comparative form
figures for the preceding fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently applied
throughout the period involved (except for changes disclosed in such financial
statements or in the notes thereto and concurred in by independent certified
public accountants) and accompanied by a report unqualified as to scope of audit
and unqualified as to going concern as to the consolidated balance sheet. and
the related consolidated statements of income and retained earnings, and cash
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flows by David Berdon & Co., or any other firm of independent public accountants
of recognized national standing selected by the Company, to the effect that such
financial statements have been prepared in conformity with generally accepted
accounting principles and present fairly, in all material respects, the
financial condition of the Company and its Restricted Subsidiaries and that the
examination of such financial statements by such accounting firm has been made
in accordance with generally accepted auditing standards;
(c) Together with the financial statements delivered pursuant to
paragraphs (a) and (b) of this Section 6.6, (i) a management's discussion and
analysis of the financial condition and results of operations for the periods
reported upon by such financial statements, which discussion and analysis shall
satisfy the requirements of Item 303 of Securities and Exchange Commission
Regulation S-K, and (ii) a certificate of the chief financial officer or chief
accounting officer, (x) to the effect that such officer has re-examined the
terms and provisions of this Agreement and that at the date of such certificate,
during the periods covered by such financial reports and as of the end of such
periods, the Company is not, or was not, in default in the fulfillment of any of
the terms, covenants, provisions and conditions of this Agreement and that no
Default or Event of Default is occurring or has occurred as of the date of such
certificate, during such periods and as of the end of such periods, or if the
signer is aware of any Default or Event of Default, such officer shall disclose
in such statement the nature thereof, its period of existence and what action,
if any, the Company has taken or proposes to take with respect thereto, (y)
stating whether the Company in compliance with Sections 7.1 through 7.14 and
setting forth, in sufficient detail, the information and computations required
to establish whether or not the Company was in compliance with the requirements
of Sections 7.1 through 7.9 during the periods covered by the financial reports
then being furnished and as of the end of such periods and (z) setting forth a
schedule of Investments in Forward Conversions containing a listing of each
security and issuer thereof, the amount of such Investment, the purchase date,
sale date, dollar return and percentage return. In addition, the officers
certificate to accompany financial statements delivered pursuant to paragraph
(b) shall set forth the remaining balance of capital loss carry forwards of
Mardevco Credit Corp;
(d) Together with the financial reports delivered pursuant to paragraph
(b) of this Section 6.6, a letter of the independent certified public
accountants stating that in making the examination necessary for expressing an
opinion on such financial statements, nothing came to their attention that
caused them to believe that there is in existence or has occurred any Default or
Event of Default hereunder (the occurrence of which is ascertainable by
accountants in the course of normal audit procedures) or, if such accountants
shall have obtained knowledge of any such Default or Event of Default,
describing the nature thereof and the length of time it has existed;
(e) Promptly after the Company obtains knowledge thereof, notice of any
litigation or any governmental proceeding pending against the Company or any
Subsidiary in which the damages sought exceed $500,000, individually or in the
aggregate, or which might reasonably be expected to otherwise materially
adversely affect the business, property, profits, prospects, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole;
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(f) As soon as available, copies of each financial statement, notice,
report and proxy statement which the Company shall furnish to its stockholders;
copies of each registration statement and periodic report which the Company may
file with the Securities and Exchange Commission, and any similar or successor
agency of the Federal government administering the Securities Act, the Exchange
Act or the Trust Indenture Act of 1939, as amended; without duplication, copies
of each report (other than reports relating solely to the issuance of, or
transactions by others involving, its securities) relating to the Company or its
securities which the Company may file with any securities exchange on which any
of the Company's securities may be registered; copies of any orders in any
material proceedings to which the Company or any of its Subsidiaries is a party,
issued by any governmental agency, Federal or state, having jurisdiction over
the Company or any of its Subsidiaries; and, except at such times as the Company
is a reporting company under Section 13 or 15(d) of the Exchange Act or has
complied with the requirements for the exemption from registration under the
Exchange Act set forth in Rule 12g-3-2(b), such financial or other information
as any holder of the Notes or prospective purchaser of the Notes may reasonably
determine is required to permit such holder to comply with the requirements of
Rule 144A under the Securities Act in connection with the resale by it of the
Notes;
(g) As soon as available, a copy of each other report submitted to the
Company or any Restricted Subsidiary by independent accountants retained by the
Company or any Restricted Subsidiary in connection with any interim or special
audit made by them of the books of the Company or any Restricted Subsidiary;
(h) As soon as available, a copy of each management letter delivered to
the Company or any Restricted Subsidiary by its independent accountants and
management's response to such letter;
(i) Promptly following any change in the composition of the Company's
Subsidiaries from that set forth in Annex I, as theretofore updated pursuant to
this paragraph, an updated list setting forth the information specified in Annex
I;
(j) If at any time the Company provides consolidating financial
statements to any Person other than an Affiliate, copies of consolidating
financial statements; and
(k) Such additional information as you or such other Institutional
Holder of the Notes may reasonably request concerning the Company and its
Subsidiaries.
6.7 Inspection of Properties and Records. The Company will allow, and will cause
each Restricted Subsidiary to allow, any representative of you or any other
Institutional Holder, so long as you or such other Institutional Holder holds
any Note, to visit and inspect any of its properties, to examine its books of
record and account and to discuss its affairs, finances and accounts with its
officers and its public accountants (and by this provision the Company
authorizes such accountants to discuss with you or such Institutional Holder its
affairs, finances and accounts), all at such reasonable times and as often as
you or such Institutional Holder may reasonably request and, if at the time
thereof any Default or Event of Default has occurred and is continuing, at the
Company's expense.
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6.8 ERISA. (a) All assumptions and Methods used to determine the
actuarial valuation of employee benefits, both vested and unvested, under any
Plan of the Company or any Subsidiary, and each such Plan, whether now existing
or adopted after the date hereof, will comply in all material respects with
ERISA and other applicable laws.
(b) The Company will not at any time permit any Plan established,
maintained or contributed to by it or any Subsidiary or "affiliate" (as defined
in Section 407(d)(7) of ERISA) to:
(i) engage in any "prohibited transaction" as such term is defined
in Section 4975 of the Code or in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency, as such term is
defined in Section 302 of ERISA, whether or not waived; or
(iii) be terminated under circumstances which are likely to result
in the imposition of a lien on the property of the Company or any
Subsidiary pursuant to Section 4068 of ERISA, if and to the extent such
termination is within the control of the Company;
if the event or condition described in classes (i), (ii) or (iii) above is
likely to subject the Company or any Subsidiary or ERISA affiliate to a
liability which, in the aggregate, is material in relation to the business,
properties, profits, prospects, operations, or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole.
(c) The Company will furnish you or any other Institutional Holder a
copy of the annual report of each Plan (Form 5500) required to be filed with the
Internal Revenue Service no later than 30 days after the date such report has
been filed with the Internal Revenue Service.
(d) Promptly upon the occurrence thereof, the Company will give you
and each other Institutional Holder notice of (i) a reportable event with
respect to any Plan; (ii) the institution of any steps by the Company, any
Subsidiary, any ERISA affiliate, the PBGC or any other Person to terminate any
Plan; (iii) the institution of any steps by the Company, any Subsidiary, or any
ERISA affiliate to withdraw from any Plan; (iv) a prohibited transaction in
connection with any Plan; (v) any material increase in the contingent liability
of the Company or any Subsidiary with respect to any post-retirement welfare
liability; or (vi) the taking of any action by the Internal Revenue Service, the
Department of Labor or the PBGC with respect to any of the foregoing which, in
any of the events specified above, would result in any material liability of the
Company or any of its Subsidiaries.
6.9 Compliance with Laws. (a) The Company will comply, and will cause each
Restricted Subsidiary to comply, with all laws, rules and regulations, including
Environmental Laws, relating to its or their respective businesses, other than
laws, rules and regulations the failure to comply with which or the sanctions
and penalties resulting therefrom, individually or in the aggregate, would not
have a material adverse effect on the business, properties, prospects, profits,
operations or condition, financial or otherwise, of the Company and its
Subsidiaries taken
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as a whole, and would not result in the creation of a Lien which, if incurred in
the ordinary course of business, would not be permitted by Section 7.5 on any of
the property of the Company or any Restricted Subsidiary; provided, however,
that the Company and its Restricted Subsidiaries shall not be required to comply
with laws, rules and regulations the validity or applicability of which are
being contested in good faith and by appropriate proceedings and as to which the
Company has established adequate reserves on its books.
(b) Promptly upon the occurrence thereof, the Company will give you
and each other Institutional Holder notice of the institution of any proceedings
against, or the receipt of notice of potential liability or responsibility of,
the Company or any Restricted Subsidiary for violation, or the alleged
violation, of any Environmental Law which violation could give rise to a
material liability of the Company and its Subsidiaries taken as a whole.
6.10 Acquisition of Notes. Neither the Company nor any Subsidiary or
Affiliate, directly or indirectly, will repurchase or offer to repurchase any
Notes unless the offer is made to repurchase Notes pro rata from all holders at
the same time and on the same terms. The Company will forthwith cancel any Notes
in any manner or at any time acquired by the Company or any Subsidiary or
Affiliate and such Notes shall not be deemed to be outstanding for any of the
purposes of this Agreement or the Notes.
6.11 Private Placement Number. The Company consents to the filing of
copies of this Agreement with Standard & Poor's Corporation to obtain a private
placement number and with the National Association of Insurance Commissioners.
SECTION 7. NEGATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on any
Note:
7.1 Tangible Net Worth. The Company will not permit its Consolidated
Tangible Net Worth to be less than $120,000,000 at any time.
7.2 Consolidated Debt. The Company will not permit Consolidated Debt to
exceed 65% of Consolidated Capitalization at any time through December 31, 1995
or to exceed 60% of Consolidated Capitalization at any time thereafter.
7.3 Subsidiary Indebtedness. The Company will not permit any Restricted
Subsidiary to create, assume, incur or otherwise become liable for, directly or
indirectly, any Indebtedness, other than Indebtedness of a Restricted Subsidiary
to the Company or another Restricted Subsidiary, unless, after giving effect
thereto and to the application of the proceeds thereof, the sum of (i)
Indebtedness of Restricted Subsidiaries then to be outstanding, other than
Indebtedness of a Restricted Subsidiary to the Company or another Restricted
Subsidiary, and (ii) outstanding Indebtedness of the Company and its Restricted
Subsidiaries secured by Liens permitted by Section 7.5(h), does not exceed 15%
of Consolidated Tangible Net Worth.
7.4 Fixed Charge Ratio. The Company will not permit as of the end of any
fiscal quarter the ratio of Consolidated Operating Cash Flow for any four of the
six !immediately preceding fiscal quarters to Fixed Charges for such quarters to
be less than (i) 1.50 to 1.00 for
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quarters ending on or prior to December 31, 1995 and (ii) 1.75 to 1.00 for
quarters ending after December 31, 1995.
7.5 Liens. The Company will not, and will not permit any Restricted
Subsidiary to, permit to exist, create, assume or incur, directly or indirectly,
any Lien on its properties or assets, whether now owned or hereafter acquired,
except:
(a) Liens existing on property or assets of the Company or any
Restricted Subsidiary as of the date of this Agreement that are described in the
attached Annex II;
(b) Liens for taxes, assessments or governmental charges not then
due and delinquent or the validity of which is being contested in good faith and
as to which the Company has established adequate reserves on its books;
(c) Construction, mechanics' materialmen's or warehousemen's Liens
securing obligations not due or, if overdue, being contested in good faith by
appropriate proceedings.
(d) Liens arising in connection with court proceedings, provided the
execution of such Liens is effectively stayed, such Liens are being contested in
good faith and the Company has established adequate reserves therefor on its
books;
(e) Liens arising in the ordinary course of business and not
incurred in connection with the borrowing of money (including encumbrances in
the nature of zoning restrictions, easements, rights and restrictions of record
on the use of real property and landlord's and lessor's liens) that in the
aggregate do not materially interfere with the Conduct of the business of the
Company and its Restricted Subsidiaries taken as a whole or materially impair
the value of the property or assets subject thereto;
(f) Liens securing Indebtedness of a Restricted Subsidiary to the
Company;
(g) Liens on fixed assets created substantially contemporaneously
with the date of acquisition, to secure or provide for all or a portion of the
purchase price or cost of construction of such fixed assets, provided that such
Liens do not extend to other property of the Company or any Restricted
Subsidiary and that the aggregate principal amount of Indebtedness secured by
each such Lien does not exceed 100% of the cost of the property subject thereto
and that incurrence of the Indebtedness secured by such Liens does not result in
a breach of Section 7.2, 7.3 or 7.4;
(h) Liens not otherwise permitted by paragraphs (a) through (g)
above incurred subsequent to the Closing Date to secure Indebtedness, including
Sale and Leaseback transactions, provided that the sum of (i) Indebtedness
secured by Liens incurred pursuant to this paragraph (h) plus, (ii) without
duplication, Indebtedness of Restricted Subsidiaries does not at any time exceed
15% of Consolidated Tangible Net Worth; and
(i) Liens resulting from extensions, renewals, refinancings and
refundings of Indebtedness secured by Liens permitted by paragraphs (a) through
(g) above, provided there is no increase in the principal amount of Indebtedness
secured thereby at the time of renewal, and
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any new Lien attaches only to the same property or assets theretofore subject to
such earlier Lien.
7.6 Restricted Payments. The Company will not, except as hereinafter
provided:
(a) declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company);
(b) directly or indirectly, or through any Subsidiary or Joint
Venture, purchase, redeem, retire or otherwise acquire any shares of its capital
stock of any class or any warrants, rights or options to purchase or acquire any
shares of its capital stock; or
(c) make any other payment or distribution, either directly or
indirectly, or through any Subsidiary in respect of its capital stock;
(all such non-permitted declarations, payments purchases, redemptions,
retirements, acquisitions or distributions being hereinafter referred to as
"Restricted Payments") unless, after giving effect thereto, (i) the aggregate
amount of Restricted Payments made after December 31, 1992 to and including the
date of making the Restricted Payment in question would not exceed the sum of:
(x) $5,000,000; (y) 60% of cumulative Consolidated Net Income since December 31,
1992 (less 100% thereof in case of a deficit); and (z) the net proceeds of the
issuance or sale of any of the Company's capital stock after December 31, 1992;
and (ii) no Default or Event of Default would exist.
7.7 Merger or Consolidation. The Company will not, and will not permit any
Restricted Subsidiary to, merge or consolidate with, or sell all or
substantially all of its assets to, any Person, except that:
(a) The Company may merge into or consolidate with, or sell all or
substantially all of its assets to, any Person or permit any Person to merge
into it, provided that immediately after giving effect thereto,
(i) The Company is the successor corporation or, if the
Company is not the successor corporation, the successor corporation
is a solvent corporation organized under the laws of a state of the
United States of America, the District of Columbia or Canada and
expressly assumes in writing the Company's obligations under the
Notes and this Agreement and (y) the holders of the Notes shall have
received an opinion of legal counsel reasonably acceptable to them
that this Agreement and the Notes are legal, valid and binding
obligations of the successor corporation, enforceable against the
successor corporation in accordance with their terms;
(ii) There shall exist no Default or Event of Default; and
(iii) The Company or such successor corporation could incur at
least $1.00 of additional Indebtedness; and
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(b) Any Restricted Subsidiary may (i) merge into the Company or
another Restricted Subsidiary or (ii) sell, transfer or lease all or any part of
its assets to the Company or to another Restricted Subsidiary or (iii) merge
into any Person which, as a result of such merger, becomes a Restricted
Subsidiary, or (iv) merge with any Person which does not become a Restricted
Subsidiary as a result of such merger so long as such merger is otherwise
permitted by this Section 7.7; provided in each such instance that immediately
after giving effect thereto there shall exist no Default or Event of Default.
7.8 Sale of Assets; Sale of Receivables. (a) The Company will not, and
will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise
(including by way of merger) dispose of (collectively a "Disposition") any
assets (including capital stock of Subsidiaries), in one or a series of
transactions (other than in the ordinary course of business or as permitted by
Section 7.7) to any Person, except the Company or a Restricted Subsidiary, if,
after giving effect to such Disposition, the aggregate net book value of assets
subject to Dispositions (i) during the fiscal year in which such Disposition
occurs would exceed 15% of Consolidated Tangible Net Worth as of the end of the
immediately preceding fiscal quarter or (ii) subsequent to the Closing Date
would exceed 30% of Consolidated Tangible Net Worth as of the end of the
immediately preceding fiscal quarter; provided, that such Disposition shall not
be subject to or included in the foregoing limitation and computation if within
six months of such Disposition the net proceeds thereof are either (x)
reinvested in productive fixed assets of the Company or a Restricted Subsidiary,
or (y) applied to repay Indebtedness, including prepayment of the Notes at a
price equal to 100% of the principal amount to be prepaid plus interest accrued
to the date of prepayment, of the Company or its Restricted Subsidiaries on a
pro rata basis.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may (ii) sell, with or without recourse., not in excess
of $35,000,000 face amount of accounts receivable through December 31, 1995 and
not in excess of $50,000,000 face amount of accounts receivable thereafter,
provided that (i) on a pro forma basis after giving effect to any such sale, the
ratio of Consolidated Current Assets to Consolidated Current Liabilities would
not be less than 1.25 to 1.00, and (ii) the discount on receivables sold with
recourse is not more than 20% of the face amount or fair market value of such
receivables, whichever is greater, and the net proceeds from the sale of
receivables without recourse is not less than 80% of the face amount or fair
market value of such receivables, whichever is greater.
7.9 Disposition of Stock of Restricted Subsidiaries. The Company will not,
and will not permit any Restricted Subsidiary to, issue, sell or transfer the
capital stock of a Restricted Subsidiary unless (i) all shares of capital stock
of such Restricted Subsidiary and all Indebtedness of such Restricted Subsidiary
owned by the Company and by every other Restricted Subsidiary shall
simultaneously be sold, transferred or otherwise disposed of, (ii) such
Restricted Subsidiary does not thereafter own any shares of capital stock or
Indebtedness of the Company or another Restricted Subsidiary and, in each such
case, such sale would not be prohibited under Section 7.7 and (iii) the Board of
Directors of the Company shall have made a good faith determination that such
sale or transfer is in the best interests of the Company.
7.10 Permitted Investments. The Company will not, and will not permit any
Restricted Subsidiary to, make any Investment other than a Permitted Investment.
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7.11 Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, enter into any transaction (including the furnishing
of goods or services) with an Affiliate except in the ordinary course of
business on terms and conditions no less favorable to the Company or such
Subsidiary than would be obtained in a comparable arm's-length transaction with
a Person not an Affiliate.
7.12 Consolidated Tax Returns. The Company will not file, or consent to
the filing of, any consolidated Federal income tax return with any Person other
than a Restricted Subsidiary, except to the extent that the Company is required
under the Code to do otherwise.
7.13 Nature of Business. The Company will not, and will not permit any
Restricted Subsidiary to, enrage in any business if, as a result thereof, the
business then to be conducted by the Company and its Restricted Subsidiaries,
taken as a whole, would be materially different than the automotive parts
business described in the Private Placement Memorandum dated October 1992.
7.14 Guaranties. The Company will not, and will not permit any Restricted
Subsidiary to, become or be liable in respect to any guaranty of Indebtedness
except Guaranties which are limited in amount to a stated maximum principal
amount dollar exposure.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Nature of Events. An "Event of Default" shall exist if any one or more
of the following occurs:
(a) Any default in the payment of interest when due on any of the
Notes and continuance of such default for a period of 5 days;
(b) Any default in the payment of the principal of any of the Notes
or the Make-Whole Amount thereon, if any, at maturity, upon acceleration of
maturity or at any date fixed for prepayment;
(c) Any default (i) in the payment of the principal of, or interest
or premium on, any other Indebtedness of the Company and its Restricted
Subsidiaries as and when due and payable (whether by lapse of time, declaration,
call for redemption or otherwise) and the continuation of such default beyond
the period of grace, if any, allowed with respect thereto, or (ii) (other than a
payment default) under any mortgages, agreements or other instruments of the
Company and its Subsidiaries under or pursuant to which Indebtedness is issued,
resulting in the acceleration of such Indebtedness;
(d) Any default in the observance of any covenant or agreement
contained in Sections 7.6, 7.7, 7.8 or 8.7;
(e) Any default in the observance or performance of any other
covenant or provision of this Agreement which is not remedied within 30 days
after the Company obtains knowledge thereof;
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(f) Any representation or warranty made by the Company in this
Agreement, or made by the Company in any written statement or certificate
furnished by the Company in connection with the issuance and sale of the Notes
or furnished by the Company pursuant to this Agreement, proves incorrect in any
material respect as of the date of the issuance or making thereof;
(g) Any judgment, writ or warrant of attachment or any similar
process in an aggregate amount in excess of $500,000 shall be entered or filed
against the Company or any Restricted Subsidiary or against any property or
assets of either and remain unpaid, unvacated, unbonded or unstayed (through
appeal or otherwise) for a period of 60 days after the Company or any Restricted
Subsidiary receives notice thereof; or
(h) The Company or any Restricted Subsidiary shall
(i) generally not pay its debts as they become due or admit in
writing its inability to pay its debts generally as they become due;
(ii) file a petition in bankruptcy or for reorganization or
for the adoption of an arrangement under the Federal Bankruptcy
Code, or any similar applicable bankruptcy or insolvency law, as now
or in the future amended (herein collectively called "Bankruptcy
Laws"); file an answer or other pleading admitting or failing to
deny the material allegations of such a petition; fail to file,
within the time allowed for such purpose, an answer or other
pleading denying or otherwise controverting the material allegations
of such a petition; or file an answer or other pleading seeking,
consenting to or acquiescing in relief provided for under the
Bankruptcy Laws;
(iii) make an assignment of all or a substantial part of its
property for the benefit of its creditors;
(iv) seek or consent to or acquiesce in the appointment of a
receiver, liquidator, custodian or trustee of it or for all or a
substantial part of its property;
(v) be finally adjudicated a bankrupt or insolvent;
(vi) be subject to the entry of a court order, which shall not
be vacated, set aside or stayed within 90 days from the date of
entry, (A) appointing a receiver, liquidator, custodian or trustee
of it or for all or a substantial part of its property, or (B) for
relief pursuant to an involuntary case brought under or effecting an
arrangement in, bankruptcy or (C) for a reorganization pursuant to
the Bankruptcy Laws or (D) for any other judicial modification or
alteration of the rights of creditors; or
(vii) be subject to the assumption of custody or sequestration
by a court of competent jurisdiction of all or a substantial part of
its property, which custody or sequestration shall not be suspended
or terminated within 60 days from its inception.
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8.2 Remedies on Default. When any Event of Default described in paragraphs
(a) through (g) of Section 8.1 has occurred and is continuing, the holders of
more than 50% in aggregate principal amount of the Notes then outstanding may,
by notice to the Company, declare the entire principal, together with the
Make-Whole Amount (to the extent permitted by law) and all interest accrued on
all Notes to be, and such Notes shall thereupon become, forthwith due and
payable, without any presentment, demand, protest or other notice of any kind,
all of which are expressly waived. Notwithstanding the foregoing, (i) when any
Event of Default described in paragraphs (a) or (b) of Section 8.1 has occurred
and is continuing, any holder may by notice to the Company declare the entire
principal, together with the Make-Whole Amount (to the extent permitted by law)
and all interest accrued on the Notes then held by such holder to be, and such
Notes shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
expressly waived and (ii) when any Event of Default described in paragraph (h)
of Section 8.1 has occurred, then the entire principal, together with the
Make-Whole Amount (to the extent permitted by law) and all interest accrued on
all outstanding Notes shall immediately become due and payable without
presentment, demand or notice of any kind. Upon the Notes or any of them
becoming due and payable as aforesaid, the Company will forthwith pay to the
holders of such Notes the entire principal of and interest accrued on such
Notes, plus the Make-Whole Amount which shall be calculated on the Determination
Date.
8.3 Annulment of Acceleration of Notes. The provisions of Section 8.2 are
subject to the condition that if the principal of, the Make-Whole Amount and
accrued interest on the Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (g)., inclusive, of Section 8.1, the holder or holders of 66-2/3% in
aggregate principal amount of the Notes then outstanding may, by written
instrument filed with the Company, rescind and annul such declaration and the
consequences thereof, provided that (i) at the time such declaration is annulled
and rescinded no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement, (ii) all arrears of interest
upon all the Notes and all other sums payable under the Notes and under this
Agreement (except any principal, Make-Whole Amount or interest on the Notes
which has become due and payable solely by reason of such declaration under
Section 8.2) shall have been duly paid and (iii) each and every Default or Event
of Default shall have been cured or waived; and provided further, that no such
rescission and annulment shall extend to or affect any subsequent Default or
Event of Default or impair any right consequent thereto.
8.4 Other Remedies. If any Event of Default shall be continuing, any
holder of Notes may enforce its rights by suit in equity, by action at law, or
by any other appropriate proceedings, whether for the specific performance (to
the extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in this
Agreement, and may enforce the payment of any Note held by such holder and any
of its other legal or equitable rights.
8.5 Conduct No Waiver; Collection Expenses. No course of dealing on the
part of any holder of Notes, nor any delay or failure on the part of any holder
of Notes to exercise any of its rights, shall operate as a waiver of such rights
or otherwise prejudice such holder's rights, powers and remedies. If the Company
fails to pay, when due, the principal of, the Make-Whole Amount, or the interest
on, any Note, or fails to comply with any other provision of this
31
<PAGE> 32
Agreement, the Company will pay to each holder, to the extent permitted by law,
on demand, such further amounts as shall be sufficient to cover the cost and
expenses, including but not limited to reasonable attorneys' fees, incurred by
such holders of the Notes in collecting any sums due on the Notes or in
otherwise enforcing any of their rights.
8.6 Remedies Cumulative. No right or :remedy conferred upon or reserved to
any holder of Notes under this Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given under this Agreement or now or
hereafter existing under any applicable law. Every right and remedy given by
this Agreement or by applicable law to any holder of Notes may be exercised from
time to time and as often as may be deemed expedient by such holder, as the case
may be.
8.7 Notice of Default. With respect to Defaults, Events of Default or
claimed defaults, the Company will give the following notices:
(a) The Company promptly, but in any event within 5 days after an
officer of the Company obtains knowledge, will furnish to each holder of a Note
written notice of the occurrence of a Default or an Event of Default. Such
notice shall specify the nature of such default, the period of existence thereof
and what action the Company has taken or is taking or proposes to take with
respect thereto.
(b) If the holder of any Note or of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default, the Company will forthwith give
written notice thereof to each holder of the then outstanding Notes, describing
the notice or action and the nature of the claimed default.
SECTION 9. AMENDMENTS, WAIVERS AND CONSENTS
9.1 Matters Subject to Modification. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended, or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holder or holders of at least 66-2/3% in aggregate
principal amount of outstanding Notes; provided, however, that, without the
written consent of the holder or holders of all of the Notes then outstanding,
no such waiver, modification, alteration or amendment shall be effective which
will (i) change the time of payment (including any required prepayment or
optional prepayment) of the principal of or the interest on any Note, (ii)
reduce the principal amount thereof or the Make-Whole Amount, if any, or change
the rate of interest thereon, (iii) change any provision of any instrument
affecting the preferences between holders of the Notes or between holders of the
Notes and other creditors of the Company, or (iv) change any of the provisions
of Section 8.2, Section 8.3 or this Section 9.
For the purpose of determining whether holders of the requisite principal
amount of Notes have made or concurred in any waiver, consent, approval, notice
or other communication
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<PAGE> 33
under this Agreement, Notes held in the name of, or owned beneficially by, the
Company, any Subsidiary or any Affiliate thereof, shall not be deemed
outstanding.
9.2 Solicitation of Holders of Notes. The Company will not solicit,
request or negotiate for or with respect to any proposed waiver or amendment of
any of the provisions of this Agreement or the Notes unless each holder of the
Notes (irrespective of the amount of Notes then owned by it) shall concurrently
be informed thereof by the Company and shall be afforded the opportunity of
considering the same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with respect thereto.
Executed or true and correct copies of any waiver or consent effected pursuant
to the provisions of this Section 9 shall be delivered by the Company to each
holder of outstanding Notes forthwith following the date on which the same shall
have been executed and delivered by the holder or holders of the requisite
percentage of outstanding Notes. The Company will not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interests, fee or otherwise, to any holder of the Notes as
consideration for or as an inducement to the entering into by any holder of the
Notes of any waiver or amendment of any of the terms and provisions of this
Agreement unless such remuneration is concurrently paid, on the same terms,
ratably to each holder of the then outstanding Notes.
9.3 Binding Effect. Any such amendment or waiver shall apply equally to
all the holders of the Notes and shall be binding upon them, upon each future
holder of any Note and upon the Company whether or not such Note shall have been
marked to indicate such amendment or waiver. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or waived or impair any
right related thereto.
SECTION 10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
10.1 Form of Notes. Each Note initially delivered under this Agreement
will be in the form of one fully registered Note in the form attached as Exhibit
A. The Notes are issuable only in fully registered form and in denominations of
at least $100,000 (or the remaining outstanding balance thereof, if less than
$100,000).
10.2 Note Register. The Company shall cause to be kept at its principal
office a register (the "Note Register") for the registration and transfer of the
Notes. The names and addresses of the holders of Notes, the transfer thereof and
the names and addresses of the transferees of the Notes shall be registered in
the Note Register. The Company may deem and treat the person in whose name a
Note is so registered as the holder and owner thereof for all purposes and shall
not be affected by any notice to the contrary, until due presentment of such
Note for registration of transfer as provided in this Section 10.
10.3 Issuance of New Notes upon Exchange or Transfer. Upon surrender for
exchange or registration of transfer of any Note at the office of the Company
designated for notices in accordance with Section 11.2, the Company shall
execute and deliver, at its expense, one or more new Notes of any authorized
denominations requested by the holder of the surrendered Note, each dated the
date to which interest has been paid on the Notes so surrendered (or, if no
interest has been paid, the date of such surrendered Note), but in the same
aggregate unpaid
33
<PAGE> 34
principal amount as such surrendered Note, and registered in the name of such
person or persons as shall be designated in writing by such holder. Every Note
surrendered for registration of transfer shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the holder of
such Note or by his attorney duly authorized in writing. The Company may
condition its issuance of any new Note in connection with a transfer by any
Person on compliance with Section 3.2, by Institutional Holders on compliance
with Section 2.5 and on the payment to the Company of a sum sufficient to cover
any stamp tax or other governmental charge imposed in respect of such transfer.
10.4 Replacement of Notes. Upon receipt of evidence satisfactory to the
Company of the loss, theft, mutilation or destruction of any Note, and in the
case of any such loss, theft or destruction upon delivery of a bond of indemnity
in such form and amount as shall be reasonably satisfactory to the Company or in
the event of such mutilation upon surrender and cancellation of the Note, the
Company, without charge to the holder thereof, will make and deliver a new Note,
of like tenor in lieu of such lost, stolen, destroyed or mutilated Note. If any
such lost, stolen or destroyed Note is owned by you or any other Institutional
Holder, then the affidavit of an authorized officer of such owner setting forth
the fact of such loss, theft or destruction and of its ownership of the Note at
the time of such loss, theft or destruction shall be accepted as satisfactory
evidence thereof, and no further indemnity shall be required as a condition to
the execution and delivery of a new Note, other than a written agreement oil!
such owner (in form reasonably satisfactory to the Company) to indemnify the
Company.
SECTION 11. MISCELLANEOUS
11.1 Expenses. Whether or not the purchase of Notes herein contemplated
shall be consummated, the Company agrees to pay directly all reasonable expenses
in connection with the preparation, execution and delivery of this Agreement and
the transactions contemplated by this Agreement, including, but not limited to,
out-of-pocket expenses, filing fees of Standard Poor's Corporation in connection
with obtaining a private placement number, filing fees of the National
Association of Insurance Commissioners, charges and disbursements of special
counsel, photocopying and printing costs and charges for shipping the Notes,
adequately insured, to you at your home office or at such other address as you
may designate, and all similar expenses (including the fees and expenses of
counsel) relating to any amendments , waivers or consents in connection with
this Agreement or the Notes, including, but not limited to, any such amendments,
waivers or consents resulting from any work-out, renegotiation or restructuring
relating to the performance by the Company of its obligations under this
Agreement and the Notes. The Company also agrees that it will pay and save you
harmless against any and all liability with respect to stamp and other
documentary taxes, if any, which may be payable, or which may be determined to
be payable in connection with the execution and delivery of this Agreement or
the Notes (but not in connection with a transfer of any Notes), whether or not
any Notes are then outstanding. The obligations of the Company under this
Section 11.1 shall survive the retirement of the Notes.
11.2 Notices. Except as otherwise expressly provided herein, all
communications provided for in this Agreement shall be in writing and delivered
or sent by registered or certified mail, return receipt requested, or by
overnight courier (i) if to you, to the address set forth below your name in
Schedule I, or to such other address as you may in writing designate, (ii) if to
any
34
<PAGE> 35
other holder of the Notes, to such address as the holder may designate in
writing to the Company, and (iii) if to the Company, to Standard Motor Products,
Inc., 37-18 Northern Boulevard, Long Island City, New York 11101 Attention:
Treasurer, or to such other address as the Company may in writing designate.
11.3 Reproduction of Documents. This Agreement and all documents relating
hereto, including, without limitation, (i) consents, waivers and modifications
which may hereafter be executed, (ii) documents received by you at the closing
of the purchase of the Notes (except the Notes themselves), and (iii) financial
statements, certificates and other information previously or hereafter furnished
to you may be reproduced by you by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process, and you may destroy
any original document so reproduced. The Company agrees and stipulates that any
such reproduction which is legible shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence;
provided that nothing herein contained shall preclude the Company from objecting
to the admission of any reproduction on the basis that such reproduction is not
accurate, has been altered or is otherwise incomplete.
11.4 Successors and Assigns. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns.
11.5 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
11.6 Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
11.7 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart or reproduction thereof permitted by Section
11.3.
11.8 Reliance on and Survival of Provisions. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant to this Agreement, whether or not in connection
with a closing, (i) shall be deemed to have been relied upon by you,
notwithstanding any investigation heretofore or hereafter made by you or on your
behalf and (ii) shall survive the delivery of this Agreement and the Notes.
11.9 Integration and Severability. This Agreement embodies the entire
agreement and understanding between you and the Company, and supersedes all
prior agreements and understandings relating to the subject matter hereof. In
case any one or more of the provisions contained in this Agreement or in any
Note or application thereof, shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained in this Agreement and in any Note, and any other application thereof,
shall not in any way be affected or impaired thereby.
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<PAGE> 36
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed and delivered by their respective officer or officers
thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
By: _______________________________
Title: President
KEMPER INVESTORS LIFE INSURANCE COMPANY
By: _______________________________
Title: Authorized Signatory
By: _______________________________
Title: Authorized Signatory
FEDERAL KEMPER LIFE ASSURANCE COMPANY
By: _______________________________
Title: Authorized Signatory
By: _______________________________
Title: Authorized Signatory
LUMBERMENS MUTUAL CASUALTY COMPANY
By: _______________________________
Title: Authorized Signatory
By: _______________________________
Title: Authorized Signatory
<PAGE> 37
FIDELITY LIFE ASSOCIATION
By: _______________________________
Title: Authorized Signatory
By: _______________________________
Title: Authorized Signatory
AMERICAN MOTORISTS INSURANCE COMPANY
By: _______________________________
Title: Authorized Signatory
By: _______________________________
Title: Authorized Signatory
AMERICAN MANUFACTURERS MUTUAL INSURANCE
COMPANY
By: _______________________________
Title: Authorized Signatory
By: _______________________________
Title: Authorized Signatory
ALLSTATE LIFE ]INSURANCE COMPANY
By: _______________________________
Title: Authorized Signature
By: _______________________________
Title: Authorized Signatory
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA
By: _______________________________
Title:
<PAGE> 38
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: _______________________________
Title:
<PAGE> 39
================================================================================
STANDARD MOTOR PRODUCTS, INC.
NOTE AGREEMENT
Dated as of November 15, 1992
$65,000,000 Principal Amount
7.85% Senior Notes
Due December 15, 2002
================================================================================
<PAGE> 40
TABLE OF CONTENTS
<TABLE>
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Section 1. DESCRIPTION OF NOTES AND COMMITMENT......................... 1
1.1 Description of Notes........................................ 1
1.2 Commitment; Closing Date.................................... 1
Section 2. PREPAYMENT OF NOTES......................................... 2
2.1 Required Prepayments........................................ 2
2.2 Optional Prepayments........................................ 2
2.3 Notice of Prepayments....................................... 3
2.4 Surrender of Notes on Prepayment or Exchange................ 3
2.5 Direct Payment and Deemed Date of Receipt................... 3
2.6 Allocation of Payments...................................... 4
2.7 Payments Due on Saturdays, Sundays and Holidays............. 4
Section 3. REPRESENTATIONS............................................. 4
3.1 Representations of the Company.............................. 4
3.2 Representations of the Purchasers.......................... 10
Section 4. CLOSING CONDITIONS......................................... 11
4.1 Representations and Warranties............................. 11
4.2 Legal Opinions............................................. 11
4.3 Events of Default.......................................... 11
4.4 Payment of Fees and Expenses............................... 11
4.5 Sale of Notes to Other Purchasers; Sale of 6.01% Notes..... 11
4.6 Legality of Investment..................................... 11
4.7 Private Placement Number................................... 11
4.8 Consent of NBD. N.A........................................ 11
4.9 Proceedings and Documents.................................. 12
Section 5. INTERPRETATION OF AGREEMENT................................ 12
5.1 Certain Terms Defined...................................... 12
5.2 Accounting Principles...................................... 19
5.3 Valuation Principles....................................... 19
5.4 Direct or Indirect Actions................................. 20
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TABLE OF CONTENTS
(CONTINUED)
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Section 6 AFFIRMATIVE COVENANTS...................................... 20
6.1 Corporate Existence........................................ 20
6.2 Insurance.................................................. 20
6.3 Taxes, Claims for Labor and Materials...................... 20
6.4 Maintenance of Properties.................................. 21
6.5 Maintenance of Records..................................... 21
6.6 Financial Information and Reports.......................... 21
6.7 Inspection of Properties and Records....................... 23
6.8 ERISA...................................................... 24
6.9 Compliance with Laws....................................... 24
6.10 Acquisition of Notes....................................... 25
6.11 Private Placement Number................................... 25
Section 7 NEGATIVE COVENANTS......................................... 25
7.1 Tangible Net Worth......................................... 25
7.2 Consolidated Debt.......................................... 25
7.3 Subsidiary Indebtedness.................................... 25
7.4 Fixed Charge Ratio......................................... 25
7.5 Liens...................................................... 26
7.6 Restricted Payments........................................ 27
7.7 Merger or Consolidation.................................... 27
7.8 Sale of Assets; Sale of Receivables........................ 28
7.9 Disposition of Stock of Restricted Subsidiaries............ 28
7.10 Permitted Investments...................................... 28
7.11 Transactions with Affiliates............................... 29
7.12 Consolidated Tax Returns................................... 29
7.13 Nature of Business......................................... 29
7.14 Guaranties................................................. 29
Section 8 EVENTS OF DEFAULT AND REMEDIES THEREFOR.................... 29
8.1 Nature of Events........................................... 29
8.2 Remedies on Default........................................ 31
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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8.3 Annulment of Acceleration of Notes......................... 31
8.4 Other Remedies............................................. 31
8.5 Conduct No Waiver; Collection Expenses..................... 31
8.6 Remedies Cumulative........................................ 32
8.7 Notice of Default.......................................... 32
Section 9 AMENDMENTS, WAIVERS AND CONSENTS........................... 32
9.1 Matters Subject to Modification............................ 32
9.2 Solicitation of Holders of Notes........................... 33
9.3 Binding Effect............................................. 33
Section 10 FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND
REPLACEMENT................................................ 33
10.1 Form of Notes.............................................. 33
10.2 Note Register.............................................. 33
10.3 Issuance of New Notes upon Exchange or Transfer............ 33
10.4 Replacement of Notes....................................... 34
Section 11 MISCELLANEOUS.............................................. 34
11.1 Expenses................................................... 34
11.2 Notices.................................................... 34
11.3 Reproduction of Documents.................................. 35
11.4 Successors and Assigns..................................... 35
11.5 Law Governing.............................................. 35
11.6 Headings................................................... 35
11.7 Counterparts............................................... 35
11.8 Reliance on and Survival of Provisions..................... 35
11.9 Integration and Severability............................... 35
ANNEXES
I. Subsidiaries
II. Liens
EXHIBITS
A. Form of Senior Note
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TABLE OF CONTENTS
(CONTINUED)
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B. Form of Legal Opinion of Purchasers' Counsel
C. Form of Legal Opinion of Company Counsel
</TABLE>
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<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
