FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 1-7807
Champion Parts, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-2088911
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
2525 22nd Street, Oak Brook, Illinois 60521
(Address of principal executive offices)
708-573-6600
(Registrant's telephone number, including area code)
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.
Class Outstanding at May 12, 1996
Common Shares - $.10 par value 3,655,266
<PAGE>
<TABLE>
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
<CAPTION>
March 31 December 31
1996 1995
_____________________________
(Unadited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $859,000 $874,000
Accounts receivable, less
allowance for uncollectible accounts 5,772,000 4,737,000
Inventories 9,186,000 10,700,000
Prepaid expenses and other 1,796,000 1,830,000
___________________________
Total current assets 17,613,000 18,141,000
Property, plant, equipment (net) 8,757,000 9,834,000
Other assets 601,000 590,000
____________________________
Total Assets $26,971,000 $28,565,000
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 7,676,000 7,320,000
Accrued expenses and
other liabilities 8,896,000 8,588,000
Current maturities on
long-term debt 11,060,000 13,462,000
____________________________
27,632,000 29,370,000
Deferred income taxes 1,376,000 1,403,000
Long-term debt, less current
maturities notes payable to
banks and other 660,000 701,000
___________________________
Total Liabilities 29,668,000 31,474,000
Stockholders's Equity
Preferred stock-no par value 0 0
authorized 10,000,000 shares
issued and outstanding, none
Common stock-$.10 par value 366,000 366,000
authorized 50,000,000 shares
issued and outstanding
3,655,266 shares
Additional paid-in-capital 15,578,000 15,578,000
Cumulative translation adjustment (586,000) (592,000)
Retained earnings (18,055,000) (18,261,000)
____________________________
Total stockholders' equity (2,697,000) (2,909,000)
Total Liabilities and
Stockholders' Equity $26,971,000 $28,565,000
============================
</TABLE>
See notes to condensed consolidated financial statements.
<\PAGE>
<PAGE>
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
<TABLE>
<CAPTION>
Three Months Ended
March 31 April 2
1996 1995
__________________________
(Unaudited)
<S> <C> <C>
Net Sales $8,212,000 $21,304,000
___________________________
Cost and Expenses:
Cost of products sold 6,344,000 18,400,000
Selling, distribution and
administration 1,191,000 4,424,000
__________________________
7,535,000 22,824,000
__________________________
Earnings (loss) before interest
and income taxes 677,000 (1,520,000)
Interest 464,000 598,000
__________________________
Earnings (loss) before income
taxes 213,000 (2,118,000)
Income tax 7,000 1,000
_________________________
Net Earnings (loss) $206,000 ($2,119,000)
=========================
Average shares outstanding 3,655,266 3,655,266
==========================
Net earnings (loss) per common
share $0.06 ($0.58)
==========================
</TABLE>
See notes to condensed consolidated financial statements
<\PAGE>
<PAGE>
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31 April 2
1996 1995
____________________________
<S> <C> <C>
(unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $206,000 ($2,119,000)
Adjustments to reconcile net earnings
(loss) to net cash opearting
activities:
Depreciation & amortization 256,000 378,000
Provision for losses on
accounts receivable 37,000 (2,000)
Change in assets and liabilities:
Accounts receivable (1,072,000) 174,000
Inventories 1,514,000 1,350,000
Accounts payable and
accrued expenses 664,000 1,261,000
Other (6,000) 588,000
___________________________
NET CASH PROVIDED BY (USED IN )
OPERATING ACTIVITIES 1,599,000 1,630,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (41,000) (126,000)
Proceeds from sales of property,
plant, & equipment 864,000 9,000
___________________________
NET CASH USED IN INVESTING
ACTIVITIES 823,000 (117,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
credit agreements (2,402,000) (1,200,000)
Principal payments on long-term debt (41,000) (265,000)
__________________________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,443,000) (1,465,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6,000 1,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (15,000) 49,000
CASH AND CASH EQUIVALENTS, beginning
of period 874,000 346,000
___________________________
CASH AND CASH EQUIVALENTS, end of period 859,000 395,000
===========================
</TABLE>
See notes to condensed consolidated financial statements.
<\PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying financial statements for the three months ended
March 31, 1996 have been prepared, without audit, pursuant to the
rules and regulations of the Securities an Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The condensed consolidated financial statements and these
notes should be read in conjunction with the consolidated financial
statements of the Company included in the Company's Annual Report
on Form 10K for the year ended December 31, 1995.
The consolidated balance sheet at December 31, 1995 has been derived
from the audited financial statements at that date and condensed.
2. The information furnished herein reflects, except as discussed in
Note 5, all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary for a fair
presentation of the results of operation for the interim period.
Results of operations for the three months ended March 31, 1996 are
not indicative of results to be expected for the entire year.
3. Inventories are valued at the lower of cost (first-in, first-out method)
or market. A summary of the inventories follows:
March 31, 1996 December 31, 1995
________________________________________
Raw Materials $2,802,000 $4,806,000
Work in Process 3,130,000 2,529,000
Finished Goods 3,254,000 3,365,000
______________________________________
$9,186,000 $10,700,000
Included in inventory above were cores of $3.4 million (March 31, 1996)
and $3.6 million (December 31, 1995).
4. For reporting purposes, product and core returns are offset against
gross sales in arriving at net sales. For the three months ended
March 31, 1996 and April 2, 1995 returns were $5,239,000, and
$17,499,000 respectively.
5. The Company amended its bank Credit Agreement in May, 1996. This
amendment extended the credit agreement to June 30, 1996 on essentially
the same basis as the previous extension.
The Company and its banks are in discussions on a long-term agreement.
There can be no assurances that the Company and its lenders can reach
such an agreement. Without an extension of the credit agreement or a
replacement credit facility, the Company would not have sufficient
funds to pay its debt should the lenders demand payment.
The company is indebted to various unsecured creditors, including
current and former trade vendors. The company has not paid these
creditors. Given the Company's current financial situation and the
lack of a long-term financing agreement, it currently does not have
the ability to pay these debts should the creditors demand payment.
Several trade creditors have initiated legal actions against the
Company seeking payment. The Company has scheduled initial discussions
in the second quarter with a representative group of creditors regarding
settlement of these obligations. There can be no assurances that the
Company and its creditors will be able to reach an agreement.
The Company's financial statements are prepared on a going concern
basis and do not contain adjustments which may be necessary should
the Company be forced to liquidate assets or take other actions to
satisfy debt payments.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results
Net sales for the quarter ended March 31, 1996 were $8.2 million, 62%
less than net sales of $21.3 million for the same period of 1995. In the
second half of 1995, the Company exited the manufacture and sale of
passenger car electrical and mechanical products to traditional warehouse
distributors and retailers. Also, the Company's two largest carburetor
customers and two large constant velocity joint assembly customers changed
to other suppliers in the second and third quarters of 1995. First
quarter 1995 sales without the discontinued product lines and lost customer
business were $7.6 million.
In the first quarter of 1996, the Company benefited from certain new
carburetor business, including increased carburetor sales volume to a
large retailer.
The first quarter 1995 results reflected higher product returns which
are reflected as reductions to arrive at net sales, particularly in the
carburetor product line. The higher carburetor returns are attributed to
customers returning units without replacement sales in an effort to reduce
their stock. Total product and core returns, reflected as reductions in
net sales, were 39% of gross sales in 1996 compared to 44% in 1995.
Carburetor sales were 61% and 25% of net sales in the first quarter
of 1996 and 1995, respectively. The Company believes it continues to be
a significant supplier of carburetors to the aftermarket. Since the
mid-1980's carburetors have been installed in fewer new vehicles sold in
the United States and Canada due to the increased use of fuel injection
systems. However, the Company continues to sell replacement units for
older vehicles, many of which use carburetors. The Company expects that
carburetor sales will decline in future years. In addition, carburetor
margins may be negatively impacted in the future as customers seek to return
product during periods of declining demand. The Company has a customer
product return policy and has established reserves to mitigate this effect.
Cost of products sold was 77% of net sales in the first quarter
of 1996 compared to 86% in the first quarter of 1995. The reduction
in costs of products sold is attributed to the Company's 1995 decision to
exit lower margin automotive electrical and mechanical product lines.
1995 first quarter results were also impacted by an unfavorable customer
core pricing adjustment.
Selling, distribution and administrative expenses were $1.2 million
in the first quarter of 1996 compared to $4.4 million in the first quarter
of 1995. Reductions due to the Company's decision to exit certain markets,
close one manufacturing facility and downsize another manufacturing facility
accounted for the decrease. Also, in the first quarter of 1995 the Company
incurred $450,000 in incremental legal and professional fees related to a
proposed equity transaction.
Interest expense was $464,000 in the first quarter of 1996 compared
to $598,000 in the prior year. Lower average outstanding borrowings
in 1996 compared to 1995 accounted for the decrease. The Company's
effective tax rate was 3.3% in 1996 based on anticipated annual tax liability.
Net income for the 1996 first quarter was $206,000 versus a $2.1
million net loss in 1995.
Without additional new business, the Company expects sales in 1996
subsequent quarters to be lower than in the first quarter due to lower
seasonal demand for carburetors and heavy duty and agricultural products.
Given the Company's current cost structure, net earnings are expected to
also be lower or negative in these periods. The Company is attempting to
develop new business opportunities and continues to examine further cost
reduction opportunities to mitigate these factors. There can be no
assurances that the Company will be successful in the efforts.
</PAGE>
<PAGE>
Liquidity and Capital Resources
Working Capital
Net working capital on March 31, 1996 was negative $(10) million
compared to negative $(11.2) million on December 31, 1995.
The Company classifies outstanding loans under its bank credit
agreement as short-term obligations due to their maturity. The amount of
outstanding loans under the bank lines were $9.2 million on March 31, 1996
and $11.5 million on December 31, 1995. The Company has also classified
as short-term obligations the outstanding principal on a $1.5 million
capitalized lease obligation which is supported with a letter of credit
issued by one of the Company's banks.
The Company continues to sell excess assets related to its discontinued
product lines to pay down secured bank debt. The Company expects this
process to continue into the third quarter of 1996.
The Company has scheduled initial discussions with a representative
group of its trade creditors to discuss an agreement to settle their
unsecured claims. The Company cannot predict the results of these
discussions. The result of these discussions could have a significant
impact on the future operations and the balance of net working capital.
Debt
The Company amended its bank credit agreement in May 1996. This
amendment extended the credit agreement to June 30, 1996. The Company
continues to borrow against eligible collateral based on the terms of the
agreement.
The Company and its banks are in discussions on a long-term agreement.
There can be no assurances that the Company and its lenders can reach such
an agreement. Without an extension of the credit agreement or a replacement
credit facility, the Company would not have sufficient funds to pay its
debt should the lenders demand payment.
The Company is indebted to various unsecured creditors, including
current and former trade vendors. The Company has not paid these creditors.
Given the Company's current financial situation and the lack of a long-term
financing agreement, it currently does not have the ability to pay these
debts should the creditors demand payment. Several trade creditors have
initiated legal actions against the Company seeking payment. The Company
has scheduled initial discussions in the second quarter with a
representative group of creditors regarding settlement of these obligations.
There can be no assurances that the Company and its creditors will be able
to reach an agreement.
The Company's financial statements are prepared on a going concern
basis and do not contain adjustments which may be necessary should the
Company be forced to liquidate assets or take other action to satisfy debt
payments.
</PAGE>
<PAGE>
Cash Flow
The Company decreased its long-term debt, net of cash, by $2.4 million
in the quarter ended March 31, 1996. Funds generated by operations and
sales of inventories and equipment related to discontinued product lines
accounted for the decrease in debt. The following summarizes significant
items affecting the change in total debt, (amounts in thousands).
March 31, April 2,
1996 1995
Net income (loss),
Changes in working capital, other $2,213 $1,259
Depreciation and Amortization 256 378
Capital Expenditures (41) (126)
__________ ________
(Increase) Decrease in total debt,
net of cash $2,428 $1,511
=========== =========
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
City of Industry, California
On April 25, 1996, Soto Associates, a partnership, filed a complaint
in the United States District Court for the Central District of California
against the Company, a former owner and former operator at 825 Lawson Street
in the City of Industry, California. Soto Associates is the owner of
the 825 Lawson Street site. The complaint seeks: an order compelling the
Company and the other defendants to investigate and remediate the Lawson
Street and Puente Valley sites; damages for and recovery of response costs
incurred by Soto; attorney's fees; and other related relief. The causes of
action in the Complaint arise under RCRA, CERCLA, the California Health
and Safety Code, the California Water Code, and various common law theories.
The Company plans to vigorously defend the claims. As previously
disclosed, the Company, its insurers, and its co-defendants have been
incurring response costs at Lawson Street and Puente Valley, while Soto
Associates has not paid any amounts toward these proceedings. It is too
early to predict the Company's ultimate share of the potential cleanup
costs at the Lawson Street site or the Puente Valley site.
The Company also believes that its insurance carriers are obligated
to provide it a defense in this matter. The Company is presently in
negotiations with its insurance carriers to provide a defense, and if
these negotiations are not successful, the Company will amend its Complaint
in pending insurance coverage litigation to demand a defense in this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) Fifth Amendment to Amended and Restated Credit Agreement
(27) Financial Data Schedules
(b) Reports on Form 8-K
<PAGE>
SIGNATURES
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.
CHAMPION PARTS, INC.
(Registrant)
DATE: June 3, 1996
By: /s/Mark Smetana
Mark Smetana
Vice President - Finance
Corporate Secretary
FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Fifth Amendment to Amended and Restated Credit Agreement (this
"Fifth Amendment") is made and entered into as of May 20, 1996, effective
as of March 31, 1996, by and among Champion Parts, Inc., an Illinois
corporation (the "Company"), LaSalle National Bank, a national banking
association ("LaSalle"), as successor to both Exchange National Bank of
Chicago and American National Bank and Trust Company of Chicago, NBD
Bank ("NBD"), and Harris Trust and Savings Bank, an Illinois banking
corporation ("Harris") [LaSalle, NBD and Harris are each a "Bank" and
collectively, together with their respective successors and permitted
assigns, the "Banks"], and LaSalle in its capacity as both Agent and
Collateral Agent for the Banks.
W I T N E S S E T H:
WHEREAS, the Banks have provided certain extensions of credit, loans
and other financial accommodations to the Company pursuant to (a) that
certain Amended and Restated Credit Agreement dated as of March 31, 1993,
by and among the Company, the Banks, the Agent and the Collateral Agent, as
amended, modified or supplemented from time to time (collectively the
"Credit Agreement"), (b) (i) that certain Reimbursement Agreement dated as
of December 1, 1991, by and between the Company and NBD (the "IRB
Agreement"), and (ii) that certain Standby Letter of Credit Application
and Reimbursement and Security Agreement dated December 30, 1991, by and
between the Company and NBD (the "Workmen's Compensation Agreement"), and
(c) any and all other agreements, documents and instruments executed and
delivered by the Company to any or all of the Banks, the Agent or the
Collateral Agent, whether in connection with the Credit Agreement, the
IRB Agreement, the Workmen's Compensation Agreement or otherwise
(collectively the "Other Agreements"), including, but not limited to, that
certain Forbearance Agreement dated May 19, 1995 (the "Forbearance
Agreement"), as extended from time to time, and the other agreements,
documents and instruments executed and delivered in connection therewith
(collectively the "Forbearance Documents") [the Other Agreements, together
with the Credit Agreement, the IRB Agreement and the Workmen's Compensation
Agreement are collectively the "Champion Loan Documents");
WHEREAS, the Company has requested, among other things, that the
Banks extend the Termination Date through June 30, 1996, conditionally waive
an additional alleged Event of Default which has occurred and is continuing
under the Champion Loan Documents and amend certain other provisions
contained in the Credit Agreement; and
WHEREAS, the Banks are willing to extend the Termination Date through
June 30, 1996, conditionally waive an additional alleged Event of Default
which has occurred and is continuing under the Champion Loan Documents and
amend certain other provisions contained in the Credit Agreement, but solely
on the terms and subject to the conditions set forth in this Fifth Amendment.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and understandings of the parties hereto set forth herein, and other good
and valuable consideration, the receipt and sufficiency of which
consideration is hereby acknowledged, the parties hereto hereby agree as
set forth in this Fifth Amendment.
1. Terms. All terms which have an initial capital letter in this
Fifth Amendment where not required by the rules of grammar, and are not
defined herein, are defined in the Credit Agreement.
2. Extension of Term of Credit Agreement. Subject to the conditions
precedent contained in Section 5 of this Fifth Amendment, the Termination
Date of the Credit Agreement is hereby extended to and including
June 30, 1996.
3. Event of Default and Reservation of the Banks' and the Agent's
Rights and Remedies. On Dec 11, 1995, the Company surrendered the life
insurance policies listed on Exhibit "A" (the "Surrendered Life
Insurance Policies") for their cash value and received an aggregate amount
of $612,750.55 in exchange therefor (the "Life Insurance Proceeds"). All
of the Life Insurance Proceeds were deposited into a bank account in the
Company's name (the "Life Insurance Bank Account"). The Company notified
the Agent, the Collateral Agent and the Banks of such actions on
April 4, 1996. Based upon the foregoing, the Agent, the Collateral Agent
and the Banks contend that an Event of Default has occurred and is continuing
under the terms and provisions of the Credit Agreement. The Banks and the
Agent will conditionally waive such alleged Event of Default but solely as
provided in Section 11 below.
4. Representations, Warranties and Covenants of the Company and
certain Acknowledgments and Agreements by the Banks.
A. The Company represents, warrants and covenants unto the Banks and
the Agent that (1) as of the date hereof, the aggregate amount on deposit in
the Life Insurance Bank Account is $620,043.90; and (2)
contemporaneously with the execution and delivery of this Fifth Amendment
and the Other Fifth Amendment Documents, the Company will (a) transfer all
funds in the Life Insurance Bank Account to an account in the name
of the Company located at LaSalle, Account No.58-0000113376 (the "LaSalle
Account"); and (b) deliver evidence to the Agent, in form and substance
reasonably satisfactory to the Agent, that all of the Life Insurance
Proceeds have been transferred to the LaSalle Account and that the Life
Insurance Bank Account has been closed.
B. The Company further represents, warrants and covenants unto the
Banks, the Agent and the Collateral Agent that (1) prior to the date upon
which the Banks cease making Advances to the Company, whether pursuant to
the Credit Agreement or voluntarily, at the sole and absolute discretion of
the Banks, after expiration of the Credit Agreement, the Company will not
spend or withdraw any funds on deposit in the LaSalle Account,
except for funding (a) creditor settlements and reasonable expenses in
connection therewith, (b) costs, fees and expenses directly incurred in
connection with a bankruptcy proceeding, and (c) a creditor composition and
reasonable expenses in connection therewith, (2) the Company has no present
intention of filing a voluntary bankruptcy petition under the United States
Bankruptcy Code or any similar federal, state or local law, statute or
regulation, and (3) the Company will, as soon as possible but in any event
not less than five (5) days prior thereto, notify the Agent prior to filing
a voluntary bankruptcy petition under the United States Bankruptcy Code or
any similar federal, state or local law, statute or regulation. The Company
acknowledges and agrees that the spending or withdrawal of any funds on
deposit in the LaSalle Account, except as permitted under Section 4.B. of
this Fifth Amendment, shall constitute an immediate and additional Event of
Default. The Company further acknowledges and agrees that it will, as soon
as possible but in any event not less than five (5) days prior thereto,
notify the Agent prior to spending or withdrawing any funds on deposit in
the LaSalle Account. For purposes of this Section 4.B. only, notice to the
Agent shall be in writing and shall be deemed effective upon receipted
delivery by Federal Express or another overnight carrier or upon receipted
delivery by a messenger service.
C. The Company further represents, warrants and covenants unto the
Banks and the Agent that (1) Exhibit "A" contains a true, complete and
accurate list of all of the Surrendered Life Insurance Policies and a
description of the holdback values associated therewith, (2) Exhibit "B"
attached hereto contains a true, complete and accurate list of all of the
other life insurance policies which name the Company as beneficiary
thereunder and a description of the residual value of the Life Insurance
Policies (the "Remaining Life Insurance Policies"), (3) prior to the date
upon which the Banks cease making Advances to the Company, whether pursuant
to the Credit Agreement or voluntarily, at the sole and absolute discretion
of the Banks, after expiration of the Credit Agreement, the Company has not
and will not surrender the Remaining Life Insurance Policies for their cash
value; (4) prior to the date upon which the Banks cease making Advances to
the Company, whether pursuant to the Credit Agreement or voluntarily, at
the sole and absolute discretion of the Banks, after expiration of the
Credit Agreement, the Company has not and will not surrender the Surrendered
Life Insurance Policies for their holdback value, unless the proceeds thereof
are immediately delivered to the Collateral Agent, (5) prior to the date
upon which the Banks cease making Advances to the Company, whether pursuant
to the Credit Agreement or voluntarily, at the sole and absolute discretion
of the Banks, after expiration of the Credit Agreement, the Company
has not and will not grant a security interest or lien in or otherwise
encumber the Remaining Life Insurance Policies, excepting only (a) that the
Company may borrow against the Remaining Life Insurance Policies solely for
(i) the purpose of funding premium payments, and (ii) making payments, if
any, necessary to comply with that certain Settlement Agreement dated
November 23, 1993, between Charles P. Schwartz, Jr. and the Company
("Schwartz Settlement Agreement"), and (b) a valid and enforceable claim,
if any, by Charles P. Schwartz, Jr. solely as provided under the terms and
provisions of the Schwartz Settlement Agreement, and (6) prior to the date
upon which the Banks cease making Advances to the Company, whether pursuant
to the Credit Agreement or voluntarily, at the sole and absolute discretion
of the Banks, after expiration of the Credit Agreement, the Company
has not and will not grant a security interest or lien in or otherwise
encumber the holdback value of the Surrendered Life Insurance Policies,
excepting only a security interest and lien in favor of the Collateral Agent.
The Banks, the Collateral Agent and the Agent currently dispute the right of
Charles P. Schwartz, Jr. to receive any payments under the Remaining Life
Insurance Policies, and dispute any interest or claim he may have to the
Remaining Life Insurance Policies, and continue to reserve the right to
dispute same. The Company acknowledges the assertion of the Banks,
the Collateral Agent and the Agent, but such acknowledgment shall not
constitute an admission by the Company of the validity of the Banks',
the Collateral Agent's and the Agent's position. Each party to this Fifth
Amendment continues to reserve its rights with respect thereto. Such
dispute, however, will not prohibit payment to Charles P. Schwartz, Jr. by
borrowing against the Remaining Life Insurance Policies.
D. Contemporaneously with the deposit of the Life Insurance Proceeds
into the LaSalle Account, the Banks, the Agent and the Collateral Agent
unconditionally, absolutely and irrevocably: (1) acknowledge that the
Life Insurance Proceeds are presently, and upon deposit into the LaSalle
Account, shall remain free and clear of any and all liens, claims or interest
of any kind or nature of the Banks, the Agent or the Collateral Agent;
(2) waive and release any and all rights or interest of any kind or nature
to claim, assert or effect any right of set-off or recoupment with respect
to the LaSalle Account, whether statutory, possessory, based in common law
or otherwise, or whether such rights or interests presently exist or may
hereafter arise after default, breach, maturity or acceleration of the
Champion Indebtedness, upon termination or expiration of the Credit
Agreement or upon the deposit of the Life Insurance Proceeds into the
LaSalle Account; and (3) agrees that the Agent will honor, and the Banks
will direct the Agent to honor, the withdrawal requests of the signatories
to the LaSalle Account as if the Company were not obligated to the Banks or
any of them; provided, however, nothing contained in this Fifth Amendment
or the Other Fifth Amendment Documents shall, under any circumstances
whatsoever, be or be deemed to release, affect or waive any security
interests, liens, mortgages, other encumbrances or interests of the
Banks, the Agent and/or the Collateral Agent in and to any or all of the
property or assets of the Company, including, but not limited to, any and
all property or assets on deposit with the Agent, the Collateral Agent or
any of the Banks, excepting only the Life Insurance Proceeds in the LaSalle
Account, and, in connection therewith, the Company hereby reaffirms to the
Banks, the Agent and the Collateral Agent its pledge and grant of the
security interests, liens, mortgages, other encumbrances and interests
described in the Champion Loan Documents. The provisions if this
Section 4.D. shall survive the termination or expiration of the Credit
Agreement.
5. Conditions Precedent.
A. The Banks shall be obligated to extend the Termination Date
through June 30, 1996, and to enter into this Fifth Amendment, subject
to the full and timely performance of any conditions precedent contained
in the Champion Loan Documents and this Fifth Amendment and the full and
timely performance of the following covenants either prior to or
contemporaneously with the execution and delivery of this Fifth Amendment.
1. The Company will execute and deliver or cause to be executed
and delivered the following documents, all in form and substance acceptable
to the Banks, the Agent and the Collateral Agent:
(a) that certain Secretary's Certificate as to Officers and
Directors and Directors' Resolutions for the Company; and
(b) such other agreements, documents and instruments necessary to
effectuate the transactions described herein as the Banks, the Agent and
the Collateral Agent may reasonably request.
2. The Company will pay to LaSalle, in addition to any other
costs, fees and expenses which may be due and owing to the Banks, an
additional extension fee in the amount of Twenty-Five Thousand and
no/100 Dollars ($25,000.00). LaSalle shall remit such additional
extension fee to each Bank in accordance with each Bank's Percentage Share.
3. The Company acknowledges and agrees that the Agent will debit
the Company's accounts on the last business day of each and every month,
and the Company agrees to pay each of and all of the Banks, the Agent and
the Collateral Agent, for all accrued interest, reasonable attorneys' fees,
other professional fees, and other fees, costs, charges, obligations and
expenses which the Banks, the Agent and/or the Collateral Agent have
incurred and will continue to incur in connection with the Champion Loan
Documents, this Fifth Amendment, any other agreements, documents and
instruments executed and delivered in connection with this Fifth Amendment
(the "Other Fifth Amendment Documents"), and the indebtedness evidenced by
the Champion Loan Documents, this Fifth Amendment and/or the Other Fifth
Amendment Documents (collectively the "Champion Indebtedness"). The Agent
acknowledges that it will use its best efforts to provide copies of
any bills and statements relating thereto at least five (5) business
days prior to the last business day of each month, but the failure to
deliver copies thereof will not affect the Company's obligation to pay such
fees, costs, charges, obligations and expenses.
4. Other than (a) the alleged default described in Section 3 of
this Fifth Amendment, (b) those defaults described in Section 11.A. of this
Fifth Amendment, and (c) those defaults described in that certain letter
dated August 3, 1995, from the Banks to the Company (the "Default Letter"),
no breach, default or event of default has occurred pursuant to the Champion
Loan Documents, this Fifth Amendment or the Other Fifth Amendment Documents.
5. The representations and warranties contained in the Champion
Loan Documents, this Fifth Amendment and the Other Fifth Amendment Documents
shall be true and correct
6. The Company has deposited the Life Insurance Proceeds into
the LaSalle Account.
7. The Company continues to covenant and agree with the Banks,
the Agent and the Collateral Agent that it will keep and maintain all of
its checking, depository and other bank accounts solely with the Agent,
excepting only an amount not to exceed Ten Thousand and no/100 Dollars
($10,000.00) in each of the bank accounts listed on Exhibit "C" to this
Fifth Amendment.
B. The Banks', the Agent's and the Collateral Agent's obligation
to make any subsequent Advances pursuant to the Champion Loan Documents,
as amended by this Fifth Amendment, is subject to the full and timely
performance of each of the following covenants and the full and timely
performance of any conditions precedent contained in the Champion Loan
Documents, either prior to or contemporaneously with, as the case may be,
the making of each subsequent Advance.
1. The Company will execute and deliver or cause to be executed
and delivered such agreements, documents and instruments necessary to
effectuate the transactions described herein as the Banks, the Agent and
the Collateral Agent may reasonably request, all in form and substance
acceptable to the Banks, the Agent and the Collateral Agent.
2. The Company acknowledges and agrees that the Agent will debit
the Company's accounts on the last business day of each and every month,
and the Company agrees to pay each of and all of the Banks, the Agent and
the Collateral Agent, for all accrued interest, reasonable attorneys' fees,
other professional fees, and other fees, costs, charges, obligations and
expenses which the Banks, the Agent and/or the Collateral Agent have
incurred and will continue to incur in connection with the Champion Loan
Documents, this Fifth Amendment, the Other Fifth Amendment Documents and
the Champion Indebtedness. The Agent acknowledges that it will use its
best efforts to provide copies of any bills and statements relating thereto
at least five (5) business days prior to the last business day of each
month, but the failure to deliver copies thereof will not affect the
Company's obligation to pay such fees, costs, charges, obligations and
expenses.
3. Other than (a) the alleged default described in Section 3 of
this Fifth Amendment, (b) those defaults described in Section 11.A. of this
Fifth Amendment, and (c) those defaults described in the Default Letter, no
breach, default or event of default has occurred pursuant to the Champion
Loan Documents, this Fifth Amendment or the Other Fifth Amendment Documents.
4. The representations and warranties contained in the Champion
Loan Documents, this Fifth Amendment and the Other Fifth Amendment Documents
shall be true and correct.
5. The Company continues to covenant and agree with the Banks,
the Agent and the Collateral Agent that it will keep and maintain all of
its checking, depository and other bank accounts solely with the Agent,
excepting only an amount not to exceed Ten Thousand and no/100 Dollars
($10,000.00) in each of the bank accounts listed on Exhibit "C" to this
Fifth Amendment.
6. Fresno and Beech Creek Advance. The Credit Agreement is hereby
amended by deleting the last sentence in Section 6.27(a) of the Credit
Agreement in its entirety and substituting therefor the following:
"As used in this Section 6.27(a), the term "Fresno and Beech Creek Real
Estate Advance" shall mean, as of the effective date of this Fifth Amendment,
the aggregate amount of One Million Seven Hundred Thirty-Three Thousand
Three Hundred Thirty-Three and 36/100 Dollars ($1,733,333.36) less monthly
installments of Thirty-Three Thousand Three Hundred Thirty-Three and 33/100
Dollars ($33,333.33) each, on April 30, 1996, and May 31, 1996, with a final
payment of the outstanding balance on June 30, 1996."
7. Sale of Fresno. Upon execution of a contract for the sale of the
real property commonly known as 2696 South Maple Street, Fresno, California,
93725, and any other assets of the Company located at or used in connection
with such real property (collectively the "Fresno Property"), the Company
will, within five (5) days of the execution thereof, deliver a copy thereof
to the Agent.
8. Additional Covenants. The Company covenants unto the Banks,
the Agent and the Collateral Agent as follows:
A. The Company shall fully and timely pay the Champion
Indebtedness as evidenced by the Champion Loan Documents, this Fifth
Amendment and the Other Fifth Amendment Documents, and fully and timely
perform, subject to the applicable cure period, if any, all of the covenants,
duties, obligations and agreements contained in the Champion Loan Documents,
this Fifth Amendment and the Other Fifth Amendment Documents.
B. The Company will prepare and deliver each and every business
day to the Banks, the Agent and the Collateral Agent a borrowing base
certificate, in form and substance acceptable to the Banks, the Agent and
the Collateral Agent; provided, however, if the Company fails to deliver a
borrowing base certificate on a business day when it has not requested nor
received an Advance, such failure shall constitute an Event of Default if
such borrowing base certificate has not been delivered within two (2) days
after notice from the Agent.
C. The Company covenants that a petition under the United States
Bankruptcy Code or any similar federal, state or local law, statute or
regulation has not been filed by or against the Company.
9. Default. The Company shall be in default under the terms and
provisions of this Fifth Amendment upon the occurrence of any of the
following events (an "Event of Default"):
A. The Company fails to fully and timely pay all sums due
pursuant to the Champion Loan Documents, this Fifth Amendment or the Other
Fifth Amendment Documents;
B. Other than (1) the alleged default described in Section 3 of
this Fifth Amendment, (2) those defaults described in Section 11.A. of this
Fifth Amendment, and (3) those defaults described in the Default
Letter, the Company breaches any covenant, agreement or obligation set forth
in the Champion Loan
Documents, this Fifth Amendment or the Other Fifth Amendment Documents,
which remains uncured after the expiration of the applicable cure period,
if any; or
C. Other than (1) the alleged default described in Section 3 of
this Fifth Amendment, (2) those defaults described in Section 11.A. of this
Fifth Amendment, and (3) those defaults described in the Default Letter,
any other or further breach, default or event of default occurs under the
Champion Loan Documents, which remains uncured after the expiration of the
applicable cure period, if any.
In addition, the Company covenants and agrees that an Event of Default under
this Fifth Amendment is and shall constitute an Event of Default under the
Champion Loan Documents and the Other Fifth Amendment Documents. Upon an
Event of Default, all of the Champion Indebtedness shall be immediately due
and payable, and shall be paid by the Company to the Banks, the Agent and
the Collateral Agent, as the case may be, without any further notice or
demand whatsoever, and the Banks, the Agent and the Collateral Agent, as
the case may be, may, without notice, immediately (i) exercise all of their
rights and remedies under the Champion Loan Documents, including, but not
limited to, the Forbearance Documents, this Fifth Amendment and the Other
Fifth Amendment Documents, as well as any and all other rights and remedies
available at law, in equity or otherwise, and (ii) take any action, legal
or equitable, to collect the Champion Indebtedness and any and all other
sums now or hereafter due and owing from the Company to the Banks, the Agent
and the Collateral Agent. The Company acknowledges and agrees that the
Banks, the Agent and the Collateral Agent have made no assurances, have not
committed and are under no obligation to extend the Termination Date.
10. Reaffirmation. The Company hereby reaffirms to the Banks, the
Agent and the Collateral Agent its pledge and grant of the security
interests, liens, mortgages, other encumbrances and interests described in
the Champion Loan Documents. The Company and the Banks hereby affirm the
continued validity of the Champion Loan Documents, including, but not
limited to, the Forbearance Documents, and acknowledge that all of the
terms and provisions of the Champion Loan Documents, including, but not
limited to, the Forbearance Documents, are and remain in full force and
effect, are enforceable in accordance with their terms and the Banks, the
Agent and the Collateral Agent are not in breach or default of any of the
terms, conditions and provisions of the Champion Loan Documents, including,
but not limited to, the Forbearance Documents.
11. Reservation of Rights.
A. The Company acknowledges and agrees that it is and will
continue from time to time to be in default under the terms and provisions
of the Champion Loan Documents pursuant to Sections 6.1(a), 6.1(b), 6.2 (b),
6.2(f), 6.13, 6.14, 6.15, 6.29, 9.1(a) and 9.1 (n) of the Credit Agreement,
Article V of the IRB Agreement and Section 5(h) of the Workmen's
Compensation Agreement and the alleged default described in Section 3
hereof (collectively the "Continuing Covenant Defaults"). In addition,
reference is hereby made to the Default Letter which describes other
possible defaults of the Company. To the best of the Company's knowledge
after due and diligent inquiry, the Company represents and warrants unto
the Banks, the Agent and the Collateral Agent that no other breach, default
or event of default exists under the terms and provisions of the Champion
Loan Documents. To the Banks', the Agent's and the Collateral Agent's
knowledge without any inquiry or investigation of any kind whatsoever,
the Banks, the Agent and the Collateral Agent are not aware of any other
breach, default or event of default under the terms and provisions of the
Champion Loan Documents.
B. The Banks, the Agent and the Collateral Agent hereby
continue to reserve all of their rights and remedies in connection with
the Continuing Covenant Defaults and the defaults described in the
Default Letter, whether such rights and remedies are pursuant to the
Champion Loan Documents, including, but not limited to, the Forbearance
Documents, this Fifth Amendment, the Other Fifth Amendment Documents,
at law, in equity or otherwise; provided, however, the Continuing Covenant
Defaults shall be deemed conditionally waived and the defaults described
in the Default Letter shall be conditionally waived only as expressly
provided in the Default Letter, all such defaults subject to reinstatement
and enforcement upon the occurrence of an Event of Default under this
Fifth Amendment or the Other Fifth Amendment Documents or upon an additional
or other default or event of default under the Champion Loan Documents.
Upon the occurrence of an Event of Default under this Fifth Amendment or
the Other Fifth Amendment Documents or upon an additional or other
default or event of default under the Champion Loan Documents, then the
Continuing Covenant Defaults shall be deemed reinstated and existing,
without further act or deed, as if no conditional waiver were granted
and any and all rights of the Banks, the Agent or the Collateral
Agent with respect thereto shall remain reserved, unimpaired and fully
enforceable.
C. Nothing contained in this Fifth Amendment or the Other
Fifth Amendment Documents shall be or be deemed to be an unconditional
waiver by the Banks, the Agent and the Collateral Agent of any default,
breach or event of default, whether now existing or hereafter arising or
occurring. The Company expressly acknowledges and agrees that, upon an
Event of Default, the Banks, the Agent and the Collateral Agent may
exercise any of their rights and remedies pursuant to the Champion Loan
Documents, including, but not limited to, the Forbearance Documents, this
Fifth Amendment or the Other Fifth Amendment Documents, at law, in equity
or otherwise. Nothing contained in this Fifth Amendment or the Other Fifth
Amendment Documents shall affect the Company's obligation to fully and
timely pay the Champion Indebtedness.
12. Waiver and Release. In consideration of the Banks', the Agent's
and the Collateral Agent's execution and delivery of this Fifth Amendment,
the Company hereby waives, releases and forever discharges the Banks,
the Agent and the Collateral Agent, their predecessors, parents,
subsidiaries, affiliates, agents, employees, officers, directors,
shareholders, attorneys, legal representatives, successors and assigns,
and each of them, of and from any and all claims, demands, counterclaims,
set-offs, defenses, debts, liabilities, obligations, costs, expenses,
actions, causes of action and damages of every kind, nature and description
whatsoever, known or unknown, foreseeable and unforeseeable, liquidated
and unliquidated, insured and uninsured, which the Company heretofore
and/or presently owns, holds or has by reason of any matter, cause or thing
whatsoever, arising from, relating to or in connection with the Champion
Loan Documents, this Fifth Amendment, the Other Fifth Amendment Documents,
the Champion Indebtedness or the default by the Company. The Company
hereby acknowledges and agrees that the foregoing release shall not be or
be deemed to create, construe or admit any liability on behalf of the Banks,
the Agent and the Collateral Agent.
13. Authority To Execute This Fifth Amendment. The Company represents
and warrants to the Banks, the Agent and the Collateral Agent that (A) it
has obtained all necessary consents to enter into, execute, deliver and
perform this Fifth Amendment and the Other Fifth Amendment Documents,
including, but not limited to, resolutions of the Board of Directors of
the Company, (B) the Company has the right, power and capacity and is duly
authorized and empowered to enter into, execute, deliver and perform this
Fifth Amendment and the Other Fifth Amendment Documents, and (C) the
execution and delivery of this Fifth Amendment and the Other Fifth
Amendment Documents shall not breach any agreement, instrument or document
to which the Company is a party or by which it is bound.
14. Construction. This Fifth Amendment shall be interpreted,
construed and governed by and under the laws of the State of Illinois.
A. The Schedules attached to and forming a part of the Credit
Agreement are hereby updated and restated in their entirety as set forth
on group Exhibit "D"to this Fifth Amendment, excepting only Schedules 2.3
and 9.3 to the Credit Agreement.
B. Wherever possible, each provision of this Fifth Amendment
shall be interpreted in such manner as to be valid and enforceable under
applicable law, but if any provision of this Fifth Amendment is held to
be invalid or unenforceable by a court of competent jurisdiction, such
provision shall be severed herefrom and such invalidity or unenforceability
shall not affect any other provision of this Fifth Amendment, the balance
of which shall remain in and have its intended full force and effect;
provided, however, if such provision may be modified so as to be valid and
enforceable as a matter of law, such provision shall be deemed to be
modified so as to be valid and enforceable to the maximum extent permitted
by law.
C. The Paragraph headings contained in this Fifth Amendment are
solely for the purpose of reference, are not part of the agreement among
the Company, the Banks, the Agent and the Collateral Agent and shall not
in any way affect the meaning or interpretation of this Fifth Amendment,
any Paragraph or provision thereof. The Exhibits referred to herein are
attached hereto, made a part hereof and incorporated herein by this
reference thereto.
D. This Fifth Amendment shall be binding on the Company and
its successors, and shall inure to the benefit of the Banks, the Agent
and the Collateral Agent, their respective successors, assigns, affiliates,
divisions and parent.
E. This Fifth Amendment cannot be assigned by the Company
without the Banks', the Agent's and the Collateral Agent's prior written
consent; provided, however, the Banks, the Agent and the Collateral Agent
may assign the Champion Loan Documents, this Fifth Amendment and the Other
Fifth Amendment Documents without notice to or the consent of the Company.
F. No failure to exercise, and no delay in exercising, any of
the Banks', the Agent's and the Collateral Agent's rights, powers or
privileges shall operate as a waiver thereof.
1. No waiver of any breach of any provision shall be deemed
to be a waiver of any preceding or succeeding breach of the same or any
other provision.
2. No extension of time for the payment of any of the
Champion Indebtedness or any other sum to be paid pursuant to the Champion
Loan Documents, this Fifth Amendment or the Other Fifth Amendment Documents,
or the performance of any other obligation or act, shall be deemed to be
an extension of the time for payment or performance of any other obligation
or act.
3. This Fifth Amendment may not be altered, changed,
amended or modified, except in accordance with Section 11.1 of the Credit
Agreement.
G. This Fifth Amendment, together with the Other Fifth Amendment
Documents, constitutes the entire agreement among the Company, the Banks,
the Agent and the Collateral Agent with regard to the subject matter hereof.
H. If, and to the extent the terms and provisions of this Fifth
Amendment contradict, modify, supersede or conflict with the terms and
provisions of the Champion Loan Documents, including, but not limited to,
the Forbearance Documents, then the terms and provisions of this Fifth
Amendment shall govern and control; provided, however, to the extent the
terms and provisions of this Fifth Amendment do not contradict, modify,
supersede or conflict with the terms and provisions of the Champion Loan
Documents, including, but not limited to, the Forbearance Documents, then
the Champion Loan Documents, including, but not limited to, the Forbearance
Documents, shall remain in and have their intended full force and effect,
and the Company, the Banks, the Agent and the Collateral Agent hereby
affirm, confirm and ratify the same.
IN WITNESS WHEREOF, the parties have caused this Fifth Amendment to
be executed and delivered by their duly authorized officers as of the date
first set forth above.
CHAMPION PARTS, INC., an
Illinois corporation
By: /s/ Mark Smetana
Title: Vice President of Finance
Amount of LaSalle's Percentage LA SALLE NATIONAL BANK,
Revolving Commitment Share individually, as Agent
and as Collateral Agent
From the date of this 56.894056%
Fifth Amendment through
and including June 30, 1996, By: /s/ Chris Clifford
$5,575,617.49 Title: Vice President
Amount of NBD's Percentage NBD BANK
Revolving Commitment Share
From the date of this 24.581568%
Fifth Amendment through By: /s/ Patricia McCaffrey
and including June 30, 1996, Title: Vice President
$2,408,993.66
Amount of Harris' Percentage HARRIS TRUST AND
Revolving Commitment Share SAVINGS BANK
From the date of this 18.524376%
Fifth Amendment through
and including June 30, 1996, By: /s/ Mike Wood
$1,815,388.85 Title: Vice President
TOTAL REVOLVING COMMITMENT
From the date of this
Fifth Amendment through
and including June 30, 1996,
$9,800,000.00
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 859000
<SECURITIES> 0
<RECEIVABLES> 7520000
<ALLOWANCES> 1748000
<INVENTORY> 9186000
<CURRENT-ASSETS> 17613000
<PP&E> 30861000
<DEPRECIATION> 22104000
<TOTAL-ASSETS> 26971000
<CURRENT-LIABILITIES> 27632000
<BONDS> 660000
<COMMON> 366000
0
0
<OTHER-SE> (3063000)
<TOTAL-LIABILITY-AND-EQUITY> 26971000
<SALES> 8212000
<TOTAL-REVENUES> 8212000
<CGS> 6344000
<TOTAL-COSTS> 6344000
<OTHER-EXPENSES> 1191000
<LOSS-PROVISION> 37000
<INTEREST-EXPENSE> 464000
<INCOME-PRETAX> 213000
<INCOME-TAX> 7000
<INCOME-CONTINUING> 206000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
