-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LOG5YsxHs0VNPYh8qgJ2PiBkEg5yGOMOwfN0m14MJTfibHE5DbPcCxkpY2U1OPGn p7GCSZpZyjd5nkVyr7guBw== 0000909012-99-000443.txt : 19990813 0000909012-99-000443.hdr.sgml : 19990813 ACCESSION NUMBER: 0000909012-99-000443 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD MOTOR PRODUCTS INC CENTRAL INDEX KEY: 0000093389 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 111362020 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04743 FILM NUMBER: 99684991 BUSINESS ADDRESS: STREET 1: 37 18 NORTHERN BLVD CITY: LONG ISLAND CITY STATE: NY ZIP: 11101 BUSINESS PHONE: 7183920200 MAIL ADDRESS: STREET 1: 3718 NORTHERN BLVD CITY: LONG ISLAND CITY STATE: NY ZIP: 11101 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended June 30, 1999 ------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 1-4743 ------ Standard Motor Products, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) New York 11-1362020 - -------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 37-18 Northern Blvd., Long Island City, N.Y. 11101 - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (718) 392-0200 ---------------------------------------------------- (Registrant's telephone number, including area code) None --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Date Class Shares Outstanding ---- Common stock par ------------------ July 31, 1999 value $2.00 per share 13,169,922 ------------- --------------------- ---------- STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL AND OTHER INFORMATION JUNE 30, 1999 PART 1 - FINANCIAL INFORMATION Item 1 Page No. - ------ -------- CONSOLIDATED BALANCE SHEETS June 30, 1999 and December 31, 1998 3 & 4 CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS for the Three-Month and Six-Month periods ended June 30, 1999 and 1998 5 CONSOLIDATED STATEMENTS OF CASH FLOWS for the Six-Month periods ended June 30, 1999 and 1998 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 11 Item 2 - ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 17 PART II - OTHER INFORMATION --------------------------- Item 4 - ------ Submission of matters to a vote of Security Holders 18 Item 6 - ------ Exhibits and Reports on Form 8-K 18 - 20 Signature 20 -2- STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
ASSETS ------ June 30, December 31, 1999 1998 - --------------------------------------------------------------------------------- (Unaudited) Current assets: Cash and cash equivalents $ 960 $ 23,457 Accounts receivable, less allowances for discounts and doubtful accounts of $8,028 (1998 - $4,525)(Note 10) 247,522 122,008 Inventories (Note 2) 186,991 174,092 Deferred income taxes 11,723 11,723 Prepaid expenses and other current assets 11,500 11,231 -------- -------- Total current assets 458,696 342,511 Property, plant and equipment, net(Note 3) 111,955 109,404 Goodwill, net 41,662 39,232 Other assets (Note 8) 29,093 30,409 -------- -------- Total assets $641,406 $521,556 ======== ========
See accompanying notes to consolidated financial statements. 3 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except for shares and per share data) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
June 30, December 31, 1999 1998 - ------------------------------------------------------------------------------ (Unaudited) Current liabilities: Notes payable - banks $ 73,077 $ 3,555 Current portion of long-term debt (Note 6) 27,770 22,404 Accounts payable 65,681 48,414 Sundry payables and accrued expenses 72,623 60,905 Accrued customer returns 27,329 16,296 Payroll and commissions 11,879 12,613 --------- --------- Total current liabilities 278,359 164,187 Long-term debt (Note 6) 122,831 133,749 Postretirement benefits other than pensions and other accrued liabilities 19,095 18,595 --------- --------- Total liabilities 420,285 316,531 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 179,396 and 268,126 shares held as treasury shares in 1999 and 1998, respectively) 26,649 26,649 Capital in excess of par value 2,702 2,951 Retained earnings 195,258 181,679 Accumulated other comprehensive income (loss) 447 (516) --------- --------- 225,056 210,763 Less: treasury stock-at cost 3,935 5,738 --------- --------- Total stockholders' equity 221,121 205,025 --------- --------- Total liabilities and stockholders' equity $ 641,406 $ 521,556 ========= =========
See accompanying notes to consolidated financial statements. 4 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (Dollars in thousands, except for shares and per share data) (Unaudited)
For the Three-Months Ended For the Six-Months Ended June 30, June 30, ----------------------------- ----------------------------- 1999 1998 1999 1998 ------------ ------------- ------------ -------------- Net sales $ 205,714 $ 208,766 $ 382,503 $ 334,811 Cost of sales 140,625 145,694 264,194 227,949 ------------ ------------ ------------ ------------ Gross profit 65,089 63,072 118,309 106,862 Selling, general and administrative expenses 42,929 48,175 87,361 85,680 ------------ ------------ ------------ ------------ Operating income 22,160 14,897 30,948 21,182 Other income (expense) - net (516) 115 (829) 347 ------------ ------------ ------------ ------------ Earnings before interest, taxes and minority interest 21,644 15,012 30,119 21,529 Interest expense 4,802 5,105 8,243 8,480 ------------ ------------ ------------ ------------ Earnings before taxes and minority interest 16,842 9,907 21,876 13,049 Minority interest (41) (17) (179) (135) Income taxes (Note 4) 4,768 1,251 6,016 1,622 ------------ ------------ ------------ ------------ NET EARNINGS 12,033 8,639 15,681 11,292 ------------ ------------ ------------ ------------ Retained earnings at beginning of period 184,276 164,167 181,679 161,514 ------------ ------------ ------------ ------------ 196,309 172,806 197,360 172,806 Less: cash dividends for period 1,051 0 2,102 0 ------------ ------------ ------------ ------------ Retained earnings at end of period $ 195,258 $ 172,806 $ 195,258 $ 172,806 ============ ============ ============ ============ PER COMMON SHARE DATA: - ---------------------- Net earnings per common share: Basic $ 0.92 $ 0.66 $ 1.20 $ 0.86 Diluted 0.91 0.65 1.19 0.86 Dividends per common share $ 0.08 $ 0.00 $ 0.16 $ 0.00 Average number of common shares 13,136,458 13,102,469 13,112,189 13,089,653 ------------ ------------ ------------ ------------ Average number of common and dilutive common shares 13,238,017 13,211,406 13,210,327 13,168,063 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 5 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
For Six-Months Ended June 30, ---------------------- 1999 1998 --------- --------- Cash flows from operating activities: Net earnings $ 15,681 $ 11,292 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 8,729 9,722 Loss on disposal of property, plant and equipment -- 55 Change in assets and liabilities, net of effects from acquisitions: (Increase) decrease in accounts receivable, net (117,236) (65,181) (Increase) decrease in inventories (4,758) 36,584 (Increase) decrease in other assets 1,960 2,824 Increase (decrease) in accounts payable 13,564 11,870 Increase (decrease) in other current assets and liabilities 76 98 Increase (decrease)in sundry payables and accrued expense 21,762 16,463 --------- --------- Net cash provided by (used in) operating activities (60,222) 23,727 Cash flows from investing activities Capital expenditures, net of effects from acquisitions (7,288) (8,422) Payments for acquisitions, net of cash acquired (17,381) -- --------- --------- Net cash(used in) investing activities (24,669) (8,422) Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreements 69,702 (29,068) Proceeds from issuance of long-term debt -- 700 Principal payments of long-term debt (5,652) (3,610) Reduction of loan to ESOP -- 1,665 Proceeds from exercise of employee stock options 1,311 1,040 Purchase of treasury stock (1,495) (451) Dividends paid (2,102) -- --------- --------- Net cash provided by (used in) financing activities 61,764 (29,724) Effect of exchange rate changes on cash 630 421 --------- --------- Net (decrease) in cash (22,497) (13,988) Cash and cash equivalents at beginning of the period 23,457 16,809 --------- --------- Cash and cash equivalents at end of the period $ 960 $ 2,811 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 7,995 $ 7,292 Income taxes $ 76 $ (246)
See accompanying notes to consolidated financial statements. 6 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 ----------- (Dollars in thousands) June 30, December 31, 1999 1998 --------- ------------ (Unaudited) Finished goods $ 119,988 $ 120,108 Work in process 6,523 4,867 Raw materials 60,480 49,117 --------- --------- Total inventories $ 186,991 $ 174,092 ========= ========= NOTE 3 PROPERTY, PLANT AND EQUIPMENT ----------------------------- (Dollars in thousands) June 30, December 31, 1999 1998 --------- ------------ (Unaudited) Land, buildings and improvements $ 65,630 $ 64,080 Machinery and equipment 92,171 88,282 Tools, dies and auxiliary equipment 9,581 8,412 Furniture and fixtures 23,088 21,542 Leasehold improvements 5,769 5,130 Construction in progress 20,423 18,068 ----------- ---------- 216,662 205,514 Less accumulated depreciation 104,707 96,110 ----------- ---------- Total property, plant and equipment - net $ 111,955 $ 109,404 =========== ========== 7 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $4,243,000 and $4,109,000 for the six-months ended June 30, 1999 and 1998, respectively, are exempt from United States income taxes and are partially exempt from Puerto Rican income taxes. NOTE 5 During the six-month period ended June 30, 1999, the Company granted options to purchase 136,000 shares of common stock. The exercise price of each option granted is equal to, or greater than, the fair value of the Company's common stock on the date of grant. At June 30, 1999, 894,000 shares of authorized but unissued common stock were reserved for issuance under the Company's stock option plans, of which 848,000 shares were subject to outstanding options. 376,000 of these outstanding options were vested at June 30, 1999. NOTE 6 Long-Term Debt (Dollars in thousands) June 30, December 31, 1999 1998 -------- ------------ (Unaudited) 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 ($10 Million Canadian) 6,822 10,960 5.0% Notes Payable - AlliedSignal 3,000 3,000 6.75% - 7.50% Facilities 5,445 6,411 5.00% - 10.5% Purchase Obligations 2,500 2,833 Other 1,191 1,306 ------- ------- 150,601 156,153 Less current portion 27,770 22,404 ------- ------- Total noncurrent portion of long-term debt $ 122,831 $ 133,749 ======= ======= 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. On July 26, 1999 the Company prepaid the entire outstanding balance of $37,143,000 plus a $1,291,000 prepayment penalty. These prepayments were funded through the use of a portion of the proceeds of the $90,000,000 Convertible Subordinated Debentures as discussed in Note 13. 8 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 (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 $10,000,000 CDN credit agreement, the Company is required to repay the loan as follows: $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. Under the terms of the unsecured $3,000,000 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. In April 1999, the Company acquired Lemark Auto Accessories Limited, a United Kingdom based manufacturer and distributor primarily of ignition wire and other engine management products. The acquisition price amounted to approximately $1,900,000 and was funded from short term borrowings. These acquisitions have been accounted for as purchases, and resulted in goodwill of $4,582,000 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. 9 NOTE 9 Total comprehensive income was $12,455,000 and $8,738,000 for the three-month periods ended June 30, 1999 and 1998, respectively and $16,644,000 and $11,157,000 for the six-month periods ended June 30, 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. In June 1999, SMP Credit Corp., entered into a new three 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 agreement as renewed contains similar terms and conditions as our previous agreement and expires in March 2002. NOTE 11 Following is a reconciliation of the shares used in calculating basic and dilutive net income per common share:
For Three-Months Ended For Six-Months Ended June 30, June 30, ----------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Weighted average common shares outstanding 13,136,458 13,102,469 13,112,189 13,089,653 Effect of dilutive securities - options 101,559 108,937 98,138 78,410 ---------- ---------- ---------- ---------- Weighted average common equivalent shares outstanding assuming dilution 13,238,017 13,211,406 13,210,327 13,168,063 ========== ========== ========== ==========
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 (Dollars in thousands) For three-months ended June 30, ------------------------------------------------------ 1999 1998 ------------------------------------------------------ Operating Operating Net Sales Income Net Sales Income Engine Management $ 84,911 $ 8,972 $ 94,741 $ 12,064 Temperature Control 117,371 16,329 110,201 12,908 Other Adjustments 3,432 (3,141) 3,824 (10,075) --------- ------- --------- -------- Consolidated $ 205,714 $22,160 $ 208,766 $ 14,897 ========= ======= ========= ======== 10 NOTE 12 (CONTINUED) For six-months ended June 30, ------------------------------------------------------ 1999 1998 ------------------------------------------------------ Operating Operating Net Sales Income Net Sales Income --------- ------ --------- ------ Engine Management $ 172,334 $16,544 $ 185,020 $ 22,862 Temperature Control 208,675 23,714 147,209 15,343 Other Adjustments 1,494 (9,310) 2,582 (17,023) --------- ------- --------- -------- Consolidated $ 382,503 $30,948 $ 334,811 $ 21,182 ========= ======= ========= ======== 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: For Three-Months Ended For Six-Months Ended June 30, June 30, ----------------------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Operating Income $ 22,160 $ 14,897 $ 30,948 $ 21,182 Other income (expense) (516) 115 (829) 347 Interest expense 4,802 5,105 8,243 8,480 -------- -------- -------- -------- Earnings before taxes and minority interest $ 16,842 $ 9,907 $ 21,876 $ 13,049 ======== ======== ======== ======== NOTE 13 On July 26, 1999 the Company issued 6.75% Convertible Subordinated Debentures in the aggregate principal amount of $90,000,000. In addition, the underwriters of these debentures have an option for 30 days to purchase up to an additional $10,000,000 principal amount of these debentures. Each $1,000 of Convertible Debentures can be converted into 31.068 shares of the Company's common stock, which is equivalent to a conversion price of approximately $32.19 per share. The Convertible Debentures pay interest semi-annually and mature on July 15, 2009. The Company incurred underwriters' fees of 3.125% of the principal amount, or $2,812,500. The net proceeds to the Company of $87,187,500, before expenses, will be used to pay down a portion of the Company's existing indebtedness, purchase minority interests in certain subsidiaries, and for general corporate purposes, including future acquisitions. 11 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussions and Analysis contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. The following discussion should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere in this Form 10-Q. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the first six months of 1999, cash used in operations amounted to $60,222,000, compared to $23,727,000 of cash provided in the first six months of 1998. This decrease is due primarily to higher accounts receivable resulting from a pre-season selling program for temperature control products, that was not in effect in 1998, and higher inventories as we were unable to duplicate the significant reductions achieved in the prior year. Cash used in investing activities amounted to $24,669,000 in the first six months of 1999 and $8,422,000 for the comparable period in 1998. The increase is mainly due to the acquisitions of Eaglemotive Corporation, Webcon UK Limited and Lemark Auto Accessories Limited, as discussed below. Capital expenditures amounted to $7,288,000 during the first six months of 1999 and $8,422,000 for the comparable period in 1998. Cash provided by financing activities totaled $61,764,000 in the first six months of 1999, while in the prior year cash used in financing activities amounted to $29,724,000. This change is due to increased short term borrowings to finance the seasonal working capital needs of the Company's Temperature Control Division, which have become more significant due to the inclusion of the Cooper Industries temperature control business, which was acquired in March 1998. During the first six months of 1999, the Company paid dividends amounting to $2,102,000. No dividends were paid in the comparable period for 1998. On July 22, 1999 the Board of Directors approved an increase to the quarterly dividend from $.08 to $.09 per share, to be paid on September 1, 1999 to stockholders of record on August 13, 1999. On July 26, 1999 the Company issued 6.75% Convertible Subordinated Debentures in the aggregate principal amount of $90,000,000. In addition, the underwriters of these debentures have an option for 30 days to purchase up to an additional $10,000,000 principal amount of these debentures. Each $1,000 of Convertible Debentures can be converted into 31.068 shares of the Company's common stock, which is equivalent to a conversion price of approximately $32.19 per share. The Convertible Debentures pay interest semi-annually and mature on July 15, 2009. The proceeds from the Convertible Debentures will be used to pay down a portion of the Company's existing indebtedness, purchase minority interests in certain subsidiaries and for general corporate purposes, including future acquisitions. On July 26, 1999 the Company prepaid the 8.60% senior note payable in the amount of $37,143,000 plus a $1,291,000 prepayment penalty. On November 30, 1998, the Company entered into a new three year revolving credit facility. The facility, with eight lending institutions, provides a $110,000,000 unsecured line of credit, subject to a borrowing base. The facility allows the Company to select from two interest rate options, one a function of LIBOR, and the other a function of the U.S. prime rate. The spread above each interest rate option is determined by the Company's ratio of consolidated debt to earnings before interest, taxes, depreciation and amortization. The interest rates available to the Company under this facility should compare favorably with the short term interest rates obtained by the Company during most of 1998 and should result in lower a lower effective interest rate in 1999 compared to 1998. 12 LIQUIDITY AND CAPITAL RESOURCES (Continued) - ------------------------------------------- In June of 1999 the Company renewed its agreement to sell certain of its accounts receivable. The Company presently has $25,000,000 of accounts receivable sold under this agreement, which expires March 31, 2002. As of June 30, 1999 the Company had stockholders' equity of $221,121,000 and working capital of $180,337,000. Capital expenditures, primarily for new machinery and equipment, are expected to be approximately $10 million for the remainder of 1999. In January 1999, the Company acquired, through its European subsidiary Standard Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited. The Company also acquired through its United Kingdom 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. In April 1999, the Company acquired Lemark Auto Accessories Limited, a United Kingdom based manufacturer and distributor primarily of ignition wire and other engine management products. The acquisition price amounted to approximately $1,900,000 and was funded from short term borrowings. INTERIM RESULTS OF OPERATIONS - ----------------------------- COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED - ---------------------------------------------------------------------------- JUNE 30, 1998 - ------------- Net sales for the current quarter decreased by $3,052,000 or 1.5% from the comparable period in 1998. Excluding revenues from acquisitions not present in the second quarter of last year, revenues decreased by approximately $14 million or 6.8%. This sales decrease, excluding acquisitions, is primarily due to lower sales of engine management products resulting from the sale of the fuel pump business in the third quarter of 1998 and reduced orders from a major customer, as they absorbed inventory acquired from APS Holding Corporation. Although sales decreased in the second quarter of 1999, gross profit increased by $2,017,000 or 3.2% from the comparable period in 1998, reflecting synergies obtained from the acquisition of the Cooper Industries temperature control business. Gross margin as a percent of net sales increased to 31.6% in the second quarter of 1999 from 30.2% in the second quarter of 1998. This increase is attributable to improvements primarily in the temperature control business, resulting from efficiencies achieved from consolidating the Cooper Industries temperature control business with the Company's existing Temperature Control Division. Selling, general and administrative (S.G. & A.) expenses decreased by $5,246,000 or 10.9% over the comparable quarter in 1998, reflecting reduced administrative expenses and lower customer acquisition costs. As a percent of net sales S.G. & A. expenses decreased by 2.2 percentage points (20.9% in 1999 versus 23.1% in 1998). This percentage improvement is primarily due to the Company's cost reduction program initiated in early 1998 and from synergies which were realized from the consolidation of the Cooper Industries temperature control business. Additional cost reductions from the consolidation of the Cooper Industries temperature control business will continue, with the full implementation scheduled to be completed early in the year 2000. 13 INTERIM RESULTS OF OPERATIONS (Continued) - ----------------------------------------- COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED - ---------------------------------------------------------------------------- JUNE 30, 1998 - ------------- Operating income increased by $7,263,000 or 48.8% over the comparable quarter in 1998, as the second quarter of 1998 was negatively impacted by the write down of various assets of the Company's OE, China and fuel pump businesses. In addition, the Company benefited in 1999 from the operating synergies and cost reduction programs previously discussed. As a percentage of net sales, operating income increased to 10.8% in 1999 from 7.1% in 1998. The Engine Management Division, as compared to a year ago, reflected a reduction in operating income of $3,092,000 as a result of lower sales, shifts in sales mix and changes in overhead absorption. The sales decline was primarily the result of the divestiture of the fuel pump business which occurred in the third quarter of 1998 and lower orders from a major customer as they absorbed inventory acquired from APS Holding Corporation. The underabsorption of overhead experienced at certain facilities was a result of the divestiture of the Service Line business, which shared these facilities. Plans are currently being developed which should reduce these costs. The Temperature Control Division improved operating income by $3,421,000, compared to a year ago, primarily due to efficiencies achieved from consolidating the Cooper Industries Temperature Control business with the Company's existing Temperature Control Division. The synergies achieved impacted both gross margin and S.G. & A. expenses. Other income - net for the second quarter of 1999 decreased by $631,000, primarily due to losses recognized in connection with the Company's continuing original equipment ventures. These losses were attributed to costs incurred in developing and launching these projects. Interest expense for the second quarter attributable to continuing operations decreased by $303,000 as compared to 1998. Including amounts related to discontinued operations in 1998, interest expense decreased by $594,000 in 1999, as lower average interest rates were partially offset by higher short term borrowings. Taxes based on earnings increased by $3,517,000 primarily due to improved pre-tax earnings. At December 31, 1998, the Company had a $14,171,000 deferred tax asset valuation allowance. Due to the seasonal nature of the Company's business, no adjustments to this valuation allowance were deemed necessary during the three month period ended June 30, 1999. However, management is continuing to evaluate the likelihood of achieving sufficient future profitability that would enable the Company to utilize all or a portion of these deferred tax assets. If management determines, based upon these evaluations, that it is more likely than not that the deferred tax assets will be realized, then the valuation allowance will be adjusted. INTERIM RESULTS OF OPERATIONS - ----------------------------- COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED - ------------------------------------------------------------------------ JUNE 30, 1998 - ------------- Net sales for the six month period increased by $47,692,000 or 14.2% from the comparable period in 1998. Excluding revenues from acquisitions not present in the first half of last year, revenues remained flat, as increased temperature control sales, excluding acquisitions, were offset by a decrease in Engine Management sales. 14 INTERIM RESULTS OF OPERATIONS (Continued) - ----------------------------------------- COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED - ------------------------------------------------------------------------ JUNE 30, 1998 - ------------- Gross profit for the first six months of 1999 increased by $11,447,000 or 10.7% from the comparable period in 1998, reflecting increased sales from the acquisition of the Cooper Industries temperature control product business. The gross margin as a percent of net sales, however, declined from 31.9% in the first six months of 1998 to 30.9% in the first six months of 1999. The decline in the gross margin percent was primarily due to the higher mix of temperature control product sales in relation to the Company's total sales. Temperature control products have lower average gross margins than products sold by the Engine Management Division and therefore result in a lower margin percentage for the Company. 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 (S.G. & A.) expenses increased by $1,681,000 or 2.0% over the comparable period in 1998, reflecting higher expenses to support the growth within the Temperature Control Division. However, as a percent of net sales S.G. & A. expenses decreased by 2.8 percentage points (22.8% in 1999 versus 25.6% in 1998). This percentage improvement is primarily due to the leverage achieved from higher sales and synergies which were realized from the consolidation of the Cooper Industries temperature control business, and to lower customer acquisition and overhead expenses resulting from the Company's restructuring and cost reduction programs implemented in 1998. Additional cost reductions from the consolidation of the Cooper Industries temperature control business are expected to continue, with the full implementation scheduled to be completed early in the year 2000. Operating income increased by $9,766,000 or 46.1% over the comparable period in 1998. While the Company began to realize the benefits of the aforementioned operating synergies and cost reduction programs during the first half of 1999, operating income during the comparable period in 1998 was negatively impacted by the write down of various assets of the Company's OE, China and fuel pump businesses. As a percentage of net sales, operating income improved during the first six months of the year to 8.1% in 1999 from 6.3% in 1998. The Engine Management Division, as compared to a year ago, reflected a reduction in operating income of $6,318,000 as a result of lower sales, shifts in sales mix and changes in overhead absorption. The sales decline was primarily the result of the divestiture of the fuel pump business which occurred in the third quarter of 1998 and lower orders from a major customer as they absorbed inventory acquired from APS Holding Corporation. The underabsorption of overhead experienced at certain facilities was a result of the divestiture of the Service Line business, which shared these facilities. Plans are currently being developed which should reduce these costs. The Temperature Control Division improved operating income by $8,371,000, compared to a year ago, primarily due to incremental sales volume of $61,466,000. The increased sales resulted from the Cooper Temperature control business, the increases in unit volume as a result of the pre-season selling program, and, to a lesser extent, the acquisition of Eaglemotive Corporation. Efficiencies achieved from consolidating the Cooper Temperature Control business also improved income. The first quarter of 1998 did not reflect the results of the Cooper Temperature Control business, which was acquired on March 28, 1998. 15 INTERIM RESULTS OF OPERATIONS (continued) - ----------------------------------------- COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED - ------------------------------------------------------------------------ JUNE 30, 1998 - ------------- Other income - net for the first six months of 1999 decreased by $1,176,000, primarily due to losses recognized in connection with the Company's continuing original equipment ventures, and, to a lesser extent, reduced interest income. The losses pertaining to the original equipment ventures were attributed to costs incurred in developing and launching these projects. Interest expense attributable to continuing operations decreased by $237,000 compared to 1998. Including amounts related to discontinued operations in 1998, interest expense decreased by $1,823,000 in 1999. Taxes based on earnings increased by $4,394,000 primarily due to improved pre-tax earnings. At December 31, 1998, the Company had a $14,171,000 deferred tax asset valuation allowance. Due to the seasonal nature of the Company's business, no adjustments to this valuation allowance were deemed necessary during the six month period ended June 30, 1999. However, management is continuing to evaluate the likelihood of achieving sufficient future profitability that would enable the Company to utilize all or a portion of these deferred tax assets. If management determines, based upon these evaluations, that it is more likely than not that the deferred tax assets will be realized, then the valuation allowance will be adjusted. YEAR 2000 - --------- The Company is currently working to resolve the potential impact of the Year 2000 on the processing of date-sensitive information by the Company's computerized information systems. 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 the Company's 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. The Company has established a comprehensive response to its Year 2000 exposure. Generally, the Company has Year 2000 exposure in two areas: (i) its information technology("IT") systems and (ii) its non-IT systems. At June 1998, the Company had completed an inventory of its internal IT systems and made a preliminary determination of which programs were or were not Year 2000 compliant. During the period ending December 1998, the Company tested each significant IT system which is believed to be Year 2000 compliant. In some cases, Year 2000 issues will be corrected in the development of new programs, which enhance or provide new functionality to these financial and management operating systems. The Company estimates the cost of this effort to be approximately $1.4 million, which includes capital costs for new computers and related equipment. The Company substantially completed Year 2000 testing and remediation on its critical information technology systems in June 1999 and expects to substantially complete Year 2000 testing and remediation on its non-critical information technology systems and non-information technology systems in October 1999. As of June 30, 1999, the Company has conducted interviews with suppliers, customers, financial institutions and others with which it conducts business to determine the extent to which the Company would be vulnerable to these third parties' failure to remediate their own potential Year 2000 problems. The inability of these other significant business partners to adequately address the Year 2000 issues could cause disruption of the Company's operations. The Company does not believe there will be a material risk of disruption from third party failures. 16 YEAR 2000 (continued) - --------------------- The Company does not presently anticipate that the cost to address the Year 2000 issue will have a material adverse effect on the Company's financial condition, results of operations or liquidity. Although the Company expects its internal IT and non-IT systems to be Year 2000 compliant as described above, the Company intends to prepare a contingency plan that will specify what it plans to do if it 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. These plans are expected to be finalized by October of 1999. 17 PART II - OTHER INFORMATION - --------------------------- Item 4. Submission of matters to a vote of Security Holders - ------- --------------------------------------------------- (a) May 20, 1999, Annual Meeting (b) Directors Elected -- Nathaniel L. Sills Lawrence I. Sills Arthur D. Davis Susan F. Davis William H. Turner John L. Kelsey Robert J. Swartz Marilyn F. Cragin Arthur S. Sills Robert M. Gerrity Andrew M. Massimilla (c) Proposals voted upon: (I) Election of Directors: Votes For Votes Withheld --------- -------------- Nathaniel L. Sills 10,554,296 57,880 Lawrence I. Sills 10,557,700 54,476 Arthur D. Davis 10,557,712 54,464 Susan F. Davis 10,558,139 54,037 William H. Turner 10,558,509 53,667 John L. Kelsey 10,558,473 53,703 Robert J. Swartz 10,558,187 53,989 Marilyn F. Cragin 10,558,102 54,074 Arthur S. Sills 10,557,497 54,679 Robert M. Gerrity 10,558,559 53,617 Andrew M. Massimilla 10,558,558 53,618 Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibit(s) ---------- Number Description Method of Filing ------ ----------- ---------------- 4.1 Form of Subordinated Debenture Indenture (including form of convertible debenture) (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Registration Statement on Form S-3 (333-79177) filed on July 20, 1999.) * 18 Number Description Method of Filing ------ ----------- ---------------- 10.14 Form of First Amendment, dated as of December 8, 1998 to the Credit Agreement, dated as of November 30, 1998, among Standard Motor Products, Inc., Lenders party thereto, The Chase Manhattan Bank and Canadian Imperial Bank of Commerce (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the Registration Statement on Form S-3 (333-79177) filed on July 20, 1999.) * 10.15 Form of Second Amendment, dated as of July 16, 1999 to the Credit Agreement, dated as of November 30, 1998, among Standard Motor Products, Inc., Lenders party thereto, The Chase Manhattan Bank and Canadian Imperial Bank of Commerce (incorporated by reference to Exhibit 10.15 to Amendment No. 2 to the Registration Statement on Form S-3 (333-79177) filed on July 20, 1999.) * 10.16 Credit Agreement of March 31, 1998, as amended & restated as at November 30, 1998, between the Registrant and Canadian Imperial Bank of Commerce ("CIBC") is included as Exhibit 10.16 10.16 23.1 Consent of KPMG LLP, Independent Auditors (incorporated by reference to Exhibit 23.1 to Amendment No. 2 to the Registration Statement on Form S-3 (333-79177) filed on July 20, 1999.) * 23.2 Consent of KPMG LLP, Independent Auditors (incorporated by reference to Exhibit 23.1 to the Registration Statement on Form S-3 (333-83339) filed on July 21, 1999.) * 23.3 Consent of Kelley Drye & Warren LLP (incorporated by reference to Exhibit 23.2 to Amendment No. 2 to the Registration Statement on Form S-3 (333-79177) filed on July 20, 1999.) * 23.4 Consent of Kelley Drye & Warren LLP (incorporated by reference to Exhibit 23.2 to the Registration Statement on Form S-3 (333-79177) filed on July 20, 1999.) * 24 Powers of Attorney of Directors and Certain Officers of Standard Motor Products, Inc. (incorporated by reference to Exhibit 24 to the Registration Statement on Form S-3 (333-79177) filed on May 24, 1999.) * 27 Financial Data Schedule Filed with this Document * Incorporated by reference 19 (b) Reports on Form 8-K There were no reports on Form 8-K filed for this period. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /s/ STANDARD MOTOR PRODUCTS, INC. --------------------------------- (Registrant) August 12, 1999 /s/James J. Burke - --------------- ----------------- (Date) Director of Finance, Chief Accounting Officer 20 EX-10.16 2 CREDIT AGREEMENT COMMERCIAL BANKING CENTRE 1 CITY CENTRE DRIVE SUITE 200 MISSISSAUGA, ONTARIO L5B 1M2 March 31, 1998, as amended & restated as at November 30, 1998. SMP Motor Products Ltd. c/o Standard Motor Products, Inc. 37 - 18 Northern Blvd. Long Island City New York, N.Y. 11101 USA Attention: Mr. Michael J. Bailey, Senior Vice President, Administration and Finance & C.F.O. Dear Sirs: We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to establish the following Credits for SMP Motor Products Ltd., the Borrower and Standard Motor Products, Inc., the Guarantor, our Customer. FACILITY A: COMMITTED INSTALLMENT LOAN CREDIT LIMIT: CDN$20,000,000. PURPOSE: Originally to finance capital expenditure for the EIS Brake division in Canada. AVAILABILITY AND RATE: A committed credit facility under which the Borrower may at its option obtain on a non-revolving basis the following: (1) Canadian dollar loans. The Interest Rate is Prime Rate plus 1.75% per year. (2) U.S. dollar loans and overdrafts. The Interest Rate is U.S. Base Rate plus 1.75% per year. (3) Canadian dollar Bankers Acceptances (with terms to maturity of 30 to 180 days). The stamping fee is 2.50% per year. (4) U.S. dollar LIBOR loans. Interest is payable at the LIBO Rate for the loan term (1 to 6 months), plus 2.50% per year. The above rates are based on loans to SMP Motor Products Inc. and in the event that loans are made available to any non-Canadian entity CIBC will be indemnified for any reduction or loss of income resulting from the application of applicable withholding tax. RATE ADJUSTMENT: In the event that the unsecured term debt of the Guarantor is rated investment grade as determined by an external rating agency satisfactory to CIBC, then the interest rate on all the borrowing options under the Committed Facility A herein shall be reduced by 25 basis points per year. SCHEDULED PAYMENTS: Unless an Event of Default has occurred, the Borrower will pay CIBC interest monthly in arrears, and principal is repayable in accordance with the following schedule: On or before March 31, 1999 - CDN$10,000,000 On August 30, 2000 - CDN$ 2,000,000 On August 30, 2001 - CDN$ 2,000,000 On August 30, 2002 - CDN$ 6,000,000 EARLY PAYMENT UPON DEFAULT. If any Event of Default occurs and is continuing, CIBC may cancel this Facility A and declare all amounts then outstanding or accrued in connection with this Facility A (including all amounts which may be payable as a consequence of such cancellation and declaration) to be immediately due and payable, where upon those amounts shall be immediately due and payable by the Customer to CIBC, without any further requirement and proceed immediately to exercise all or any of CIBC's rights under this Agreement or other rights (whether by operation of law, contract or otherwise). FACILITY B: FOREIGN EXCHANGE CREDIT LIMIT: US$500,000. DESCRIPTION: The Borrower may, at our discretion, enter into one or more spot, forward or other foreign exchange rate transactions with us and/or CIBC Wood Gundy Inc. Your ability to make use of this Foreign Exchange Facility will depend upon your outstanding obligations under such transactions, as determined by us. This is an uncommitted demand Facility. CIBC may cancel this Facility B and/or demand repayment of all amounts owing under this Facility B at any time, for any reason or for no reason, even if the Borrower is not in default hereunder. SECURITY SECURITY: The following security is required: 2 GUARANTEE: Guarantee and specific Postponement of Claim from Standard Motor Products, Inc. in an amount that is unlimited and supported by a negative pledge agreement, a notification provision in the event of default under its U.S. Bank Group Credit Agreement dated as at November 30, 1998, a Directors' Resolution and Letter of Opinion from the Guarantor's external legal counsel in form satisfactory to CIBC counsel. The Guarantee is also to include the provisions of the attached Schedule - Standard Credit Terms. COVENANTS COVENANTS: The Borrower, SMP Motor Products Ltd. will ensure that: CURRENT RATIO: Current Ratio of the Borrower is not at any time less than 1.5:1. MINIMUM SHAREHOLDERS' EQUITY: Minimum Shareholders' Equity of the Borrower is not at any time less than $10,000,000. (Note: Inter-company advances are to be included as equity). NEGATIVE PLEDGE: There is no Lien on any of the present or future assets of the Borrower and the Guarantor and that the Borrower and the Guarantor shall not assign any right to any income, without our prior consent (which consent will not be unreasonably withheld), except as permitted in the U.S. Bank Group Credit Agreement. INCREASED COSTS, LOSSES, FOREGONE RETURN, ETC.: If CIBC determines that any new legal requirement or official regulatory directive or request (including, without limitation, that calling for new or increased reserves, special deposits, tax, capital or other allocation, but excluding that solely imposing increased tax on CIBC's general income) has or will have the direct or indirect effect of: (a) increasing the cost to CIBC of maintaining any commitment or performing any obligation under this Agreement; (b) reducing any amount received or receivable by CIBC or its effective return in connection with this Agreement or on its capital; or (c) causing CIBC to make any payment or to forgo any return based on any amount received or receivable by CIBC in connection with this Agreement; 3 then the Borrower will pay to CIBC on demand such additional amount or amounts as shall compensate CIBC for any such cost, reduction, payment or foregone return. Any certificate of CIBC as to any such compensation shall, except for demonstrable error, be conclusive and binding on the Borrower. In determining such compensation, CIBC may use any commercially reasonable method of averaging and attribution that it considers applicable. CROSS DEFAULT: All Facilities in this Agreement will have the benefit of cross-default to all indebtedness of the Guarantor in an amount exceeding US$2 million, including but not limited to any outstanding indebtedness under the U.S. Bank Group Credit Agreement; the Insurance Companies' Note Agreements; the Clipper Financing; and the Cooper Financing in respect of non-payment of any indebtedness when due, or any default under any of the financial covenants entered into with other lenders during the period from the Closing date of this Agreement until the Maturity Date or any extension thereof of the U.S. Bank Group Credit Agreement provided that (x) a failure by the Guarantor to comply with the provisions of Article Vii of the U.S. Bank Group Credit Agreement shall not constitute a default under the Guarantee so long as the Bank Group has not (i) accelerated the maturity of the indebtedness due under the U.S. Bank Group Credit Agreement, or (ii) taken any enforcement action against the Guarantor, or (iii) terminated or reduced any of the Commitments (as defined in the U.S. Bank Group Credit Agreement pursuant to Article Vii of the U.S. Bank Group Credit Agreement), or (iv) failed to make an advance requested under the U.S. Bank Group Credit Agreement and (y) a default with respect to the Insurance Companies' Note Agreements, the Cooper Financing or the Clipper Financing shall not constitute a default under the Guarantee unless the Required Banks under the U.S. Bank Group Credit Agreement have taken any of the actions set forth in (i) through (iv) of the preceding clause. ASSIGNMENT: CIBC reserves the right to syndicate, participate, sell or assign its rights, benefits and obligations under these facilities in whole or in part to one or more persons with the consent of the Borrower and Guarantor, such consent not to be unreasonably withheld or delayed. No consent is required if an Event of Default has occured and is continuing. The Borrower and Guarantor agree to enter into such amended and/or further documentation at the expense of CIBC (including but not limited to a formal Credit Agreement) as requested by CIBC in connection with such assignment. 4 REPORTING REQUIREMENTS REPORTING (1) Within 45 days of the end of each fiscal quarter, REQUIREMENTS: financial statements for that fiscal quarter for the Guarantor, Standard Motor Products Inc. (2) Within 120 days of each fiscal year-end, audited financial statements for that fiscal year for SMP Motor Products Ltd. (3) Within 90 days of each fiscal year-end, annual financial statements for that fiscal year on an audited basis for the Guarantor. (4) Within 30 days after each fiscal year-end, a business plan/forecast for the next fiscal year, including month-by-month projected balance sheets, income statements and cash flow projections for the Guarantor. OTHER PROVISIONS OTHER: All fees including legal, out of pocket expenses and disbursements incurred by CIBC in connection with the preparation, negotiation or enforcement of this Agreement are for the account of the Borrower. CONDITIONS PRECEDENT: (i) The facilities herein are contingent upon CIBC's claims under its Guarantee from the Guarantor ranking pari passu in all respects with the Guarantor's indebtedness under the U.S. Bank Group Credit Agreement and to the Insurance Company Noteholders. (ii) Closure of the U.S. Banking Group Credit Agreement. (iii) The existence of no event of default (with evidence satisfactory to CIBC of the receipt by the Borrower of appropriate waivers, amendments and consents) under any credit agreement, promissory note, or other agreement (including without limitation, the Insurance Companies' Note Agreements) related to indebtedness for borrowed money or any material contract or purchase agreement to which the Borrower is a party. (iv) Such other terms and conditions as may be reasonably required by CIBC or its counsel. 5 FEES LOAN ADMINISTRATION: $100. per month. CALCULATIONS: The calculations made under the "Covenants" and "Reporting Requirements" sections of this Agreement are to be done on a consolidated basis. DEFAULT INTEREST RATE: 2% per year above the applicable non-default rate stated on page 1 of this Agreement. In connection with any amounts in foreign currency, see "Foreign Currency Conversion" in the Attached Schedule. NEXT SCHEDULED REVIEW DATE: November 30, 1999 STANDARD CREDIT TERMS: The attached Schedule - Standard Credit Terms forms part of this Agreement. Upon acceptance, this Agreement amends and restates the existing credit agreement dated March 31, 1998, between you and CIBC. Outstanding amounts (and security) under that Agreement will be covered by this Agreement. The parties agree that this Agreement may be executed by fascimile Agreement and further agree that they will subsequently exchange original copies. Yours truly, Canadian Imperial Bank of Commerce by: by: Jake Crough Robert Slaymaker Director, Commercial Commercial Banking Lending Specialist Phone no.: (905) 566 3706 Phone no.: (905) 566 3684 Fax no.: (905) 279 9284 Fax no.: (905) 279 9284 6 SMP MOTOR PRODUCTS LTD. Acknowledgement: The undersigned certifies that all information provided to CIBC is true, and acknowledges receipt of a copy of this Agreement (including any Schedules referred to above). Accepted this day of , . ---------- ---------------------------- ------------ SMP MOTOR PRODUCTS LTD. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- Accepted this day of , . ---------- ---------------------------- ------------ The Guarantor confirms that its guarantee in favour of CIBC remains in full force and effect. SMP MOTOR PRODUCTS LTD.(as Guarantor) By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- 7 CIBC LOGO Form 6326-95/06 (WP51CRED) SCHEDULE - STANDARD CREDIT TERMS ARTICLE 1 - GENERAL 1.1 INTEREST RATE. You will pay interest on each Credit at nominal rates per year equal to: (a) for amounts above the Credit Limit of a Credit or a part of a Credit or for amounts that are not paid when due, the Default Interest Rate, and (b) for any other amounts, the rate specified in this Agreement. 1.2 VARIABLE INTEREST. Each variable interest rate provided for under this Agreement will change automatically, without notice, whenever the Prime Rate or the U.S. Base Rate, as the case may be, changes. 1.3 PAYMENT OF INTEREST. Interest is calculated on the daily balance of the Credit at the end of each day. Interest is due once a month, unless the Agreement states otherwise. Unless you have made other arrangements with us, we will automatically debit your Operating Account for interest amounts owing. If your Operating Account is in overdraft and you do not deposit to the account an amount equal to the monthly interest payment, the effect is that we will be charging interest on overdue interest (which is known as compounding). Unpaid interest continues to compound whether or not we have demanded payment from you or started a legal action, or get judgment, against you. 1.4 DEFAULT INTEREST. To determine whether Default Interest is to be charged, the following rules apply: (a) Default Interest will be charged on the amount that exceeds the Credit Limit of any particular Credit. (b) If there are several parts of a Credit, Default Interest will be charged if the Credit Limit of a particular part is exceeded. For example, if Credit A's limit is $250,000, and the limit of one part is $100,000 and the limit of that part is exceeded by $25,000, Default Interest will be charged on that $25,000 excess, even if the total amount outstanding under Credit A is less than $250,000. 1.5 FEES. You will pay CIBC's fees for each Credit as out lined in the Letter. You will also reimburse us for all reasonable fees (including legal fees) and out-of-pocket expenses incurred in registering any security, and in enforcing our rights under this Agreement or any security. We will automatically debit your Operating Account for fee amounts owing. 1.6 OUR RIGHTS RE DEMAND CREDITS. At CIBC, we believe that the banker-customer relationship is based on mutual trust and respect. It is important for us to know all the relevant information (whether good or bad) about your business. CIBC is itself a business. Managing risks and monitoring our customers' ability to repay is critical to us. We can only continue to lend when we feel that we are likely to be repaid. As a result, if you do something that jeopardizes that relationship, or if we no longer feel that you are likely to repay all amounts borrowed, we may have to act. We may decide to act, for example, because of something you have done, information we receive about your business, or changes to the economy that affect your business. Some of the actions that we may decide 1 to take include requiring you to give us more financial information, negotiating a change in the interest rate or fees, or asking you to get further accounting assistance, put more cash into the business, provide more security, or produce a satisfactory business plan. It is important to us that your business succeeds. We may, however, at our discretion, demand immediate repayment of any outstanding amounts under any demand Credit. We may also, at any time and for any cause, cancel the unused portion of any demand Credit. Under normal circumstances, however, we will give you 30 days' notice of any of these actions. 1.7 PAYMENTS. If any payment is due on a day other than a Business Day, then the payment is due on the next Business Day. 1.8 APPLYING MONEY RECEIVED. If you have not made payments as required by this Agreement, or if you have failed to satisfy any term of this Agreement (or any other agreement you have that relates to this Agreement), or at any time before default but after we have given you appropriate notice, we may decide how to apply any money that we receive. This means that we may choose which Credit to apply the money against, or what mix of principal, interest, fees and overdue amounts within any Credit will be paid. 1.9 INFORMATION REQUIREMENTS. We may from time to time reasonably require you to provide further information about your business. We may require information from you to be in a form acceptable to us. 1.10 INSURANCE. You will keep all your business assets and property insured (to the full insurable value) against loss or damage by fire and all other risks usual for property such as yours (plus for any other risks we may reasonably require). If we ask, you will give us either the policies themselves or adequate evidence of their existence. If your insurance coverage for any reason stops, we may (but do not have to) insure the property. We will automatically debit your Operating Account for these amounts. Finally, you will notify us immediately of any material loss or damage to the property. 1.11 ENVIRONMENTAL. You will carry on your business, and maintain your assets and property, in accordance with all applicable environmental laws and regulations. If (a) there is any release, deposit, discharge or disposal of pollutants of any sort (collectively, a "Discharge") in connection with either your business or your property, and we pay any fines or for any clean-up, or (b) we suffer any loss or damage as a result of any Discharge, you will reimburse CIBC, its directors, officers, employees and agents for any and all losses, damages, fines, costs and other amounts (including amounts spent preparing any necessary environmental assessment or other reports, or defending any lawsuits) that result. If we ask, you will defend any lawsuits, investigations or prosecutions brought against CIBC or any of its directors, officers, employees and agents in connection with any Discharge. Your obligation to us under this section continues even after all Credits have been repaid and this Agreement has terminated. 1.12 CONSENT TO RELEASE INFORMATION. We may from time to time give any credit or other information about you to, or receive such information from, (a) any financial institution, credit reporting agency, rating agency or credit bureau, (b) any person, firm or corporation with whom you may have or propose to have financial dealings, and (c) any person, firm or corporation in connection with any dealings you have or propose to have with us. You agree that we may use that information to establish and maintain your relationship with us and to offer any services as permitted by law, including services and products offered by our subsidiaries when it is considered that this may be suitable to you. 1.13 OUR PRICING POLICY: Fees, interest rates and other charges for your banking arrangements are dependent upon each other. If you decide to cancel any of these arrangements, you will have to pay us any increased or added fees, interest rates and charges we determine and notify you of. These increased or added amounts are effective from the date of the changes that you make. 2 1.14 PROOF OF DEBT. This Agreement provides the proof, between CIBC and you, of the credit made available to you. There may be times when the type of Credit you have requires you to sign additional documents. Throughout the time that we provide you credit under this Agreement, our loan accounting records will provide complete proof of all terms and conditions of your credit (such as principal loan balances, interest calculations, and payment dates). 1.15 RENEWALS OF THIS AGREEMENT. This Agreement will remain in effect for your Credits for as long as they remain unchanged. We have shown a Next Scheduled Review Date in the Letter. If there are no changes to the Credits this Agreement will continue to apply, and you will not need to sign anything further. If there are any changes, we will provide you with either an amending agreement, or a new replacement Letter, for you to sign. 1.16 CONFIDENTIALITY: The terms of this Agreement are confidential between you and CIBC. You therefore agree not to disclose the contents of this Agreement to anyone except your professional advisors. 1.17 PRE-CONDITIONS. You may use the Credits granted to you under this Agreement only if: (a) we have received properly signed copies of all documentation that we may require in connection with the operation of your accounts and your ability to borrow and give security; (b) all the required security has been received and registered to our satisfaction; (c) any special provisions or conditions set forth in the Letter have been complied with; and (d) if applicable, you have given us the required number of days notice for a drawing under a Credit. 1.18 NOTICES. We may give you any notice in person or by telephone, or by letter that is sent either by fax or by mail. 1.19 USE OF THE OPERATING LINE. You will use your Operating Line only for your business operating cash needs. You are responsible for all debits from the Operating Account that you have either initiated (such as cheques, loan payments, pre-authorized debits, etc.) or authorized us to make. Payments are made by making deposits to the Operating Account. You may not at any time exceed the Credit Limit. We may, without notice to you, return any debit from the Operating Account that, if paid, would result in the Credit Limit being exceeded, unless you have made prior arrangements with us. If we pay any of these debits, you must repay us immediately the amount by which the Credit Limit is exceeded. 1.20 FOREIGN CURRENCY CONVERSION. If this Agreement includes foreign currency Credits, then currency changes may affect whether either the Credit Limit of any Credit or the Overall Credit Limit has been exceeded. (a) See section 1.4 for the general rules on how Default Interest is calculated. (b) To determine the Overall Credit Limit, all foreign currency amounts are converted to Canadian dollars, even if the Credit Limits of any particular Credits are quoted directly in a foreign currency (such as U.S. dollars). No matter how the Credit Limit of a particular Credit is quoted, therefore, currency fluctuations can affect whether the Overall Credit Limit has been exceeded. For example, if Credits X and Y have Credit Limits of C$100,000 and US$50,000, respectively, with an Overall Credit Limit of C$175,000, if Credit X is at C$90,000 and Credit Y is at US$45,000, Default Interest will be charged only if, after converting the US dollar amount, the Overall Credit Limit is exceeded. (c) Whether the Credit Limit of a particular Credit has been exceeded will depend on how the Credit Limit is quoted, as described below. (d) If the Credit Limit is quoted as, for example, the U.S. dollar equivalent of a Canadian dollar amount, daily exchange rate fluctuations may affect whether that Credit Limit has been exceeded. If, on the other hand, the Credit Limit is quoted in a foreign currency (for example, directly in US dollars), whether that Credit Limit has been exceeded is determined by reference only to the closing balance of that Credit in that currency. 3 (e) For example, assume an outstanding balance of a Credit on a particular day of US$200,000. If the Credit Limit is stated as "the US dollar equivalent of C$275,000", then whether the Credit Limit of that Credit has been exceeded will depend on the value of the Canadian dollar on that day. If the conversion calculations determine that the outstanding balance is under the Credit Limit, a drop in the value of the Canadian dollar the next day (without any change in the balance) may have the effect of putting that Credit over its Credit Limit. If, on the other hand, the Credit Limit is stated as "US$200,000", the Credit Limit is not exceeded, and a drop in the value of the dollar the next day will not change that (although the Overall Credit Limit may be affected). (f) Conversion calculations are done on the closing daily balance of the Credit. The conversion factor used is the mid-point between the buying and selling rate offered by CIBC for that currency on the conversion date. 1.21 Instalment Loans. The following terms apply to each Instalment Loan. (a) Non-revolving loans. Unless otherwise stated in the Letter, any Instalment Loan is non-revolving. This means that any principal payment made permanently reduces the available Loan Amount. Any payment we receive is applied first to overdue interest, then to current interest owing, then to overdue principal, then to any fees and charges owing, and finally to current principal. (b) Floating Rate Instalment Loans. Floating Rate Instalment Loans may have either (i) blended payments or (ii) payments of fixed principal amounts, plus interest, as described below. (i) BLENDED PAYMENTS. If you have a Floating Rate Loan that has blended payments, the amount of your monthly payment is fixed for the term of the loan, but the interest rate varies with changes in the Prime or U.S. Base Rate (as the case may be). If the Prime or U.S. Base Rate during any month is lower than what the rate was at the outset, you may end up paying off the loan before the scheduled end date. If, however, the Prime or U.S. Base Rate is higher than what it was at the outset, the amount of principal that is paid off is reduced. As a result, you may end up still owing principal at the end of the term because of these changes in the Prime or U.S. Base Rate. (ii) PAYMENTS OF PRINCIPAL PLUS INTEREST. If you have a Floating Rate Loan that has regular principal payments, plus interest, the principal payment amount of your Loan is due on each payment date specified in the Letter. The interest payment is also due on the same date, but it is debited from your Operating Account one or two banking days later. Although the principal payment amount is fixed, your interest payment will usually be different each month, for at least one and possibly more reasons, namely: the reducing principal balance of your loan, the number of days in the month, and changes to the Prime Rate or U.S. Base Rate (as the case may be). (c) Prepayment. Unless otherwise agreed, the following terms apply to prepayment of any Instalment Loan: (i) FLOATING RATE INSTALMENT LOANS. You may prepay all or part of a Floating Rate Instalment Loan (whether it is a Demand or a Committed Loan) at any time without notice or penalty. (ii) FIXED RATE INSTALMENT LOANS. You may prepay all or part of a Fixed Rate Instalment Loan, on the following condition. You must pay us, on the prepayment date, a prepayment fee equal to the interest rate differential for the remainder of the term of the Loan, in accordance with the standard formula used by CIBC in these situations. 4 1.22 NOTICE OF DEFAULT. You will promptly notify us of the occurrence of any event that is an Event of Default (or any that would be an Event of Default if the only thing required is either notice being given or time elapsing, or both). ARTICLE 2 - DEFINITIONS 2.1 Definitions. In this Agreement, the following terms have the following meanings: "BASE RATE LOAN" means a U.S. dollar loan on which interest is calculated by reference to the U.S. Base Rate. "BUSINESS DAY" means any day (other than a Saturday or a Sunday) that the CIBC Branch/Centre is open for business. "CIBC BRANCH/CENTRE" means the CIBC branch or banking centre noted on the first page of this Agreement, as changed from time to time by agreement between the parties. "COMMITTED INSTALMENT LOAN" means an Instalment Loan that is payable in regular instalments but is repayable in full only upon the occurrence of an Event of Default. Such a Loan may be either at a fixed or a floating rate of interest. "CREDIT" means any credit referred to in the Letter, and if there are two or more parts to a Credit, "Credit" includes reference to each part. "CREDIT LIMIT" of any Credit means the amount specified in the Letter as its Credit Limit, and if there are two or more parts to a Credit, "Credit Limit" includes reference to each such part. "CURRENT ASSETS" are cash, accounts receivable, inventory and other assets that are likely to be converted into cash, sold, exchanged or expended in the normal course of business within one year or less, excluding amounts due from related parties. "CURRENT LIABILITIES" means debts that are or will become payable within one year or one operating cycle, whichever is longer, excluding amounts due to related parties, and which will require Current Assets to pay. They usually include accounts payable, accrued expenses, deferred revenue and the current portion of long-term debt. "CURRENT RATIO" means the ratio of Current Assets to Current Liabilities. "DEFAULT INTEREST RATE", unless otherwise defined in the Letter, means the Standard Overdraft Rate. "EVENT OF DEFAULT" means, in connection with any Committed Instalment Loan (even if that Loan has not yet been drawn), the occurrence of any of the following events (or the occurrence of any other event of default described in this Agreement, in any of the security documents or in any other agreement or document you have signed with us): (1) You do not pay, when due, any amount that you are required to pay us under this Agreement or otherwise, or you do not perform any of your other obligations to us under this Agreement or otherwise. (2) Any part of the security terminates or is no longer in effect, without our prior written consent. (3) You cease to carry on your business or any material part thereof in the normal course, or it reasonably appears to us that that may happen. (4) A representation that you have made (or deemed to have made) in this Agreement or in any security agreement is incorrect or misleading in any material respect. 5 (5) (i) An actual or potential default or event of default occurs in connection with any debt owed by you, with the result that the payment of the debt has become, or is capable of becoming, accelerated, or (ii) you do not make a payment when due in connection with any such debt. (This subsection (5), however, applies only to amounts that we reasonably consider to be material.) (6) If you are a corporation, there is, in our reasonable opinion, a change in effective control of the corporation, or if you are a partnership, there is a change in the partnership membership. (7) We believe, in good faith and upon commercially reasonable grounds, that all or part of the property subject to any of the security is or is about to be placed in jeopardy or that a material adverse change in your business operations or financial affairs has occurred. (8) The holder of a Lien takes possession of all or part of your property; or a distress, execution or other similar process is levied against any such property. (9) You (i) become insolvent; (ii) are unable generally to pay your debts as they become due; (iii) make a proposal in bankruptcy, or file a notice of intention to make such a proposal; (iv) make an assignment in bankruptcy; (v) bring a court action to have yourself declared insolvent or bankrupt; or someone else brings an action for such a declaration; or (vi) you default in payment or breach any other obligation to any of your other creditors. (10) If you are a corporation, (i) you are dissolved; (ii) your shareholders or members pass a resolution for your winding-up or liquidation; (iii) someone goes to court seeking your winding-up or liquidation, or the appointment of an administrator, conservator, receiver, trustee, custodian or other similar official for you or for all or substantially all your assets; or (iv) you seek protection under any statute offering relief against the company's creditors. "FIXED RATE INSTALMENT LOAN" means an Instalment Loan that is also a Fixed Rate Loan. "FIXED RATE LOAN" means any loan drawn down, converted or extended under a Credit at an interest rate which was fixed for a term, instead of referenced to a variable rate such as the Prime Rate or U.S. Base Rate, at the time of such drawdown, conversion or extension. For purposes of certainty, a Fixed Rate Loan includes a LIBOR Loan. "FLOATING RATE INSTALMENT LOAN" means either an Instalment Loan that is either a Prime Rate Loan or a Base Rate Loan. "INSTALMENT LOAN" means a loan that is repayable either in fixed instalments of principal, plus interest, or in blended instalments of both principal and interest. A Demand Instalment Loan is repayable on demand. A Committed Instalment Loan is repayable only upon the occurrence of an Event of Default. "LETTER" means the letter agreement between you and CIBC to which this Schedule and any other Schedules are attached. "LIEN" includes a mortgage, charge, lien, security interest or encumbrance of any sort on an asset, and includes conditional sales contracts, title retention agreements, capital trusts and capital leases. "MINIMUM SHAREHOLDERS' EQUITY" means the total Shareholders' Equity, minus (a) amounts due from/investments in related parties, and the value of all Intangibles, plus (b) all Postponed Debt. "NORMAL COURSE LIEN" means a Lien that (a) arises by operation of law or in the ordinary course of business as a result of owning any such asset (but does not include a Lien given to another creditor to secure debts owed to that creditor) and (b), taken together with all other Normal Course Liens, does not materially affect the value of the asset or its use in the business. 6 "OPERATING ACCOUNT" means the account that you normally use for the day-to-day cash needs of your business, and may be either or both of a Canadian dollar and a U.S. dollar account. "POSTPONED DEBT" means any debt owed by you that has been formally postponed to CIBC. "PRIME RATE" means the variable reference rate of interest per year declared by CIBC from time to time to be its prime rate for Canadian dollar loans made by CIBC in Canada. "PRIME RATE LOAN" means a Canadian dollar loan on which interest is calculated by reference to Prime Rate. "PURCHASE MONEY LIEN" means a Lien incurred in the ordinary course of business only to secure the purchase price of an asset, or to secure debt used only the finance the purchase of the asset. "SHAREHOLDERS' EQUITY" means paid-in capital, retained earnings and attributed or contributed surplus. "STANDARD OVERDRAFT RATE" means the variable reference interest rate per year declared by CIBC from time to time to be its standard overdraft rate on overdrafts in Canadian or U.S. dollar accounts maintained with CIBC in Canada. "U.S. BASE RATE" means the variable reference interest rate per year as declared by CIBC from time to time to be its base rate for U.S. dollar loans made by CIBC in Canada. 7 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JUN-30-1999 960 0 247,522 (8,028) 186,991 458,696 216,662 (104,707) 641,406 278,359 122,831 26,649 0 0 194,472 641,406 382,503 382,503 264,194 264,194 0 2,131 8,243 21,876 6,016 15,681 0 0 0 15,681 1.20 1.19
-----END PRIVACY-ENHANCED MESSAGE-----