SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-7807
________CHAMPION PARTS, INC._________
(Exact name of Registrant as specified in its charter)
Illinois 36-2088911
________________________________ _______________________________________
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2525 22nd Street, Oak Brook, Illinois 60521
(Address of Principal Executive Offices) ______________
(Zip Code)
Registrant's telephone number, including area code: 630/573-6600
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Shares, $.10 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 7, 1997, 3,655,266 Common Shares were outstanding and the
aggregate market value of the Common Shares held by non-affiliates of the
Registrant (based on the closing price as reported on the National Quotation
Bureau Incorporated) was approximately $1,011,000. For information as to
persons considered to be affiliates for purposes of this calculation, see
"Item 5. Market for the Company's Common Shares and Related Shareholder
Matters".
PART I
Item 1. Business
Unless the context indicates otherwise, the term "Company" as used
herein means Champion Parts, Inc. and its subsidiaries.
Products
The Company remanufactures and sells replacement fuel systems (carburetors
and diesel fuel injection systems) and constant velocity drive assemblies
for substantially all makes and models of domestic and foreign automobiles
and trucks. It also remanufactures and sells replacement electrical and
mechanical products for certain passenger car, agricultural and heavy duty
truck original equipment applications.
In 1995, the Company exited the manufacture and sale of passenger car
electrical (alternators and starters) and mechanical (clutches and water
pumps) products sold to traditional warehouse distributors and retailers.
Sales of these product lines accounted for approximately 56% of the Company's
1995 net sales.
During the fiscal years ended December 29, 1996, December 31, 1995, and
January 1, 1995, the Company's sales of parts for automobiles (including
light duty trucks) accounted for approximately 74%, 89% and 92%,
respectively, of the Company's net sales, and sales of parts for heavy duty
trucks and farm equipment accounted for approximately 26%, 11% and 8%,
respectively, of such net sales.
Marketing and Distribution
The Company's products are marketed throughout the continental United States
and in a limited manner in Canada. The Company sells carburetors and
constant velocity drive assemblies to automotive warehouse distributors,
which in turn sell to jobber stores and through them to service stations,
automobile repair shops and individual motorists. In addition, the Company
sells to aftermarket retail chains that distribute products through their
stores. The Company sells electrical and mechanical products to manufacturers
of automobiles, trucks and farm equipment, which purchase the Company's
products for resale through their dealers. Of the Company's net sales in the
year ended December 29, 1996, approximately 10% were to automotive warehouse
distributors; approximately 38% were to manufacturers of automobiles, truck
and farm equipment and heavy duty fleet specialists; and approximately 52%
were to retailers and other customers.
The Company exhibits its products at trade shows. The Company also prepares
and publishes catalogs of its products, including a guide with information
as to the various vehicle models for which the Company's products may be
used and a pictorial product identification guide to assist customers in the
return of used units. The Company's salespersons and sales agents call on
selected customers of warehouse distributors which carry the Company's
products to familiarize these customers with the Company's products and the
application of its products to varied automotive equipment.
During the fiscal year ended December 29, 1996, the four largest customers
of the Company accounted for approximately 37% (AutoZone, Inc.), 17%
(John Deere), and 14% each (Advance Auto Parts and Chrysler Corp.)
respectively, of net sales, and no other customer accounted for more than
10% of net sales.
The Company makes available to its customers the MEMA TransnetTM computerized
order entry system which is administered by the Motor Equipment Manufacturers
Association. The MEMA TransnetTM system enables a customer in any area of
the United States to place orders into the Company's central computer, which
transmits the orders to the Company's plant servicing that customer's
geographic area. It also had direct Electronic Data Interchange with its
largest customers.
As of December 29, 1996, sales were made by three direct salesmen and 11
sales agencies.
The Company's sales are typically higher in the first and second quarters
than in the third and fourth quarters as there are more repairs of fuel
systems, agricultural and heavy duty products in those periods.
Materials
In its remanufacturing operations, the Company obtains used units, commonly
known as "cores". A majority of the units remanufactured by the Company are
purchased from customers as trade-ins, which are encouraged by the Company
in the sale of remanufactured units.
The price of a finished product is comprised of a separately invoiced amount
for the core included in the product ("core value") and an amount for
remanufacturing. Upon receipt of a core as a trade-in, credit is given to
the customer for the then current core value of the part returned. The
Company limits trade-ins to cores for units included in its sales catalogs
and in rebuildable condition, and credit for cores is allowed only against
purchases by a customer of similar remanufactured products within a specified
time period. A customer's total allowable credit for core trade-ins is
further limited by the dollar volume of the customer's purchases of similar
products within wuch time period. In addition to allowing core returns, the
Company permits warranty and stock adjustment returns ( generally referred
to as "product returns") pursuant to established policies. The Company's
core return policies are consistent with industry practice, whereby
remanufacturers accept product returns from current customers regardless
of whether the remanufacturer actually sold the product. The Company
has no obligation to accept product returns from customers that no longer
purchase from the Company.
Other materials and component parts used in remanufacturing, and some cores,
are purchased in the open market. When cores are not available in sufficient
supply for late models of automobiles, trucks and farm equipment or for
foreign model automobiles, new units sometimes are purchased and sold as
remanufactured units. To market a full line of products, the Company also
purchases certain remanufactured and new automotive parts which it does not
produce.
Patents, Trademarks, Etc.
The Company has no material patents, trademarks, licenses, franchises or
concessions.
Backlog
The Company did not have a significant order backlog at any time during the
fiscal years 1996 or 1995.
Competition
The remanufactured automotive parts industry is highly competitive as the
Company competes with a number of other companies (including certain original
equipment manufacturers) which sell remanufactured automotive parts.
The Company competes with several large regional remanufacturers and with
remanufacturers which are franchised by certain original equipment
manufacturers to remanufacture their products for regional distribution.
The Company also competes with numerous remanufacturers which serve
comparatively local areas. In addition, sales of remanufactured parts
compete with sales of similar new replacement parts. Manufacturers of kits
used by mechanics to rebuild carburetors may also deemed to be competitors
of the Company.
The Company competes in a number of ways, including price, quality, product
performance, prompt order fill, service and warranties. The Company believes
its technical expertise in the niche product lines it sells has been an
important factor in enabling the Company to compete effectively.
Engineering
Each of the Company's main product lines are supported by product
engineer(s). Engineers participate in product planning, product line
structuring, cataloging and engineering of the Company's products and in
developing manufacturing processes. The primary activities of the engineers
are improving the quality of existing products, formulating specifications
and procedures for adapting particular remanufactured products for use on
makes and models of vehicles in addition to those for which originally
designed, converting cores from earlier makes and models for use on later
makes and models and developing specifications, supplies and procedures for
remanufacturing additional products.
The Company maintains a Director of Quality who conducts periodic quality
audits of the Company's plants under its quality improvement program to test
product quality and compliance with specifications.
The Company believes such activities improve the Company's ability to serve
the needs of its customers. The engineers also design and build new tools,
machines and testing equipment for use in all the Company's plants, and
develop specifications for certain components manufactured by the Company for
use in its remanufacturing operations. The engineers design and test new
methods of reassembling components and cleaning parts and cores.
Environmental Matters
The Company is subject to various Federal, state and local environmental
laws and regulations incidental to its business. The Company continues to
modify, on an ongoing basis, processes that may have an environmental impact.
Management believes that the effects of compliance with environmental laws
that have been enacted or adopted will not have a material effect on capital
expenditures, earnings or competitive position. See Item 3, Legal
Proceedings - Environmental Matters for additional discussion.
Employees
As of December 29, 1996, the Company employed approximately 590 persons,
including 70 salaried employees at corporate headquarters and plant
locations; and approximately 520 production, warehouse and maintenance
employees.
The Collective Bargaining Agreement between the Company and the United Auto
Workers (UAW) at the Company's Hope, Arkansas facility expired on
April 26, 1991. At the expiration of the contract, the Company implemented
its final offer with respect to workers at the facility. The union went on
strike effective September 4, 1991. In 1996, the UAW made an unconditional
offer to return to work. The company continues to operate the facility with
permanent replacements.
The Collective Bargaining Agreement between the Company and the International
Brotherhood of Electrical Workers at the Company's Pennsylvania facilities
was renewed, for a three year term, in December 1996 effective as of
September 1, 1996.
Item 2. Properties
The Company's corporate headquarters are presently located at 2525 22nd
Street, Oak Brook, Illinois. It leases 6,000 square feet of office space
at that location. The Company has leased space and intends to relocate the
Corporate Offices to a nearby location in early 1997. The facility houses
the Company's corporate office functions, including executive administration,
finance, and data processing.
The following table sets forth certain information with respect to each of
the Company's remanufacturing, warehousing and service facilities other than
the corporate headquarters:
Warehouse Remanufacturing
Area Area
Location (sq. ft.) (sq. ft.)
------------- ----------------
OWNED:
- -------------------------------
Beech Creek, Pennsylvania 40,000 160,000
HELD UNDER INDUSTRIAL
REVENUE FINANCING ARRANGEMENTS:
- -------------------------------
Hope, Arkansas 55,000 221,000
LEASED:
- -------------------------------
Fresno, California 4,000
Concord, Ontario, Canada 4,000
In 1996 the Company sold its Fresno, California, and two Lock Haven,
Pennsylvania plants in connection with its restructuring plan.
The Company's plants are well maintained and are in good condition and
repair. A substantial portion of the machinery and equipment has been
designed by the Company for its particular purposes and, in many instances,
has been built by it.
Item 3. Legal Proceedings
Environmental Matters
Spectron/Galaxy Site
The Company was notified in 1989 by the United States Environmental
Protection Agency ("EPA") that it was a "potentially responsible party"
("PRP") with respect to the removal of hazardous substances from the
Spectron, Inc. site in Elkton, Maryland (the "Spectron Site"). The Company
has admitted to sending about 102,000 gallons of liquid substances to the
Spectron Site. There are about 30 million gallons of materials sent to the
site that have been accounted for.
A PRP Group known as the Spectron Steering Committee ("SSC") was formed and
in August, 1989, an Administrative Order by Consent ("Phase I Order"),
authorizing the SSC to conduct the surface removal, and a Consent Agreement
under which the PRPs became obligated to reimburse the EPA for its past
costs in connection with the site, were entered into by the EPA and
approximately ten PRPs, including several major industrial corporations.
The Company entered into an agreement with the Company's waste transporter,
which selected the Spectron Site, pursuant to which the transporter paid
one-half of the cost attributed to surface removal for the Company's waste
sent to the Spectron Site. The Company has paid approximately $17,000 for
its portion of the removal.
On September 20, 1995, EPA notified the Company (along with several hundred
other companies) of potential liability for response actions at the Spectron
Site. The EPA letter asks the Company and the other PRPs to negotiate with
EPA for their performance of a remedial investigation/feasibility study at
the Spectron site.
In addition to the EPA letter, the Company received a letter from a group of
other PRPs at the Site. Based on the allegations on the quantity of
materials sent to the Spectron Site from the Company, the allegations on
materials sent to the Spectron Site by other PRPs, and the Steering Committee
PRPs' prediction of total costs of investigation and cleanup at the Spectron
Site, the Company's share of the liability would be approximately $158,000.
This amount would be payable over several years. In addition, the Steering
Committee PRPs appear to be offering a quick de minimis settlement option.
Pursuit of the de minimis settlement option would cost the Company $229,471
to $305,961, depending on reopener provisions.
The Company has demanded defense and indemnity from its insurance carriers
for any liability at the Spectron Site. The Company plans to vigorously
pursue its claims against its insurance carriers. Further, the Company
believes that its former solvent supplier and waste solvent transporter is
responsible for a share of any liability the Company incurs for the Spectron
Site cleanup.
City of Industry, California
Lawson Street Matter
In June, 1992, the Company was notified that contamination was discovered in
soil at a site at 825 Lawson Street, City of Industry, California at which
the Company conducted operations from 1969 to 1981. Solvents of the type
used by the Company in its operations had impacted the soil and shallow
groundwater at the site. These same solvents are found in the soil and
groundwater at numerous other sites in the City of Industry and surrounding
Puente Valley. To date, the Company's response to the matter has been one
of cooperation with the authorities and other potentially reponsible
parties.
The potentially responsible parties with respect to the 825 Lawson Street
property are the Company, the current landowner, another prior operator at
the site, and a prior landowner. The Company, the other prior operator and
the prior landowner ("The 825 PRP group") have conducted a subsurface
investigation of the site at the request of the California Regional Water
Quality Control Board (the "Water Board"), a state agency to which the EPA
has delegated CERCLA enforcement authority for any soil contamination at this
site. The site assessment, completed in July, 1994, revealed volatile
organic compounds in the soil and shallow groundwater beneath the Lawson
Street property.
The Water Board has indicated it will require cleanup of the property.
While it is too early to predict the cleanup methodology the Water Board
would accept, the Company has retained a consultant who has proposed a plan
which would cost in the range of $500,000 to $750,000. The group intends
to present its plan to the Water Board in the Spring of 1997.
Under the Cost Sharing Agreement with the other two parties who funded the
Site Assessment Report, the Company paid one-third of the cost of the
investigatory costs incurred to date. There is no agreement between
the 825 PRP group to share the remediation costs. The 825 PRP group is
actively pursuing the current property owner for its share of the cleanup
costs.
Puente Valley
On a related matter, in April, 1993, the Company was named by the EPA as one
of 57 potentially responsible parties from whom the EPA would solicit an
offer to investigate and clean up groundwater contamination in the Puente
Valley Operable Unit of the San Gabriel Valley, where the City of Industry
is located. The other three 825 Lawson parties referred to above also
received this "special notice" letter. The Company, the other prior operator
and the prior land owner have joined the Puente Valley Steering Committee
("PVSC"), which includes approximately 42 of the special notice recipients.
The group's members include several large industrial corporations.
On September 30, 1993, this group of potentially responsible parties entered
into an administrative Consent Order (the "Consent Decree") with EPA,
pursuant to which the participants would perform a remedial investigation
and feasibility study (RI/FS) for the Puente Valley operable unit. The
participants also executed an allocation agreement covering the payments
required by the Consent Decree, under which the 825 Lawson Street property
was assigned approximately 3.75 percent of the cost. The Company has
agreed to pay one-third of this amount. The Company was responsible for
paying approximately $50,000 toward the RI/FS, most of which was reimbursed
by the Company's insurance carries.
The Puente Valley Steering Committee submitted an RI/FS to the USEPA in 1995
which presented various remediation alternatives, including doing nothing
based on the low level of contamination. In 1996, the USEPA indicated that
they would require monitoring or remediation of the deep water aquifer.
The possible remedies it has identified range in cost from $6 million to
$27 million. The Puente Valley Steering Committee has not responded to
USEPA pending completion of its study. It is impossible at this time to
predict the Company's ultimate share of the potential cleanup costs which is
dependent on, among other things, the remediation method selection and
allocation to the Company.
Soto Litigation
In the second quarter of 1996 the current owner of the Lawson Street site
filed a complaint (the Soto Litigation) against the 825 PRP group seeking,
among other things, an order compelling the 825 PRP group to investigate and
clean the site and pay for related liabilities from the Puente Valley
Superfund Site matter, and other related costs and damages. Several of the
Company's insurance carriers have agreed, under a reservation of rights, to
provide a defense. The Company is also in negotiations with certain carriers
regarding settlement of indemnification coverage for this matter.
Beech Creek, Pennsylvania TCE Contamination
In 1995 the Company began remediation of volatile organic compounds found
in the soil and shallow groundwater at its Beech Creek plant. The
remediation consists of the venting of volatile organic gases from soil,
and the pumping and treating of groundwater. While there are always
uncertainties in predicting future cleanup costs, the Company's consultant
has predicted annual costs would be approximately $72,000. The consultant
currently is unable to predict how long the groundwater pump and treat
system will have to operate.
The Company is considering alternative approaches to the Beech Creek
remediation. One approach is to excavate and dispose of contaminated soil
offsite which would provide quicker cleanup of both soil and groundwater,
and cost between $451,000 and $537,000, according to environmental
consultants. Of this cost, approximately one-half would be incurred up
front, and the remainder would be incurred over a five year period. The
Company is also reviewing other viable remediation alternatives under
Pennsylvania's new Act 2 legislation.
Insurance Coverage Litigation
The Company has filed a complaint in Illinois State Court, in DuPage County,
against its insurance carriers for a declaration that the insurance carriers
are liable for all the Company's defense, investigation and cleanup costs at
the Beech Creek, City of Industry, Puente Valley and Spectron sites and for
any liability in the Soto litigation.
In 1995, the Company entered into a partial settlement agreement with certain
carriers whereby these carriers paid a significant percentage of past defense
costs through November, 1995 on the Beech Creek and City of Industry sites.
Some of these carriers are also paying for the Company's defense, with a
reservation of rights, in the Soto litigation. The Company and certain
insurance carriers are in negotiations over the payment of future costs at
the open sites.
Summary
Although the ultimate outcome of its environmental matters and potential
insurance settlements is not determinable, given the Company's current
financial condition resolution of these matters could have a material impact
on the Company's financial condition and operating results.
Other Litigation
The Company is a defendant in lawsuits from trade creditors seeking payment
of outstanding amounts. Other trade vendors have asserted that they may
take legal action to collect outstanding balances. The Company has been
negotiating with a panel representing certain of its unsecured creditors
on a plan to settle these obligations. See Management's Discussion and
Analysis Part II, (Item 7) for further discussion. Should the Company not
be able to consummate the settlement plan, it is uncertain as to the
ultimate outcome of the current or threathen litigation.
Item 4. Submission of Matters to a Vote of Shareholders
None
PART II
Item 5. Market for the Company's Common Shares and
Related Shareholder Matters
The Company's Common Shares are traded over the counter on the NASD
Electronic Bulletin Board under the symbol "CREB". As of March 7, 1997,
there were 822 holders of record of the Company's Common Shares. This
number does not include beneficial owners of Common Shares whose shares are
held in the name of banks, brokers, nominees or other fiduciaries.
The information appearing in the following table on the range of high and
low trade prices for the Company's Common Shares was obtained from NASDAQ
quotations in the NASD's Monthly Statistical Reports and NASD Quotation
Service Reports.
Fiscal Fiscal
Year Ended Year Ended
December 29, 1996 December 31, 1995
----------------- -----------------
Quarter Low High Low High
Ended: Price Price Price Price
- ---------------- ------ ------ ------ ------
March 31 3/16 15/16 3-1/8 3-5/8
June 30 1/4 1 7/8 1-1/2
September 30 11/32 .5 3/4 1-1/8
December 31 3/8 .5 1/4 5/8
Under the Company's amended and restated credit agreement, the Company is
not permitted to pay dividends.
Only for purposes of the calculation of aggregate market value of the Common
Shares held by non-affiliates of the Company as set forth on the cover page
of this report, the Common Shares held by Echlin Inc., RGP Holding, Inc.,
the Company's Employee Stock Ownership Plan and Profit Sharing and Thrift
Plan, and shares held by members of the families of the children of Elizabeth
Gross, the mother of two of the Company's directors, were included in the
shares held by affiliates. Certain of such persons and entities may not be
affiliates.
Item 6.
Selected Financial Data (Note 1)
(Data in thousands, except per share data)
<TABLE>
<CAPTION> 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET SALES (Note 2) $27,556 $52,954 $95,337 $100,040 $96,743
COSTS AND EXPENSES:
Operating costs (Note 3) 27,527 69,454 99,050 95,769 103,923
Interest - net 1,489 2,339 2,423 2,282 2,248
------- ------- ------- ------- -------
29,016 71,793 101,473 98,051 106,171
EARNINGS (LOSS) BEFORE
INCOME TAXES (1,460) (18,839) (6,136) 1,989 (9,428)
INCOME TAXES (BENEFIT) 7 1 (297) 176 (1,644)
------ ------- ------- ------ ------
NET EARNINGS (LOSS) $(1,467) $(18,840) $(5,839) $1,813 $(7,784)
======= ======== ======= ====== =======
AVERAGE COMMON SHARES
OUTSTANDING AND COMMON
SHARE EQUIVALENTS 3,655,266 3,655,266 3,655,266 3,655,266 3,655,266
NET EARNINGS (LOSS) PER
COMMON SHARE: $ (0.40) $ (5.15) $ (1.60) $ 0.50 $ (2.13)
======= ======= ======= ====== =======
AT YEAR-END
Total assets $19,666 $28,565 $55,312 $56,147 $59,895
Long-term obligations
(Note 4) $ 43 $ 701 $ 1,451 $19,281 $24,802
</TABLE>
Note 1: Results for 1992 reflect the reclassification of a foreign joint
venture.
Note 2: In 1995 the Company adopted a plan to refocus its business and exit
the manufacture and sale of passenger car electrical products.
Sales to those customers affected by the Company's announcement
accounted for approximately 56% of sales in 1995.
Note 3: Special Charges and Restructuring Charges of $1,602,000 in 1995,
$3,400,000 in 1994, and $3,223,000 in 1992, are included in
operating costs. Included in 1995 results are $6.1 million in write
downs of inventory due to the Company's decision to exit certain
product lines. Included in 1994 results were $2.2 million in
inventory provisions to revalue the Company's inventory.
Note 4: In 1996, 1995 and 1994 long term obligations do not reflect amounts
due on the bank credit agreement and other maturities. See Note 3
to the Company's Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Significant Developments
The Company has reached a preliminary understanding with a panel representing
certain of its unsecured trade creditors. The understanding would provide
for the Company to pay approximately $1.7 million (or 31%) in full settlement
of approximately $5.5 million in specified unsecured claims ("the settlement
class"). These claims consist primarily of certain trade obligations arising
prior to April 1995 and certain retrospective insurance premiums. Since
that time, the Company has only been paying for current purchases due to its
limited financial resources.
To fund the settlement the Company contemplates using $600,000 in existing
cash reserves and a $1.175 million cash infusion from Raymond G. Perelman,
or a company affiliated with him. Mr. Perelman is a principal stockholder
and director of the Company. Mr. Barry Katz, also a director of
the Company, is the President a company affiliated with Mr. Perelman. In
exchange for the proposed cash infusion, RGP would receive from the Company
one million newly issued common shares, warrants to purchase two million
common shares at 50 cents per share of which 1,100,000 would be callable
at $0.50 per warrant, 1,250,000 cumulative redeemable 7% preferred shares
with voting rights and a stated value of $0.40 per share, and a $275,000
promissory note carrying a 7% interest rate. The note would be partially
secured by certain Company-owned real estate. For a three year period, the
Company would have the right to repurchase warrants covering 1,100,000 shares
for $550,000. The proposed agreement with RGP would also increase the
Company's board from seven to nine members and allow Mr. Perelman to
designate a majority of the Board.
The creditor settlement would be subject to ratification by members of the
settlement class, of which there are approximately 40 members, and
completion of the necessary agreements with the creditors and
Mr. Perelman.
The Company, at present, intends to solicit the unsecured creditors'
participation through a composition agreement early in the second quarter.
It is contemplated that this settlement would be accomplished out of court
and completed in the second quarter. Because this plan contemplates the
participation of each unsecured creditor in the class, there is no assurance
that the Company will be able to complete this process. If prior agreement
among those creditors approving a settlement is obtained, the Company may
seek court protection under Chapter 11 of the Bankrupcy Code to confirm the
plan. If this occurs, there are certain inherent legal and business risk
that could cause the actual reorganization plan to be different than that
proposed.
The unsecured debt restructuring described above is a result of the Company's
overall restructuring plan announced in 1995. The plan resulted in the
Company exiting the manufacture and sale of passenger car electrical
(alternators and starters) and mechanical (clutches and water pumps) products
to the traditional warehouse distributor and retail markets in the United
States and Canada. These products accounted for about 56% of the Company's
total 1995 sales. The Company posted $7.7 million in special charges and
inventory provisions in 1995 related to this decision.
In connection with that restructuring plan, the Company obtained continued
financing from its banks subject to declining commitment levels and certain
collateral coverage requirements. In order to meet these requirements,
the Company restructured its operations and sold assets, primarily inventory,
property and equipment related to the discontinued product lines. The
Company has been in default of various covenants of its bank credit agreement
since April 1995. The banks have conditionally waived the defaults and have
provided short term extension pending completion of settlement negotiations
with the unsecured creditors. However, the Company's banks have indicated
that they do not intend to provide long term financing to the Company. The
current bank agreement expires on March 31, 1997. There can be no assurance
that the banks will continue to extend financing to the Company beyond that
date.
1996 Compared to 1995
Net sales for 1996 were $27.6 million or 48% lower than 1995 net sales of
$53 million. As previously discussed, 1995 net sales included approximately
$30 million in sales (56% of total sales) to customers affected by the
Company's decision to exit certain product lines and the loss of three large
carburetor and constant velocity joint customers. With the restructuring,
the Company has narrowed its product line to certain niche markets: fuel
systems, constant velocity joints and certain passenger car, agricultural
and heavy duty applications. IN 1996, sales to the Company's six largest
customers, which accounted for 92% of total sales, were 35% higher than
1995 sales to these customers. The increase was primarily due to those
customers' reaction to the Company's focus on niche markets and expansion
of the Company's business with them. The Company has also focused on
expanding its business in these niche markets.
The Company's primary product line is remanufactured carburetors which
accounted for 63% of 1996 net sales compared to 35% in 1995. The Company's
main distribution channel is through two large retailers which accounted for
80% of 1996 net carburetor sales. The balance of the carburetor sales were
to original equipment aftermarket customers, traditional warehouse
distributors and jobbers.
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 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. Overall carburetor sales
are declining in the U.S. market. The Company believes that the retail
segment will continue to expand its sales of carburetors in the futue while
the traditional channels will continue to decrease. Factors contributing
to this trend include the overall growth of the retailers' market share in
the automotive parts aftermarket, consolidation of traditional distribution
channels, price competitiveness and traditional distributors' desire to
limit their investment in the carburetor product line. The Company has
introduced various marketing programs in recent years, including an overnight
delivery program, to help enhance sales to traditional distributors.
The Company is making efforts to grow its constant velocity joint business to
replace 1995 lost business. The Company anticipates continued overall
market volume growth in the constant velocity joint product line as the
number of front wheel drive vehicles entering the prime repair age increases.
However, there can be no assurances the Company will be able to replace the
lost constant velocity joint business.
Reflected in net sales are deductions for product and core returns which were
38% and 44% of total sales in 1996 and 1995, respectively. The lower return
percentage in 1996 is a function of the decrease in core sales and return
volume. 1995 returns were also impacted by lost customers making final
product and core returns in a period of declining demand. The Company has
a customer product return policy to control product and core returns. It has
also established reserves against expected future declining core values.
Cost of products sold was 84% of net sales in 1996 compared to 94% in 1995.
The prior year percentage was adjusted for $6.1 million in special inventory
provisions to write down discontinued inventory to estimated net realizable
values. The improvement in 1996 is principally due to the increased sales
mix to the carburetor and original equipment markets, which carry higher
margins, compared to the 1995 sales mix.
Selling, distribution and administration expenses were $4.4 million in 1996,
63% lower than 1995 expenses of $11.9 million. The principal reason for the
significant reduction was the downsizing of the Company's operations as a
result of its strategic decision to exit certain product lines. 1995 results
also reflected a $1.6 million special charge related to the restructuring
decision.
Interest expense declined to $1,500,000 in 1996 from $2.3 million in 1995.
Total debt reduction was $6.6 million (47%) in 1996 as the Company sold
inventory, equipment and facilities related to the discontinued business.
The Company did not record a tax benefit on 1996 or 1995 losses due to
uncertainties over the realization of tax loss carry forwards.
The net loss for 1996 was $1.5 million compared to $18.8 million in 1995.
1995 Compared to 1994
Net sales for 1995 were $53 million, 44% less than net sales of $95.3 million
for 1994. The Company experienced lower sales in all of its major product
lines due to its decision to exit the sale of passenger car electrical and
mechanical products to traditional warehouse distributors and retailers.
The Company also lost its two largest carburetor customers in the third
quarter and two large constant velocity customers in the second and third
quarters. Sales to the customers affected by the Company's decision
accounted for approximately 56% of 1995 sales. The Company began to
experience higher product and core returns at the end of the second quarter,
which are reflected as deductions to net sales, as lost customers made final
returns in a period of declining sales. Total product and core returns,
reflected as deduction in net sales, were 44% of gross sales in 1995
compared to 38% in 1994.
Carburetor sales were 35% of net sales in 1995 compared to 25% in 1994.
In the second and third quarters of 1995, the Company was informed by two
major carburetor customers that they were changing to other carburetor
suppliers. These customers accounted for 22% of 1995 net carburetor sales.
However, in the third and fourth quarters another major carburetor customer
informed the Company that it was increasing its annual carburetor purchases
by approximately $5 million. This incremental business began contributing
in the fourth quarter of 1995 and first quarter of 1996.
At the end of the first quarter of 1995, one of the Company's primary
constant velocity joint customers changed to a competitor. The other primary
constant velocity joint customer, which was the Company's largest customer,
changed to a competitor in the third quarter of 1995. These customers
accounted for approximately 65% of 1995 constant velocity joint net sales
and 3% of total 1995 net sales.
Cost of products sold was 94% of net sales in 1995 compared to 84.4% in 1994.
The 1995 percentage has been adjusted for $6.1 million in special inventory
provisions to write down discontinued inventory to estimated net realizable
value. The Company experienced labor inefficiencies and underabsorbed plant
overhead costs resulting from the 45% decrease in 1995 unit volume as
compared to 1994. 1995 costs of products sold were also impacted by
$6.1 million in inventory write downs as described above. In 1994, cost of
products sold included $2.2 million of fourth quarter provisions to reflect
adjustments to the Company's constant velocity drive assembly inventory and
a change in inventory management practices.
Selling, distribution and administrative expenses were $11.9 million in 1995
compared to $15.2 million in 1994. The Company recorded $0.7 million in
legal and professional fees related to a proposed equity infusion,
restructuring plan and amendment of the bank credit agreement in 1995.
These expenses offset decreases in distribution costs due to lower unit sales
and in selling and administrative costs resulting from 1995 headcount
reductions.
1995 results reflect a $1.6 million pretax special charge to earnings
reflecting the Company's decision to exit the manufacture and sale of
passenger car electrical and mechanical products to wholesale distributors
and retailers. In 1994 the Company reported a $3.4 million pretax charge
reflecting a plan to consolidate plant capacity.
Interest expense was $2.3 million in 1995 and $2.4 million in 1994. Lower
average outstanding borrowings in 1995 were offset by a 2% increase in the
rate the Company's banks charged the Company since April 1995. The Company
did not record any tax benefit on 1995 losses due to limited carryback
availability.
The net loss for 1995 was $18.8 million versus $5.8 million loss in 1994.
Factors Which May Affect Future Results
This annual report contains forward looking statements that are subject to
risks and uncertainties, including but not limited to the following:
The Company has reached a preliminary understanding with a panel representing
certain of its unsecured trade creditors. This understanding is subject to
ratification by the settlement class, completion of agreements with the class
and Raymond G. Perelman and related documents. There are no assurances that
the Company will be able to complete these items. If it cannot, the Company
may be forced to file for legal protection from its creditors under U. S.
Bankruptcy Code. Because of the inherent legal and business risks involved
in a bankruptcy filing, there is no assurance that the Company would continue
as a going concern. Refer also to the "Liquidity and Capital Resources"
section below.
The Company expects the existing over-capacity in the automotive aftermarket
and consolidation within its distribution channels to cause continued selling
price pressure for the foreseeable future. The present competitive
environment is causing change in traditional aftermarket distribution
channels resulting in retailers gaining additional market presence at the
expense of traditional wholesalers. In response, the Company has diversified
its customer base and currently serves all major segments, including
automotive warehouse distributors and jobbers, original equipment
manufacturers of automotive equiment and large volume automotive retailers.
The anticipated decline in sales from the profitable carburetor product line
over the longer term will impact future restuls. The Company will seek to
offset these impacts through development of niche product markets,
improvements in its manufacturing processes and cost containment with a
strong focus on capacity utilization.
The Company's six largest customers accounted for an aggregate of 92% of the
Company's total sales in 1996. Given the Company's current financial
condition and its manufacturing cost structure, the loss of a large customer
could have a materially adverse impact on the Company's results and could
affect the Company's ability to remain a going concern.
While the Company has established reserves for potential environmental
liabilities that it believes to be adequate, there can be no assurance that
the reserves will be adequate to cover actual costs incurred or that the
Company will not incur additional environmental liabilities in the future.
See "Legal Proceedings" for additional information.
Accordingly, actual results may differ materially from those set forth in the
forward looking statements. Attention is also directed to other risk factors
set forth in documents filed by the Company with the Securities and Exchange
Commission.
Liquidity and Capital Resources
Working Capital
Working capital at December 29, 1996, was ($9.9) million, compared to ($11.2)
million at the end of 1995. This increase was primarily attributable to
reduction of bank loans from the net proceeds from the sale of certain
property and equipment.
Accounts receivable at the end of 1996 were $5.1 million, up $.4 million, or
8.5%, from the previous year-end balance of $4.7 million. The increase was
directly attributable to the larger sales volume at the end of the fourth
quarter of 1996 compared to 1995.
Net inventory at the end of 1996 decreased to $7.0 million, from $10.7
million at the end of the prior year as the Company reduced overall inventory
levels, particularly in its discontinued product lines.
Accounts payable and interest and other accrued expenses were approximately
at the same levels in 1996 and 1995.
Debt
As previously disclosed, the Company reduced its total debt to $7.6 million
at December 29, 1996 from $14.2 million at December 31, 1995. The reduction
was primarily due to reductions in working capital (inventory) and sales of
property and equipment related to discontinued product lines.
At December 29, 1996, the Company had available $6.4 million under the
Company's credit agreement of which $5.9 million was borrowed.
The Company has been in default of various covenants of its bank credit
agreement and, by cross default, reimbursement agreements supporting letters
of credit since April 1995. The Company's banks have agreed to forebear from
declaring a default on the Company's credit facility and extend it through
March 31, 1997. They have indicated a willingness to continue to extend the
facility at the current levels on a short-term basis as the Company attempts
to finalize a settlement with its unsecured creditors; however, there can be
no assurance that they will continue to fund the Company. The banks have
also indicated that they do not intend to finance the Company on a long term
basis. The Company has reflected outstanding amounts under the credit
agreement and a $1,500,000 capitalized lease obligation as current maturities
in its 1996 financial statements.
Without an extension of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to pay its debts should
the lenders demand payment and would not be able to continue as a going
concern.
The Company is also indebted to various unsecured creditors, including
current and former trade vendors. 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.
As previously disclosed, the Company has reached a preliminary understanding
with a panel representing certain of its unsecured creditors. There can be
no assurances that the Company and the members of the settlement class will
be able to consummate the settlement.
The Company's financial statements have been 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 or discontinue its business.
The Company, through a wholly owned foreign subsidiary, is a joint and
several guarantor of Canadian $1.75 million of bank debt with its partner in
a 50% owned Canadian venture. As part of the 1992 restructuring charge, the
Company provided a reserve for a contingent liability to the venture's bank.
The amount of the loan plus accrued and unpaid interest was Canadian
$1,100,000 at December 29, 1996.
Cash Flow
The Company decreased its debt, net of cash, by $6.4 million in 1996. Cash
flow was generated primarily from reductions in working capital and net
proceeds from the sale of property and equipment related to discontinued
product lines. Cash flow from operations was a breakeven levels for the
year. Capital expenditures on equipment were not significant. The following
summarizes significant items affecting the change in total debt (amounts in
thousands).
December 29, December 31,
1996 1995
-------------- --------------
Net income (loss),
changes in working capital, other $ 4,052 $ 18,063
Special Charges --- (1,602)
Noncash Depreciation, Amortization
and Provisions (1,021) (8,660)
Capital Expenditures (47) (122)
Proceeds from sale of
property, plant and equipment 3,419 42
------------- -------------
Decrease in total debt, net of cash $ 6,403 $ 7,721
------------- -------------
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data called for by this item are
listed in the accompanying table of contents for consolidated financial
statements and financial statement schedule and are filed herewith.
Item 9. Changes in and Disagreements with Accountants and
Accounting and Financial Disclosure
Report on Form 8-K dated November 3, 1995, reporting a change in Certifying
Accountant is hereby incorporated by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors and Executive Officers of Registrant
Persons elected as directors of the Company hold office until
the next annual meeting of shareholders at which directors are
elected.
The by-laws of the Company provide that officers shall be
elected by the board of directors at its first meeting after
each annual meeting of shareholders, to hold office until
their successors have been elected and have qualified.
Principal Occupation Served as
and Positions with a Director
Name (Age) the Company Since
- ------------------------- ------------------------------------------ ---------
Thomas W. Blashill (37) Director, President and CEO of the Company 1993
John R. Gross (65) Owner, Chaney Auto Parts, Inc., Crest Hill,
Illinois 1966
Raymond F. Gross (58) Vice President, Erecta Shelters, Inc.,
Ft. Smith, Arkansas; consultant to the
Company 1968
Gary S. Hopmayer (57) Director, Original American Scones, Inc., 1987
Chicago, Illinois
Barry L. Katz (45) President and General Counsel,
Belmont Holdings Corp. 1993
Edward R. Kipling (65) Retired 1987
Raymond G. Perelman (79) Chairman of the Board and Chief Executive
Officer, 1988
RGP Holding, Inc., Philadelphia,
Pennsylvania and Belmont Holdings, Corp.,
Bala Cynwyd, Pennsylvania
Mark Smetana (36) Vice-President - Finance and Corporate
Secretary
Richard B. Hebert (56) Treasurer
Mr. Blashill joined the Company in August, 1992 as Director of Financial
Operations. He has held the position of President and CEO since September
1995. From March 1993 to September 1995, he was Executive Vice President,
Secretary and Treasurer. He was Vice President and Treasurer of Washington
Steel Corporation from 1991 to 1992. He was Director of Finance of
Washington Steel Corporation from 1988 to 1991.
Mr. John R. Gross is currently the owner of Chaney Auto Parts, Inc., a
retailer of auto parts. John R. Gross is the brother of Raymond F. Gross.
Mr. Raymond F. Gross has been the Vice President of Erecta Shelters Inc., a
manufacturer and distributor of metal buildings, since 1985. He has also
been a consultant to the Company since June, 1984. Prior to June, 1984 he
was a Vice President of the Company. Raymond F. Gross is the brother of John
R. Gross.
Mr. Hopmayer was President of Original American Scones, Inc., a privately
owned specialty baker, from 1987 to 1993. He is currently a Director of
Original American Scones, Inc. Prior to that time he was President of Mega
International, Inc. a manufacturer and distributor of automotive electrical
parts. Mega International, Inc., founded by Mr. Hopmayer, was sold to Echlin
Inc. in October, 1986.
Mr. Katz has served as a director of the Company since December 1993. From
December 16, 1992 to January 19, 1993 he held the position of Senior Vice
President of the Company. Since 1993 Mr. Katz has been President and General
Counsel for RGP Holding, Inc., and was its Senior Vice President and General
Counsel since May 1992. From March 1990 to 1994, he served as Senior Vice
President and General Counsel for General Refractories Company, and since
that time has been its President. Since 1994 Mr. Katz has been President and
General Counsel for Belmont Holdings, Corp.
Mr. Kipling was Vice President and General Manager of the Rayloc Division of
Genuine Parts Company, a remanufacturer of automotive parts, for more than
five years prior to January, 1987, and has since been retired.
Mr. Perelman had served as Chairman of the Board from December 16, 1992 until
November 1995 and was President and Chief Executive Officer from December 16,
1992 to January 19, 1993. He has been Chairman of the Board of RGP Holding,
Inc., a privately-held holding company, since May 1992. Since 1985, he was
the Chairman of the Board and Chief Executive Officer of General Refractories
Company Since 1994 Mr. Perelman has been Chairman of the Board and CEO of
Belmont Holdings, Corp., a company with subsidiaries operating mining and
processing businesses.
Mr. Smetana joined the Company in July 1993 as its Director of Finance and
Corporate Controller. In September 1995 he was appointed to Vice President -
Finance and Secretary. Prior to joining the Company, Mr. Smetana held a
number of positions with Arthur Andersen LLP.
Mr. Hebert was appointed Treasurer of the Company in September 1995. He
joined the Company in 1977 and has held various positions with the Company.
(b) Arrangements Concerning the Board of Directors
Except for directors who are officers of the Company, each director received
a fee of $10,000 for service as a director during the Company's fiscal year
ended December 29, 1996. In addition, directors are reimbursed for their
reasonable travel expenses incurred in attending meetings and in connection
with Company business.
The Company has an indemnification agreement with each director of the
Company that provides that the Company shall indemnify the director against
certain claims that may be asserted against him by reason of serving on the
Board of Directors.
Messrs. Hopmayer and Kipling were originally nominated to serve as directors
pursuant to a Stock Purchase Agreement dated March 18, 1987 between the
Company and Echlin Inc. See "Ownership of Voting Securities" below for
additional information concerning Echlin Inc. and transactions between the
Company and Echlin Inc.
Mr. Katz serves as a director at the request of Mr. Perelman and pursuant to
an agreement between Mr. Perelman, RGP Holdings, Inc. and the Company.
(See Item 12, Note 2 regarding this agreement.)
ITEM 11. EXECUTIVE COMPENSATION
(a) Executive Officer Compensation and Arrangements
Executive Compensation
The following table sets forth information with respect to all compensation
paid to the Company's Chief Executive Officer and Vice President of Finance
at the end of the Company's three most recent fiscal years. There were no
other executives whose compensation exceeded $100,000 for services rendered
in all capacities to the Company during 1996.
Annual Compensation
- ------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- ---------------------------- ------- ---------- -------- ------------
Other
Name and Principal Year Salary Bonus Annual
Position Compensation
# $ $ (1)
$
- ---------------------------- ------- ---------- -------- ------------
Thomas W. Blashill 1996 $138,450 0 ---
President and
Chief Executive Officer (3) 1995 $137,126 0 ---
1994 $128,173 0 ---
- ------------------------------------------------------------------------
Mark Smetana 1996 $100,080 0 ---
Vice President - Finance and
Secretary (4) 1995 $98,480 0 ---
1994 $104,870 0 ---
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Long Term Compensation
- ----------------------------------------------------------------------------
Awards Payout
- ----------------------------------------------------------------------------
(a) (b) (f) (g) (h) (i)
- --------------------------- ----- ---------- ----------- ---------- ---------
Securities All Other
Name and Principal Restricted Underlying LTIP Compensa-
Position Year Stock Options/ Payouts tion(2)
Award(s) SAR's
# $ # $ $
- --------------------------- ----- ---------- ----------- ---------- ---------
Thomas W. Blashill 1996 0 0 0 0
President and
Chief Executive Officer (3) 1995 0 50,000 0 $700
1994 0 0 0 $3,000
- -----------------------------------------------------------------------------
Mark Smetana 1996 0 0 0 0
Vice President - Finance
and Secretary(4) 1995 0 15,000 0 $812
1994 0 0 0 0
- -----------------------------------------------------------------------------
(1) The amounts are below threshold reporting requirements.
(2) The amounts reported are allocations under its Employee Stock
Ownership Plan.
(3) Mr. Blashill was appointed President and CEO in September 1995. He
was Executive Vice President, Chief Financial Officer, Treasurer prior to
that date.
(4) Mr. Smetana was appointed Vice President - Finance and Secretary in
September 1995. He was Director of Finance and Corporate Controller prior to
that date.
Messrs. Blashill and Smetana have severance compensation agreements with the
Company that provides for severance pay equal to six months salary following
termination from the Company .
The by-laws of the Company provide that officers shall be elected annually by
the board of directors at its first meeting after each annual meeting of
shareholders, to hold office until their successors have been elected and
have qualified.
The Company also has an indemnification agreement with each officer of the
Company that provides that the Company shall indemnify the officer against
certain claims which may be asserted against him by reason of serving as a
officer of the Company.
There were no stock options granted to the named executives during 1996.
The following table provides certain information with respect to the number
and value of unexercised options outstanding as of December 29, 1996. (No
options were exercised by the named executive officers during 1996.)
Aggregated 1996 Option Exercises and December 29, 1996 Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/ Options/
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized
# ($) Unexercisable Unexercisable
- -------------------- ----------- --------- --------------- ----------------
Thomas W. Blashill 0 0 50,000/0 $0/$0
Mark Smetana 0 0 15,000/0 $0/$0
All outstanding options were out of the money at December 29, 1996.
Compensation Committee Interlocks and Insider Participation
Messrs. Perelman, Kipling and John Gross presently serve as members of the
Compensation Committee. None of these members was an officer or employee of
the Company, a former officer of the Company, or a party to any relationship
requiring disclosure under Item 404 of SEC Regulation S-K during 1996.
(b) Director Compensation Arrangements
Information regarding director compensation is set forth under Item 10(b)
above.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following tabulation shows, as of March 7, 1997, (a) the name, address
and Common Share ownership for each person known by the Company to be the
beneficial owner of more than five percent of the Company's outstanding
Common Shares, (b) the Common Share ownership of each director,
c) the Common Share ownership for each executive officer named in the
compensation table, and (d) the Common Share ownership for all directors and
executive officers as a group.
Number of Common Percent of Common
Beneficial Owner Shares Beneficially Shares Outstanding
Owned(1)
RGP Holding, Inc.
225 City Line Avenue
Bala Cynwyd, Pennsylvania 19004 661,600 (2) 18.1% (2)
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405 600,000 (3) 16.4% (3)
John R. Gross, 108,212 3.0%
Director(7)
Champion Parts, Inc.
Empolyee Stock Ownership Plan
c/o Champion Parts, Inc.
2525 22nd Street
Oak Brook, Illinois 60521 61,383 (4) 1.7% (4)
Raymond F. Gross,
Director(7) 31,164 *
Gary S. Hopmayer,
Director(3) --- ---
Barry L. Katz,
Director(2) 7,500 *
Edward R. Kipling,
Director(3) 2,000 *
Raymond G. Perelmen,
Director 661,600 (2) 18.1% (2)
Thomas W. Blashill,
Director, President and CEO 5,592 (5) *
Richard B. Hebert
Treasurer 3,754 (5) *
Mark Smetana
Vice President - Finance
and Secretary 2,634 (5) *
All directors and executive officers
as a group (9 persons)(6) 822,456 22.5%
* Not greater than 1%.
(1) Information with respect to beneficial ownership is based on
information furnished to the Company or contained in filings made with the
Securities and Exchange Commission.
(2) RGP Holding, Inc. is indirectly controlled by Mr. Perelman. Pursuant
to an agreement between the Company, Mr. Raymond G. Perelman and RGP Holding,
Inc. dated September 20, 1993 and amended October 9, 1995 Mr. Perelman and
RGP granted to the proxy holders appointed by the Board of Directors of the
Company the proxy to vote all shares beneficially owned by them, including
shares held by any affiliates (the "Perelman Shares"), for the election of
certain nominees. Mr. Perelman and RGP have also agreed, among other things,
not to solicit proxies in opposition to such nominees. The Company and the
Board have agreed that if shareholders of the Company votes shares in person
or by proxy for nominees other than such nominees, the proxy holders
appointed by the Company will cumulate their votes in such manner as to
attempt to elect Mr. Katz prior to the election of Mr. Blashill
(3) All shares owned by Echlin Inc. ("Echlin") are subject to a Stock
Purchase Agreement dated March 18, 1987 between the Company and Echlin.
Under the Stock Purchase Agreement, Echlin may vote its shares in its
discretion. During the fiscal year ended December 31, 1996, the Company
purchased approximately $1.2 million of components used in the remanufacture
of automotive parts from Echlin. On March 9, 1992, Echlin notified the
Company that it was exercising its limited market protection rights under
the Stock Purchase Agreement. Accordingly, the Company issued a $2,400,000
promissory note to Echlin which has been and is to continue to be paid to
Echlin in quarterly installments of $200,000. The note carries an interest
rate of 1% above prime. In April 1995, the Company defaulted on the final
installment of this note. It subsequently paid $100,000 and $100,000 remains
outstanding.
Messrs. Hopmayer and Kipling were originally nominated as directors pursuant
to the Stock Purchase Agreement.
(4) Shares held by this plan are voted by Messrs. Blashill and Smetana as
trustees. Employees participating in the Stock Ownership Plan are entitled
to direct the trustees as to the voting of shares allocated to their
accounts. Unallocated Stock Ownership Plan shares will be voted in the same
manner, proportionately, as the allocated Stock Ownership Plan shares for
which voting instructions are received from employees. For more information
concerning the ownership and voting of shares held by the Stock Ownership Plan
and the trustees, see note (7) below.
(5) Includes 2,592, 3,754 and 1,134 shares allocated to Messrs. Blashill's,
Hebert's and Smetana's accounts, respectively, under the Employee Stock
Ownership Plan.
(6) Includes a total of 7,480 shares allocated to the accounts of executive
officers under the Employee Stock Ownership Plan (the "Stock Ownership Plan").
Does not include 59,903 shares allocated to the accounts of employees other
than executive officers. Each of the participants in the Stock Ownership Plan
is entitled to direct the turstees as to the voting of shares allocated to his
or her account.
(7) As of March 7, 1997 Elizabeth Gross, her children and members of their
immediate families beneficially owned 200,000 Common Shares, or approximately
5.5% of the Common Shares outstanding. John R. Gross and Raymond F. Gross,
children of Elizabeth Gross, are directors of the Company.
Item 13. Certain Relationship and Related Transactions
Information required under this Item 13 is set forth above under Part III,
Item 12, Notes (2) and (3) and in Part III, Item 11, Compensation Committee
Interlocks and Insider Participation.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) Consolidated Financial Statements and Schedule and Exhibits:
(1. and 2.) The consolidated financial statements and schedule listed in the
accompanying table of contents for consolidated financial statements are filed
herewith.
(3.) The exhibits required by Item 601 of Regulation S-K and filed herewith
are listed in the exhibit index which follows the consolidated financial
statements and financial statement schedule and immediately precedes the
exhibits filed. Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company
has not filed with Exhibit (4) any instrument with respect to long-term debt
(including individaul bank lines of credit, mortgages and instruments relating
to industrial revenue bond financing) where the total amount of securities
authorized thereunder does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The Company agrees
to furnish a copy of each such instrument to the Securities and Exchange
Commission on request.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CHAMPION PARTS, INC.
Date: March 31, 1997 By: /s/ Mark Smetana
Mark Smetana
Vice President - Finance and
Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on March 31, 1997.
By: /s/ Thomas W. Blashill By: /s/ Gary S. Hopmayer____
Thomas W. Blashill, President Gary S. Hopmayer, Director
and Director
By: /s/ Edward R. Kipling____ By: /s/ Raymond F. Gross_____
Edward R. Kipling, Director Raymond F. Gross, Director
By: /s/ John R. Gross__________
John R. Gross, Director
CHAMPION PARTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement Schedule comprising
Item 8 and Items 14(a)(1) and (2) for the Years Ended December 29,
1996, December 31, 1995, and January 1, 1995 and Reports of Independent
Certified Public Accountants.
CHAMPION PARTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Reports of Independent Certified Public Accountants 32-33
Consolidated Financial Statements (Item 14(a)(1)):
The following consolidated financial statements of
Champion Parts, Inc. and subsidiaries are included in
Part II, Item 8:
Consolidated balance sheets - December 29, 1996 and
December 31, 1995 34-35
Consolidated statements of operations - years ended
December 29, 1996, December 31, 1995 and January 1, 1995 36
Consolidated statements of stockholders' equity - years ended
December 29, 1996, December 31, 1995 and January 1, 1995 37
Consolidated statements of cash flows - years ended
December 29, 1996, December 31, 1995 and January 1, 1995 38
Notes to consolidated financial statements
Consolidated Financial Statement Schedule (Item 14(a)(2)): 39-54
Schedule II - Valuation and qualifying accounts 55
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Champion Parts, Inc.
Oak Brook, Illinois
We have audited the accompanying consolidated balance sheets of Champion
Parts, Inc. and Subsidiaries as of December 29, 1996 and December 31, 1995
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the two years the period ended December 29,
1996. We have also audited the 1996 and 1995 schedules listed in the
accompanying index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements and
schedule. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Champion
Parts, Inc. and Subsidiaries at December 29, 1996 and December 31 1995, and
the results of their operations and their cash flows for each of the two
years in the period ended December 29, 1996 in conformity with generally
accepted accounting principles.
Also, in our opinion, the 1996 and 1995 schedules present fairly, in all
material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from
operations and has a deficiency in stockholders' equity. In addition, the
Company has violated various covenants of its bank credit agreement and has
not paid various unsecured creditors under the terms of sales. The Company
does not have the ability to pay these debts should the lenders demand
payment. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 3 and Note 16. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ BDO Seidman, LLP
Chicago, Illinois
March 10, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
Champion Parts, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Champion Parts, Inc. (an Illinois
Corporation) and Subsidiaries for the year ended January 1, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of its operations and
cash flows of Champion Parts, Inc. for the year ended January 1, 1995,
in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole.The schedule listed in the Table of
Contents of the consolidated financial statements is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly sates in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in violation of
certain covenants of its loan agreements that give the lenders the right to
accelerate the due date of their loans, which raises substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might results should the Company be unable to continue as
a going concern.
/s/ Arthur Andersen LLP
Chicago, Illinois,
February 21, 1995
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
December 29, December 31,
1996 1995
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash $ 707,000 $ 874,000
Accounts receivable, less
allowance for uncollectible
accounts of $795,000 and
$1,715,000 in 1996 and 1995,
respectively 5,129,000 4,737,000
Inventories 7,040,000 10,700,000
Prepaid expenses and other assets 252,000 294,000
Deferred income tax asset 561,000 1,536,000
------------ ------------
Total current assets 13,689,000 18,141,000
PROPERTY, PLANT AND EQUIPMENT: EQUIPMENT:
Land 259,000 475,000
Buildings 7,821,000 13,067,000
Machinery and equipment 12,603,000 16,524,000
Leasehold improvements 509,000 754,000
------------ ------------
21,192,000 30,820,000
Less: Accumulated depreciation 15,683,000 20,986,000
------------ ------------
5,509,000 9,834,000
OTHER ASSETS 468,000 590,000
------------ ------------
$ 19,666,000 $ 28,565,000
============ ============
The accompanying notes are an integral part of these statements.
December 29, December 31,
1996 1995
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,047,000 $ 7,320,000
Accrued expenses:
Salaries, wages and employee benefits 891,000 808,000
Other accrued expenses 6,914,000 7,704,000
Taxes other than income 228,000 76,000
Current maturities of long-term debt 7,550,000 13,462,000
------------- -------------
Total current liabilities 23,630,000 29,370,000
DEFERRED INCOME TAXES 478,000 1,403,000
LONG-TERM DEBT - Less current maturities 43,000 701,000
STOCKHOLDERS' EQUITY:
Preferred stock - No par value;
authorized, 10,000,000 shares:
issued and outstanding, none --- ---
Common stock - $.10 par value;
authorized, 50,000,000 shares:
issued and outstanding, 3,655,266 366,000 366,000
Additional paid-in capital 15,578,000 15,578,000
Retained earnings (19,728,000) (18,261,000)
Cumulative translation adjustment (701,000) (592,000)
------------- -------------
(4,485,000) (2,909,000)
------------- -------------
$ 19,666,000 $ 28,565,000
============= =============
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
December 29, December 31, January 1,
1996 1995 1995
------------- ------------- ------------
NET SALES $ 27,556,000 $ 52,954,000 $ 95,337,000
------------- ------------- ------------
COST AND EXPENSES:
Cost of products sold 23,145,000 55,920,000 80,424,000
Selling, distribution and
administration 4,382,000 11,932,000 15,226,000
Special charges --- 1,602,000 3,400,000
------------- ------------- ------------
$ 27,527,000 $ 69,454,000 $ 99,050,000
EARNINGS (LOSS) BEFORE INTEREST
AND INCOME TAXES (BENEFIT) 29,000 (16,500,000) (3,713,000)
INTEREST EXPENSE - Net 1,489,000 2,339,000 2,423,000
------------- ------------- ------------
(LOSS) BEFORE INCOME TAXES (1,460,000) (18,839,000) (6,136,000)
INCOME TAXES (BENEFIT) 7,000 1,000 (297,000)
------------- ------------- ------------
NET (LOSS) $ (1,467,000) $ (18,840,000) $ (5,839,000)
============= ============= ============
AVERAGE COMMON SHARES
OUTSTANDING AND COMMON
STOCK EQUIVALENTS 3,655,266 3,655,266 3,655,266
------------ ------------- ------------
(LOSS) PER SHARE OF COMMON STOCK $ (0.40) $ (5.15) $ (1.60)
============ ============= ============
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND JANUARY 1,1995
(Data in thousands of Dollars)
Additional Cumulative Guarantee
Common Paid-in Retained Translation of ESOP
Stock Capital Earnings Adjustment Borrowings
-------- ----------- -------- ----------- ----------
BALANCE, JANUARY 2, 1994 $ 366 $ 15,578 $ 6,418 $ (136) $ (1,029)
Net Loss (5,839)
Exchange rate changes (509)
Contribution to ESOP
to fund ESOP debt
515
-------- ----------- -------- ---------- -----------
BALANCE, JANUARY 1, 1995 $ 366 $ 15,578 $ 579 $ (645) $ (514)
Net loss (18,840)
Exchange rate changes 53
Contribution to ESOP
to fund ESOP debt 514
-------- ----------- -------- ---------- -----------
BALANCE, DECEMBER 31, 1995 $ 366 $ 15,578 $(18,261) $ (592) $ 0
Net loss (1,467)
Exchange rate changes (109)
-------- ----------- -------- ---------- -----------
BALANCE, DECEMBER 29, 1996 $ 366 $ 15,578 $(19,728) $ (701) $ 0
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
December 29, December 31, January 1,
1996 1995 1995
------------- ------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss) $(1,467,000) $(18,840,000) $ (5,839,000)
Adjustments to reconcile
net earnings (loss) to net
cash provided (used) by
operating activities:
Depreciation and amortization 965,000 1,477,000 1,587,000
Provision for losses on
accounts receivable 6,000 704,000 80,000
Provision for Inventory
write Offs 0 6,100,000 2,200,000
Special charges 0 1,602,000 3,400,000
Deferred income taxes 50,000 379,000 (448,000)
Changes in assets and liabilities:
Accounts receivable (398,000) 7,424,000 (5,975,000)
Inventories 3,662,000 10,049,000 2,107,000
Accounts payable 727,000 (848,000) 4,176,000
Accrued expenses and other (403,000) (667,000) (1,863,000)
---------- ------------- ------------
Net cash provided (used) by
operating activities 3,142,000 7,380,000 (575,000)
---------- ------------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (47,000) (122,000) (831,000)
Proceeds from sale of property,
plant and equipment 3,419,000 42,000 184,000
---------- ------------- ------------
Net cash provided (used) by
investing activities 3,372,000 (80,000) (647,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
line of credit agreement (5,701,000) (6,271,000) 2,700,000
Principal payments on long-term
debt obligations (869,000) (529,000) (1,195,000)
---------- ------------- ------------
Net cash provided (used) by
financing activities (6,570,000) (6,800,000) 1,505,000
---------- ------------- ------------
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH (111,000) 28,000 (15,000)
---------- ------------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (167,000) 528,000 268,000
CASH AND CASH EQUIVALENTS -
Beginning of year 874,000 346,000 78,000
---------- ------------- ------------
CASH AND CASH EQUIVALENTS -
End of year $ 707,000 $ 874,000 $ 346,000
---------- ------------- ------------
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995
AND JANUARY 1, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company operates on a 52 week fiscal calendar.
Consolidation Policy - The consolidated financial statements include the
accounts of Champion Parts, Inc. and its subsidiaries (the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation.
Accounts Receivable - From time to time the Company's customers may be in a
net credit balance position due to the timing of sales and core returns. At
December 29, 1996 and December 31, 1995 customers in a net credit balance
position totaled approximately $3,000,000 and $2,500,000, respectively, and
are reported as a component of accounts payables. Merchandise purchases are
normally used to offset net credit balances.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market. Inventory consists of material, labor and
overhead costs.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost, less accumulated depreciation. The assets are being depreciated over
their estimated useful lives, principally by the straight-line method. The
range of useful lives of the various classes of assets is 10-40 years for
buildings and 4-10 years for machinery and equipment. Leasehold improvements
are amortized over the terms of the leases or their useful lives, whichever
is shorter.
In 1995, the Company recorded approximately $350,000 of provision to write
down certain property and equipment to estimated net realizable values in
connection with its decision to exit certain product lines.
Expenditures for maintenance and repairs are charged to operations; major
expenditures for renewals and betterments are capitalized and depreciated
over their estimated useful lives.
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". The adoption of SFAS No. 121 did not have a
material impact on the Company's financial statements.
Excess of Purchase Price Over Net Assets Acquired - The Company is amortizing
the excess of purchase price over net assets acquired over a 25-year period.
The unamortized amount of goodwill was $18,000 and $30,000 in 1996 and 1995,
respectively. The accumulated amortization was $30,000 in 1996 and $24,000
in 1995. In 1995 the Company wrote off $104,000 of the remaining unamortized
goodwill associated with its acquisition of a Canadian distributor. (See
Note 6)
Deferred Charges - Costs of issuing long-term debt are deferred and amortized
over the terms of the related issues.
Line of Business - The Company remanufactures and distributes replacement
fuel systems, constant velocity joint assemblies, charging and starting
components and other functional replacement parts principally for the
passenger car, agricultural and heavy duty aftermarket industry in the
United States and Canada, which is considered to be a single line of business.
Revenue Recognition - The Company recognizes sales when products are shipped.
Net sales reflect deductions for cores (used units) returned for credit and
other customary returns and allowances. Such deductions and returns and
allowances are recorded currently based upon continuing customer
relationships and other criteria. The Company's customers are encouraged to
trade-in rebuildable cores for products which are included in the Company's
current product line.
Credits for cores are allowed only against purchases of similar
remanufactured products. Total available credits are further limited by the
dollar volume of purchases. Product and core returns, reflected as
reductions in net sales, were $17,300,000 (1996), $43,500,000 (1995) and
$61,200,000 (1994).
Loss Per Share of Common Stock - Earnings (loss) per share of common stock
are computed by dividing net income (loss) by the weighted average number of
common shares outstanding. No dilution results from outstanding stock
options and therefore they are not considered.
Estimates - The accompanying financial statements include estimated amounts
and disclosures based on management's assumptions about future events.
Actual results may differ from these estimates.
2. INVENTORIES
Inventories consist of the following:
December 29, December 31,
1996 1995
------------- -------------
Raw materials $ 1,753,000 $ 4,806,000
Work in process 2,622,000 2,529,000
Finished goods 2,665,000 3,365,000
------------- -------------
$ 7,040,000 $ 10,700,000
------------- -------------
Included in inventories were cores of $2,984,000 (1996) and $3,638,000 (1995).
In 1995 the Company recorded a $6,100,000 provision in cost of products sold
to reflect the Company's decision to exit the manufacturing and sale of
automotive electrical and mechanical products to traditional warehouse
distributors and retailers. Writedowns reflect losses realized and expected
to be realized on liquidating the inventory made excess by this decision.
Included in inventories above were reserves of $2,009,000 (1996) and
$5,475,000 (1995) related to discontinued product lines. The Company recorded
$2,200,000 of provisions in cost of products sold in the fourth quarter of
1994 to revalue the Company's inventory. Approximately $1,000,000 of the
amount related to write-downs of the Company's constant velocity joint
inventory to reflect current values. The remaining amount was recorded to
reflect changes in the Company's inventory policies.
3. DEBT
Debt consists of the following:
December 29, December 31,
1996 1995
-------------- ---------------
Bank loan, revolving credit
agreement at prime (8.25% at
December 29, 1996) plus 3-1/2%
due March 31 , 1997 secured by
receivables, inventory and
certain other assets $ 5,928,000 $ 11,629,000
Note payable, past due, Interest
at prime plus 1%. (See Note 11) 100,000 100,000
Mortgage, 12%, originally due in monthly
installments of $21,803 (including
interest) to 2001 (secured by property
having a book value of $2,396,470 at
December 31, 1995). Note paid in full
in 1996. 0 682,000
Capitalized lease obligations under
Industrial Revenue Bonds, at
approximately 60% of prime rate, due
in 2001, varying annual sinking fund
payments commencing in 1998 1,500,000 1,500,000
Other 65,000 251,000
------------ --------------
7,593,000 14,163,000
Less portion due within one year 7,550,000 13,462,000
------------ --------------
$ 43,000 $ 701,000
------------ --------------
Long-term debt maturities (including obligations under capital leases) are
$7,550,000 (1997), $23,000 (1998), and $20,000 (1999).
Under the current amended credit agreement the banks have granted a loan
commitment level of $6.4 million subject to certain collateral requirements.
The Company gave a security interest to the participating banks in its
accounts receivable, inventories, certain real estate and other assets. The
Company agreed to pay interest on outstanding borrowings at the Prime Rate
plus 3-1/2% and an annual commitment fee of 1/2% of the facility.
At December 29, 1996, the Company had available $6.4 million under the
Company's credit agreement of which $5.9 million was borrowed.
The Company has been in default of various covenants of its bank credit
agreement and by cross default reimbursement agreements supporting letters of
credit since April 1995. The Company has obtained interim extensions since
that time. The Company's banks have agreed to forebear from declaring a
default on the Company's credit facility and extend it through March 31,
1997. They have indicated a willingness to continue to extend the facility at
the current levels on a short-term basis as the Company attempts to finalize
a settlement with its unsecured creditors; however, there can be no
assurance that they will continue to fund the Company. The banks also have
indicated that they do not intend to finance the Company on a long term basis.
(See Note 16) The Company has reflected outstanding amounts under the credit
agreement and a $1,500,000 capitalized lease obligation as current maturities
in its 1996 financial statements.
Without an extension of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to pay its debts should
the lenders demand payment and would not be able to continue as a going
concern.
The Company is indebted to various unsecured creditors, including current and
former trade vendors. The Company has not paid these creditors under the
terms of sale. Several trade creditors have initiated legal actions against
the Company seeking payment. 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. The
Company has reached a preliminary understanding with a panel representing
certain of its unsecured creditors holding approximately $5.5 million of
claims (See Note 16 for further discussion). There can be no assurances
that the Company and all the unsecured creditors will be able to consummate
the settlement.
The Company's financial statements have been 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.
The Company made a $100,000 payment on a final installment of $200,000 on a
scheduled payment to Echlin Inc. due April 8, 1995 pursuant to a promissory
note agreement. Echlin Inc. has notified the Company that it is in default
on the note.
The carrying amount of long-term debt approximates fair value because the
interest rates on substantially all the debt fluctuate based on changes in
market rates.
In February 1988, the Employee Stock Ownership Plan ("ESOP"), established by
the Company in 1986 (Note 8), borrowed $3,600,000 from a bank and used a
contribution of $100,000 from the Company to purchase 400,000 shares of the
Company's common stock at the market price of $9.25 per share. The Company
guaranteed the repayment of the 8-1/2% bank loan. The loan was paid in April
1995.
4. INCOME TAXES
The Company uses an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns.
The income tax provision (benefit) consists of the following:
CURRENT 1996 1995 1994
----------- ------------ ------------
Federal $ (50,000) $ (379,000) $ (181,000)
Foreign 0 0 (27,000)
State and local 7,000 1,000 (33,000)
---------- ------------ ------------
$ (43,000) $ (378,000) $ (241,000)
---------- ------------ ------------
DEFERRED
Federal $ 50,000 $ 379,000 $ (67,000)
Foreign 0 0 11,000
State and local 0 0 0
---------- ----------- ------------
50,000 379,000 (56,000)
---------- ----------- ------------
$ 7,000 $ 1,000 $ (297,000)
========== =========== ============
The Company has provided a valuation reserve to write-down deferred tax
assets due to uncertainty of its ability to utilize them in future periods.
At December 29, 1996 the Company had federal, state and foreign net operating
loss carry forwards of $12,064,000, $417,000 and $548,000, respectively.
Federal loss carry forwards begin to expire in 2010. The Company also had
$500,000 of tax credits which can be carried forward indefinitely.
The effective tax rate differs from the U.S. statutory federal income tax
rate of 34% as described below:
1996 1995 1994
------------- ------------ ------------
Income tax (benefit)
at statutory rate $ (499,000) $ (6,406,000) $ (2,086,000)
Valuation allowance 499,000 6,406,000 1,884,000
State income taxes
net of federal income tax 7,000 1,000 (22,000)
Effect of foreign operations --- --- (55,000)
Other --- --- (18,000)
------------- ------------ ------------
$ 7,000 $ 1,000 $ (297,000)
------------- ------------ ------------
Deferred tax assets and liabilities are comprised of the following at
December 29, 1996 and December 31, 1995.
1996 1995
-------------------------- -------------------------
Assets Liabilities Assets Liabilities
----------- ------------- ----------- -------------
Inventory reserves $ 2,649,000 $ 3,437,000
Accrued vacation 215,000 167,000
Fringe benefits 1,819,000 1,596,000
Depreciation $ 378,000 $ 1,372,000
Bad debts 83,000 417,000
Write-off of foreign
subsidiary 547,000 231,000
Restructuring Reserves 542,000 1,210,000
Environmental Contingency 305,000 248,000
Net operating loss
carryforward 5,123,000 4,713,000
Tax credit
carryforward 495,000 500,000
Valuation allowance (11,262,000) (11,049,000)
Other 45,000 100,000 65,000 31,000
------------ ------------ ------------ -----------
$ 561,000 $ 478,000 $ 1,536,000 $ 1,403,000
============ ============ ============ ===========
5. DEFERRED COMPENSATION
In 1984, the Company entered into a deferred compensation agreement with a
former officer which is to be funded with the benefits from whole-life
insurance policies. Under the agreement, the Company's obligation for future
payments could be reduced if the Company did not receive benefits expected
from the policies.
In November 1993 the Company and the former officer entered into a Settlement
Agreement which, in part, provided for the guaranteed payment of one-half of
the deferred compensation benefit irrespective of the proceeds from the life
insurance policies. The remaining deferred compensation benefit is payable
subject to available policy proceeds. The Company agreed to keep two of the
policies in force to fund the obligation and is entitled to reimbursement for
annual policy payments and its annual guaranteed deferred compensation payment
from policy proceeds if they are sufficient. The company has not made the
required minimum deferred compensation payments in 1996 and 1995 and is
currently in discussions with the former officer on a settlement of the
Company's obligation.
6. SPECIAL CHARGES
In 1995, the Company recorded a special charge of $1,602,000 to reflect its
decision to exit the manufacture and sale of automotive electrical
(alternators and starters) and mechanical (clutches and water pumps)
products to warehouse distributors and retailers in the United States and
Canada. These charges included $710,000 in write downs of equipment,
goodwill and recognition of wind down costs, $662,000 in termination benefits
and $230,000 in estimated costs to exit contractual liabilities. The Company
also recorded $6,100,000 in inventory adjustments as a component of cost of
products sold to write down the inventory in these product lines to estimated
net realizable values. Adjustments to these provisions may be necessary in
future periods based on further development of restructuring costs. At
December 31, 1995 the Company had $500,000 reserve to meet future cost. At
December 29, 1996 the Company had $130,000 of reserves remaining to cover
future costs. The Company expects these costs to be incurred in 1997.
Sales to customers affected by the Company's decision accounted for
approximately 56% of 1995 sales.
In the first quarter of 1994 the Company provided a pretax special charge of
$3,400,000 to reflect a plan to reduce excess manufacturing capacity in an
effort to increase operating efficiencies and reduce costs. Of the total
provision, $2,500,000 related to accruals for personnel and plant closure
costs. The remaining $900,000 was recorded to reflect write-downs of fixed
assets affected by the plan to estimated net realizable values.
7. EMPLOYEE STOCK OPTION AND AWARD PLANS
1995 Stock Option Plan - On November 16, 1995, the Company's shareholders
approved a 1995 Stock Option Plan. This plan provides for options to
purchase up to 100,000 shares. Participants in the plan shall be those
employees selected by the Compensation Committee of the Board of Directors.
Options shall be granted at the fair market value of the Company's Common
Stock at the date of grant. No option may be exercised until six months
after the grant date or after 10 years after the grant date. The options
vest ratably over a period not to exceed five years.
Effective January 1, 1996, the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". If the alternative
accounting-related provisions of SFAS No. 123 had been adopted as of the
beginning of 1995, the effect on 1995 and 1996 income before taxes and net
income would have been immaterial.
Information with respect to stock options outstanding under this plan is as
follows:
1996 1995
-------------- --------------
Granted 15,000 55,000
Average Option Price $ 1.00 $ 0.625
At Year End:
Shares Underlying Options 70,000 55,000
Exercisable 70,000 0
Available for Grant 30,000 45,000
1982 Incentive Stock Option Plan - During 1982, the stockholders approved the
1982 Incentive Stock Option Plan. The plan provided options to purchase
93,750 shares at prices equivalent to the fair market value at the date of
grant for officers and other key employees. Options became exercisable, in
whole or part, one year from the date of the grant. No options were
exercised under this plan in 1995, 1994 and 1993 and all options outstanding
have expired.
On August 22, 1995 (the "Grant Date"), the Company granted its President and
Chief Executive Officer an option to purchase 25,000 Common Shares at a price
of $1.00 per share. The option may be exercised immediately and will expire
in five years from the Grant Date, subject to earlier termination of his
employment. As of December 29 1996 he had not exercised any of these options.
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
Salaried employees with one or more years of service are eligible to
participate in an Employee Stock Ownership Plan ("ESOP"), which was
established in 1986. The plan provides for graduated vesting of
participants' interests with full vesting upon completion of the fifth year
of service. The ESOP shares were fully distributed in 1995. The aggregate
expense of the ESOP charged to operations was $532,000 and $573,000 for
1995 and 1994, respectively.
Salaried employees with one year of service are eligible to participate in a
401(k) plan ("Thrift Program"). Under this program, contributions are 100%
vested.
Hourly employees of three facilities are covered under the Company's
noncontributory pension plans or under a union-sponsored plan to which the
Company contributes. The benefits are based upon years of service. The
Company's contribution consists of an amount to annually fund current service
costs and to fund past service costs over 30 years. The Company's funding
policy for these plans is to meet, at a minimum, the annual contributions
required by applicable regulations.
In connection with the Company's 1995 and 1994 restructuring plans (See Note
6), curtailment losses of $40,000 and $220,000, respectively, were included
in the special charges.
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheets for its pension plans:
December 29, December 31,
1996 1995
--------------- ---------------
Accumulated Accumulated
Benefits Benefits
Exceed Assets Exceed Assets
--------------- ---------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 6,562,000 $ 6,491,000
Nonvested benefit obligation 14,000 43,000
--------------- --------------
Accumulated benefit obligation 6,576,000 6,534,000
Plan assets at fair value,
primarily equity funds 6,094,000 5,584,000
--------------- --------------
Projected benefit obligations in
excess of plan assets (482,000) (950,000)
Unrecognized net (gain) from
past experience different from that
assumed and effects of changes in
assumptions (836,000) (263,000)
Unrecognized prior service cost 85,000 91,000
Unrecognized net (obligation) asset at
January 1, 1988 being recognized
over 18 to 26 years 2,000 0
Adjustment to recognize minimum
liability --- (99,000)
--------------- --------------
Accrued pension cost included in
accrued expenses $ (1,231,000) $ (1,221,000)
--------------- --------------
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation at December 29, 1996 and
December 31, 1995, were 7.5%. The expected rate of return on assets was 8%.
No projected wage increases are included in the calculation of the projected
benefit obligation as the pension plan benefits are not based upon wage
levels.
Pension cost for 1996, 1995 and 1994 consists of the following:
1996 1995 1994
------------ ----------- ------------
Service cost - benefits earned
during the period $ 124,000 $ 149,000 $ 236,000
Interest cost on projected
benefit obligation 458,000 432,000 401,000
Actual return on plan assets (705,000) (1,192,000) (19,000)
Net amortization and deferral 233,000 790,000 (331,000)
------------ ----------- ------------
$ 110,000 $ 179,000 $ 287,000
------------ ----------- ------------
9. LEASES
The Company leases certain plants and offices, trucks and trailers,
automobiles and computer equipment. Certain of the real estate leases,
constituting non-financing leases, have provisions for renewal. These lease
renewals are primarily for five years. Obligations under capital leases are
included as a part of long-term debt.
Total rental expense charged to operations was $365,000 (1996), $621,000
(1995) and $1,927,000 (1994).
Minimum commitments under all noncancelable operating leases at December 29,
1996, are as follows:
1997 $ 226,000
1998 233,000
1999 223,000
2000 63,000
2001 62,000
------------
TOTAL $ 807,000
============
10. SALES TO MAJOR CUSTOMERS
In 1996, sales to the Company's four largest customers were approximately
37%, 17%, 14% and 14% of net sales. In 1995, sales to the Company's four
largest customers were approximately 14%, 13%, 12% and 11% of net sales.
In 1994 sales to the Company's three largest customers were approximately
20%, 15% and 13% of net sales. At December 29, 1996 accounts receivable
balances of the Company's four largest customers were approximately 20%, 16%,
9% and 4% of total gross receivables. At December 31, 1995 accounts
receivable balances of the Company's four largest customers were
approximately 22%, 17%, 7% and 3% of total receivables.
Given the Company's current financial condition and its manufacturing cost
structure, the loss of a large customer could have a materially adverse
impact on the Company's results and could affect the Company's ability to
remain a going concern.
11. RELATED PARTY TRANSACTIONS
On March 9, 1992, Echlin, Inc. exercised its market value rights under a 1992
stock purchase agreement with the Company. The Company reduced its
Additional Paid-In Capital by $2,400,000 and recorded a note payable of the
same amount which is being paid to Echlin in quarterly installments of
$200,000. The note carries an interest rate of 1% above prime. See Note 3
regarding a discussion of the status of the Echlin note payments.
Total purchases from Echlin approximated $1,175,000, $2,030,000, and
$2,606,000 in 1996, 1995 and 1994, respectively, of which $634,000,
$631,000 and $450,000 were unpaid at year end 1996, 1995 and 1994,
respectively.
In March 1997 the company announced that it had entered into negotiations
with Raymond G. Perelman, a principal stockholder and director, on a stock
and warrant purchase agreement. See Note 16 for additional information.
12. ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local environmental laws
and regulations incidental to its business. The Company continues to modify,
on an ongoing basis, processes that may have an environmental impact.
The Company has been named, along with a number of other companies, as a
Potentially Responsible Party in several Federal and state sites where the
Company had operations or where byproducts from the Company's manufacturing
processes were disposed. The current landowner at a former plant site has
sued the Company and two other parties. The plaintiff is seeking judgment
that the Company and co-defendants cover the costs to remediate the plant
site and related costs of a Federal cleanup action and unspecified damages.
The Company and its insurance carriers have agreed to provide a defense, with
a reservation of rights. Three of the sites are currently active, and the
others have been settled or are dormant. The Company has undertaken
voluntary actions at its current plant sites ranging from periodic testing to
modest amounts of soil and water remediation and storage tank removal.
The Company has $900,000 in reserves for anticipated future costs of pending
environmental matters at December 29, 1996. Such costs include the Company's
estimated allocated share of remedial investigation/feasibility studies and
clean-up and disposal costs. No recoveries from insurance policy coverage or
other third parties has been recorded. The Company's ultimate costs are
subject to further development of existing studies and possible readjustment
of the Company's pro rata share of total costs.
13. INVESTMENTS
The Company has a 50% equity investment in a foreign joint venture. The
Company, through a wholly owned foreign subsidiary, is a joint and several
guarantor of Canadian $1.75 million of bank debt with its partner in a 50%
owned Canadian venture. The amount of the loan plus accrued and unpaid
interest was Canadian $1,100,000 at December 29, 1996. In 1992, the Company
wrote off its investment in the venture and provided a reserve for a
contingent liability to exit this venture. The Company accounts for this
venture using the equity method. Given the venture's current financial
situation and the pending guarantees from the Company, the Company has
continued to record its investment at a zero estimated net realizable value
and maintain a reserve for additional contingent financial exposure.
14. OTHER ACCRUED EXPENSES.
Other accrued expenses consist of the following:
December 29, December 31,
1996 1995
--------------- ---------------
Interest $ 240,000 $ 212,000
Workers' compensation 2,374,000 1,834,000
Pension (See Note 8) 1,231,000 1,221,000
Medical insurance 248,000 533,000
Deferred compensation 608,000 575,000
Rebates 57,000 423,000
Environmental costs 898,000 995,000
Restructuring 132,000 626,000
Joint venture 802,000 802,000
Other items 324,000 483,000
-------------- ---------------
$ 6,914,000 $ 7,704,000
============== ===============
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and income taxes was as follows:
1996 1995 1994
------------- ------------- ------------
Interest $ 1,489,000 $ 2,237,000 $ 2,363,000
Income taxes 0 86,000 330,000
16. SUBSEQUENT EVENTS
The Company has reached a preliminary understanding with a panel representing
certain of its unsecured trade creditors. The understanding would provide
for the Company to pay approximately $1.7 million (or 31%) in full
settlement of approximately $5.5 million in specified unsecured claims ("the
settlement class"). These claims consist primarily of certain trade
obligations arising prior to April 1995 and certain retrospective insurance
premiums. Since that time, the Company has only been paying for current
purchases due to its limited financial resources.
To fund the settlement, the Company contemplates using $600,000 in existing
cash reserves and a $1.175 million cash infusion from Raymond G. Perelman,
or a company affiliated with him. Mr. Perelman is a principal
stockholder and director of the Company. Mr. Barry Katz, also a director of
the Company, is the President a company affiliated with Mr. Perelman. In
exchange for the proposed cash infusion, RGP would receive from the Company
one million newly issued common shares, warrants to purchase two million
common shares at 50 cents per share of which 1,100,000 would be callable
at $0.50 per warrant, 1,250,000 cumulative redeemable 7% preferred shares
with voting rights and a stated value of $0.40 per share, and a $275,000
promissory note carrying a 7% interest rate. The note would be partially
secured by certain Company-owned real estate. For a three year period, the
Comapny would have the right to repurchase warrants covering 1,100,000
shares for $550,000. The proposed agreement with RGP would also increase
the Company's board from seven to nine members and allow Mr. Perelman to
designate a majority of the Board.
The creditor settlement would be subject to ratification by members of the
settlement class, of which there are approximately 40 members and
completion of the necessary agreements with the creditors and Mr. Perelman.
The Company at present intends to solicit the unsecured creditors'
participation through a composition agreement early in the second quarter.
It is contemplated that this settlement would be accomplished out of court
and completed in the second quarter. Because this plan contemplates the
particiation of each unsecured creditor in the class, there is no assurance
that the Company will be able to complete this process. If prior agreement
among those creditors approving a settlement is obtained, the Company may
seek court protection under Chapter 11 of the Bankruptcy Code to confirm the
plan. If this occurs, there are certain inherent legal and business risks
that could cause the actual reorganization plan to be different than that
proposed, could delay or jeopardize accomplishment of the reorganization.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
Net
Net earnings
Net Gross earnings (loss)
sales margin (loss) per share
- -----------------------------------------------------------------------------
1996 $ 27,556 $ 4,411 $ (1,467) $ (0.40)
- -----------------------------------------------------------------------------
Quarters:
Fourth 6,812 822 (481) (0.13)
Third 5,310 539 (816) (0.22)
Second 7,222 1,182 (376) (0.10)
First 8,212 1,868 206 0.05
- -----------------------------------------------------------------------------
1995 $ 52,954 $ (2,966) $ (18,840) (5.15)
- -----------------------------------------------------------------------------
Quarters:
Fourth (1) 6,613 (2,735) (4,946) (1.35)
Third (1) 8,729 (796) (3,281) (0.90)
Second (1) 16,308 (2,339) (8,494) (2.32)
First (1) 21,304 2,904 (2,119) (0.58)
(1) The second, third and fourth quarters reflect special charges and
inventory provisions related to the Company's decisions to exit the
manufacture and sale of passenger car electrical (alternators and starters)
and mechanical (clutches and water pumps) products to warehouse distributors
and retailers in the United States and Canada. The following table sets
forth the amounts by period.
Special Inventory
Charge Provision
------------- ----------------
Fourth Quarter $ 339,000 $ 2,600,000
Third Quarter 130,000 500,000
Second Quarter 1,133,000 3,000,000
CHAMPION PARTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions to/
Balance at Charged (Deductions) Balance
Beginning to From at End
of Period Operations Reserves of Period
------------ ------------ -------------- -----------
ALLOWANCE FOR
UNCOLLECTIBLE
ACCOUNTS:
Year Ended
January 1, 1995 $ 406,000 $ 80,000 $ (21,000) $ 465,000
------------ ------------ ------------- ------------
Year Ended
December 31, 1995 $ 465,000 $ 704,000 $ 546,000(1) $1,715,000
------------ ------------ -------------- -----------
Year Ended
December 29, 1996 $1,715,000 $ 6,000 $ (926,000) $ 795,000
------------ ------------ -------------- -----------
(1) Represents a reclassification of previously established reserves.
CHAMPION PARTS, INC.
EXHIBIT INDEX
____________________
(Pursuant to Item 601 of Regulation S-K)
Total
Pages
NO. DESCRIPTION AND PAGE OR INCORPORATION REFERENCE
Articles of Incorporation and By-Laws
(3)(a) Articles of Incorporation (incorporated by reference to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1988)
(3)(b) By-Laws (incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended January 2, 1994).
Instruments Defining the Rights of Security
Holders, Including Indentures
(4)(a) Stock Purchase Agreement dated March 18, 1987 between the Registrant
and Echlin Inc. (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1986)
(4)(b) Agreed Final Judgment Order dated January 5, 1988 entered by the
United States District Court for the Northern District of Illinois,
Case No. 86 C 8906 (incorporated by reference to Registrant's
Current Report on Form 8-K dated December 29, 1987)
(4)(c) Agreement dated December 29, 1987 by and among the Company,
Nicole M. Cormier, Claude A. Cormier and Daniel O. Cormier
(incorporated by reference to Registrant's Current Report on
Form 8-K dated December 29, 1987)
(4)(d) Agreement dated April 28, 1987 between the Registrant and
Scott Hodes (incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987)
(4)(e) Specimen of Common Share Certificate (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988)
(4)(f) Articles of Incorporation (see Exhibit (3)(a) above)
Total
Pages
(4)(g) By-Laws (see Exhibit (3)(b) above).
(With respect to long-term debt instruments, see
"Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K".)
(4)(h) Term of Series A Redeemable Cumulative Convertible
Voting 9% Preferred Shares (Incorporated by reference
to Registrant's Form 8-K filing dated March 23, 1995.)
Material Contracts
(10)(a) Continuing Unconditional Guaranty dated February 12, 1988 by the
Company of indebtedness of Charles P. Schwartz, Jr. and
Leonard D. O'Brien (now Kevin J. O'Connor), as trustees
of the Champion Parts, Inc. Employee Stock Ownership Trust, to the
Exchange National Bank of Chicago (now LaSalle National Bank)
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987)
(10)(b) Amended and Restated Indemnification Agreement dated as of
August 17, 1989 between the Registrant and Charles P. Schwartz, Jr.
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989) (1)
(10)(c) Agreement dated as of December 28, 1983 between Registrant and
Raymond F. Gross (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1983) (1)
(10)(d) 1984 Stock Bonus Plan, amended as of October 20, 1988 (incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988) (1)
(10)(e) 1982 Incentive Stock Option Plan, as amended November 19, 1987
(incorporated by reference to Registrant's Current Report on Form 8-K
dated November 19, 1987) (1)
(10)(f) Form of Incentive Stock Option Agreement and Schedule of Incentive
Stock Option Agreements executed by executive officers of the Registrant
(incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988) (1)
(10)(g) Amended and Restated Employment and Deferred Compensation Agreement
dated as of June 7, 1989, between Registrant and Charles P. Schwartz, Jr.
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 29, 1991) (1)
Total
Pages
(10)(h) Agreement dated as of June 7, 1989 between the Registrant and
Robert C. Mikolashek (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29, 1991) (1)
(10)(I) Agreement dated December 16, 1992 between the Registrant and
Charles P. Schwartz, Jr. (incorporated by reference to Registrant's Current
Report on Form 8-K dated December 16, 1992) (1)
(10)(j) Amended and Restated Credit Agreement dated as of March 31, 1993
among the Registrant, LaSalle National Bank (the successor to Exchange
National Bank of Chicago), NBD Bank, N.A., American National Bank and Trust
Company of Chicago, and Harris Trust and Savings Bank (assignee of The
Northern Trust Company) (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1993.)
(10)(k) Security Agreement dated as of March 31, 1993 by and between the
Registrant and LaSalle National Bank acting as collateral agent for
NBD Bank, N.A., American National Bank and Trust Company of
Chicago, and Harris Trust and Savings Bank (Incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
January 3, 1993.)
(10)(l) Settlement Agreement dated November 23, 1993 between Registrant
and Charles P. Schwartz, Jr. (Incorporated by reference to Registrant's
current report on Form 8-K dated November 23, 1993). (1)
(10)(m) Form of Letter from Registrant to LaSalle National Bank (the
successor of Exchange National Bank of Chicago), NBD Bank, N.A., and Harris
Trust and Savings Bank (assignee of The Northern Trust Company)
dated March 14, 1994 (incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended January 2, 1994).
(10)(n) First Amendment to Amended and Restated Credit Agreement
dated March 30, 1994 among Registrant, LaSalle National Bank
(the successor of Exchange National Bank of Chicago), NBD Bank,
N.A., and Harris Trust and Savings Bank (assignee of The Northern
Trust Company). (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended January 2, 1994).
(10)(o) Indemnification Agreement dated as of March 8, 1994 between the
Registrant and Donald G. Santucci and Schedule of Indemnification
Agreements executed by directors and executive officers of the Registrant.
(Incorporated by reference to Registrant's Annual Report on Form 10-K
for the year ended January 2, 1994). (1)
(10)(p) Agreement, as amended, between Registrant and Raymond G. Perelman
dated September 20, 1993 (incorporated by reference to Registrant's
current Report on Form 8-K dated March 7, 1994.)
Total
Pages
(10)(q) Supply Agreement dated March 18, 1987 between the Registrant
and Echlin Inc. (incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988)
(10)(s) Settlement Agreement between Registrant and Charles P. Schwartz, Jr.
(Incorporated by reference to the Registrant's Current Report on
Form 8-K dated November 23, 1993.)
(10)(t) Agreement between Registrant and Raymond G. Perelman dated
September 20, 1993. (Incorporated by reference to the Registrant's
Current Report on Form 8-K dated March 7, 1994.)
(10)(u) Second Amendment to Amended and Restated Credit Agree-
ment dated March 31, 1995 among Registrant, LaSalle National
Bank (the successor of Exchange National Bank of Chicago),
NBD Bank, N.A., and Harris Trust and Savings Bank (assignee
of The Northern Trust Company). (Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended
January 1, 1995).
(10)(v) Letter Agreement between the Registrant and
Mr. Raymond G. Perelman dated February 21, 1995 (incorporated
by reference to the Registrant's Current Report on Form 8-K filed
February 21, 1995).
(10)(w) Preferred Stock Purchase Agreement between the Registrant and
Mr. Raymond G. Perelman dated March 23, 1995 (incorporated
by reference to the Registrant's Current Report on Form 8-K
dated March 23, 1995).
(10)(x) Third Amendment to the Amended and Restated Credit Agreement
dated August 4, 1995 among Registrant, LaSalle National Bank
(the successor of Exchange National Bank of Chicago), NBD
Bank, N.A., and Harris Trust and Savings Bank (assignee of
The Northern Trust Company). (Incorporated by reference to
Form 10-Q filed August 23, 1995)
(10)(y) Stock Option Agreement dated August 22, 1995 between Registrant
and Thomas W. Blashill. (Incorporated by reference to Form 10K
for the year ended December 31, 1995). (1)
(10)(z) Letter Agreement dated October 9, 1995 between Registrant and
RGP Holding, Inc. (Incorporated by reference to Form 10-Q
filed November 24, 1995.)
(10)(aa) 1995 Stock Option Plan as of November 1, 1995. (Incorporated by
reference to Registrant's 1995 Proxy). (1)
(10)(bb) Severance Agreement dated November 13, 1995 between the
Registrant and Richard B. Hebert. (Incorporated by reference to Form
10K for the year ended December 31, 1995). (1)
(10)(cc) Severance Agreement dated August 9, 1994 between Registrant
and Mark Smetana. (Incorporated by reference to Form 10K for the
year ended December 31, 1995). (1)
Total
Pages
(10)(dd) Fourth Amendment to Amended and Restated Credit Agreement
dated January 8, 1996 among Registrant, LaSalle National Bank,
(the successor of Exchange National Bank of Chicago), NBD Bank,
N.A., and Harris Trust and Savings Bank (assignee of The Northern
Trust Company). (Incorporated by reference to Current Report on
Form 8-K filed January 25, 1996.)
(10)(ee) Fifth Amendment to Amended and Restated Credit Agreement
dated May 20, 1996 among Registrant, LaSalle National Bank, (the
successor of Exchange National Bank of Chicago), NBD Bank, N.A.,
and Harris Trust and Savings Bank (assignee of The Northern Trust
Company). (Incorporated by reference to Form 10-Q filed June 3,
1996).
(10)(ff) Eleventh Amendment to Amended and Restated Credit Agreement
dated March 17, 1997 among Registrant, LaSalle National Bank,
(The successor of Exchange National Bank of Chicago), NBD Bank,
N.A., and Harris Trust and Savings Bank (assignee of The Northern
Trust Company). (included herein on page 61).
Subsidiaries
(21) List of Subsidiaries of Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 1991)
Additional Exhibits
(27) Financial Data Schedules
Note: (1) Denotes management contract or compensatory plan or arrangement
required to be filed as an Exhibit to this report pursuant to item 601 of
Regulation S-K.
________
Champion Parts, Inc. will furnish any of the above exhibits for which total
number of pages is indicated above, to requesting security holders upon
payment of a photocopying charge of $.10 per page, and a postage charge of
$.32 for the first seven pages or fewer and $.23 for each additional seven
pages or fewer, subject to adjustment for changes in postal rates.
Exhibit (10) (ff)
ELEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Eleventh Amendment to Amended and Restated Credit Agreement (this
"Eleventh Amendment") is made and entered into as of the 17th day of
March, 1997, 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
agreement, documents and instruments executed and delivered by the Cmpany
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 from March 17, 1997, to March 31, 1997; and
WHEREAS, the Banks are willing to extend the Termination Date from March 17,
1997, to March 31, 1997, but solely on the terms and subject to the
conditions set forth in this Eleventh 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
Eleventh Amendment.
1. Terms. All terms which have an initial capital letter in this Eleventh
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 4 of this Eleventh Amendment, the Termination
Date of the Credit Agreement is hereby extended to and including March 31,
1997.
3. Trade Creditors. The Company acknowledges that it is currently engaged in
and shall continue to engage in negotiations with various trade creditors of
the Company (collectively the "Trade Creditors"), for the purpose of, among
other things, discussing the obligations owed to the Trade Creditors. The
Company covenants and agrees to promptly deliver to the Collateral Agent upon
the Collateral Agent's request a report setting forth the progress and status
of the negotiations with the Trade Creditors, such report being certified as
to accuracy and completeness by the President or the Vice President - Finance
of the Company (the "Trade Creditors Report"). The Trade Creditors Report
shall be in form and substance acceptable to the Bank. In addition, the
Company covenants unto the Banks, the Agent and the Collateral Agent to
deliver to the Agent, immediately upon the Company's receipt or delivery
thereof, any and all agreements, whether a draft or otherwise, received from
or forwarded to the Trade Creditors.
4. Conditions Precedent.
A. The Banks shall be obligated to extend the Termination Date through
March 31, 1997, and to enter into this Eleventh Amendment, subject to the
full and timely performance of any conditions precedent contained in the
Champion Loan Documents and this Eleventh Amendment and the full and timely
performance of the following covenants either prior to or contemporaneously
with the execution and delivery of this Eleventh 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 opinion of counsel letter executed and
delivered by Lord, Bissell & Brook, which opinion letter shall
opine that this Eleventh Amendment and the "Other Eleventh
Amendment Documents" (hereinafter defined) have been duly and
properly executed and delivered by a duly authorized officer
of the Company.
(b) that certain Promissory Note of even date herewith
executed and delivered by the Company to LaSalle in the
principal amount of Three Million Six Hundred Fifty-Three
Thousand One Hundred Sixty-Seven and 34/100 Dollars
($3,653,167.34);
(c) that certain Promissory Note of even date herewith
executed and delivered by the Company to Harris in the
principal amount of One Million One Hundred Eighty-Nine
Thousand Four Hundred Fifty and 18/100 Dollars
($1,189,450.18);
(d) that certain Promissory Note of even date herewith
executed and delivered by the Company to NBD in the
principal amount of One Million Five Hundred Seventy-Eight
Thousand Three Hundred Eighty-Two and 48/100 Dollars
($1,578,382.48); and
(e) 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 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 Eleventh Amendment,
any other agreements, documents and instruments executed and
delivered in connection with this Eleventh Amendment (the
"Other Eleventh Amendment Documents"), and the indebtedness
evidenced by the Champion Loan Documents, this Eleventh
Amendment and/or the Other Eleventh 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.
3. Other than (a) the alleged default described in Section
3 of that certain Fifth Amendment to Amended and Restated
Credit Agreement dated as of May 20, 1996, effective as of
March 31, 1996, by and among the Company, the Agent, the
Collateral Agent and the Banks (the "Fifth Amendment"), (b)
those defaults described in Section 3 of that certain Sixth
Amendment to Amended and Restated Credit Agreement dated as
of August 30, 1996, effective as of July 1, 1996, by and
among the Company, the Agent, the Collateral Agent and the
Banks (the "Sixth Amendment"), (c) those defaults described
in Section 9.A. of this Eleventh Amendment, and (d) those
defaults described in those certain letters dated August 3,
1995 and May 31, 1996, from the Banks to the Company
(collectively the "Default Letter"), no breach, default or
event of default has occurred pursuant to the Champion Loan
Documents, this Eleventh Amendment or the Other Eleventh
Amendment Documents.
4. The representations and warranties contained in the
Champion Loan Documents, this Eleventh Amendment and the
Other Eleventh Amendment Documents shall be true and correct.
5. The Company has not spent or withdrawn all or any
portion of the "Life Insurance Proceeds" (as defined in the
Fifth Amendment) on deposit in the LaSalle Account, except in
accordance with the 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 Eleventh 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 Eleventh Amendment, the Other Eleventh
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 Comany's obligations to pay such fees, costs,
charges, obligations and expenses.
3. Other than (a) the alleged default described in Section
3 of the Fifth Amendment, (b) those defaults described in Section 3
of the Sixth Amendment, (c) those defaults described in Section 9.A.
of this Eleventh Amendment, and (d) those defaults described in the
Default Letter, no breach, default or event of default has occurred
pursuant to the Champion Loan Documents, this Eleventh Amendment or
the Other Eleventh Amendment Documents.
4. The representations and warranties contained in the
Champion Loan Documents, this Eleventh Amendment and the Other
Eleventh Amendment Documents shall be true and correct.
5. The Company has not spent or withdrawn all or any
portion of the Life Insurance Proceeds on deposit in the LaSalle
Account, except in accordance with the Fifth Amendment.
5. Revolving Commitment. The amount of each Bank's Commitment and each
Bank's Percentage Share is set forth on the signature pages hereto. The
Total Revolving Commitment of all of the Banks from the date hereof through
and including March 31, 1997, is Six Million Four Hundred Twenty-One Thousand
and no/100 Dollars ($6,421,000.00).
6. 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 Eleventh
Amendment and the Other Eleventh 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 Eleventh Amendment and the Other Eleventh
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 BankruptcyCode or any similar federal, state or local law,
statute or regulation has not been filed by or against the Company.
7. Default. The Company shall be in default under the terms and provisions
of this Eleventh 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 Eleventh Amendment or
the Other Eleventh Amendment Documents;
B. Other than (1) the alleged default described in Section
3 of the Fifth Amendment, (2) those defaults described in Section 3
of the Sixth Amendment, (3) those defaults described in Section 9.A.
of this Eleventh Amendment, and (4) those defaults described in the
Default Letter, the Company breaches any covenant, agreement or
obligation set forth in the Champion Loan Documents, this Eleventh
Amendment or the Other Eleventh 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 the Fifth Amendment, (2) those defaults described in Section 3
of the Sixth Amendment, (3) those defaults described in Section 9.A.
of this Eleventh Amendment, and (4) 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 Eleventh Amendment is and shall constitute an Event of Default under the
Champion Loan Documents and the Other Eleventh 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 Eleventh Amendment and the Other
Eleventh 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 hereafter due and owing from the Cmpany to the Banks, the
Agent and the Collateral Agent. The Company acknowledes 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.
8. 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.
9. 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, the Event of
Default described in Section 3 of the Sixth Amendment and the alleged
default described in Section 3 of the Fifth Amendment (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 Eleventh Amendment, the Other Eleventh
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 Eleventh Amendment or the Other
Eleventh 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 Eleventh Amendment or the Other
Eleventh Amendment Documents or upon an additional or other default
or event of default under the Champion Loan Documents, then the
Continuing Covenent 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 full
enforceable.
C. Nothing contained in this Eleventh Amendment or the
Other Eleventh 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 Eleventh Amendment or the Other
Eleventh Amendment Documents, at law, in equity or otherwise.
Nothing contained in this Eleventh Amendment or the Other Eleventh
Amendment Documents shall affect the Company's obligation to fully
and timely pay the Champion Indebtedness.
10. Waiver and Release. In consideration of the Banks', the Agent's
and the Collateral Agent's execution and delivery of this Eleventh
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 Cmpany 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 Eleventh
Amendment, the Other Eleventh 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 admint any liability on behalf of the
Banks, the Agent and the Collateral Agent.
11. Authority To Execute This Eleventh 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 Eleventh Amendment and the Other Eleventh
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 Eleventh Amendment and the Other
Eleventh Amendment Documents, and (c) the execution and delivery of
this Eleventh Amendemtn and the Other Eleventh Amendment Documents
shall not breach any agreement, instrument or document to which the
Comany is a party or by which it is bound.
12. Construction. This Eleventh Amendment shall be interpreted,
construed and governed by and under the laws of the State of Illinois.
A. Wherever possible, each provision of this Eleventh
Amendment shall be interpreted in such manner as to be valid and
enforceable under applicable law, but if any provision of this
Eleventh 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 Eleventh 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 la, such provision shall be deemed to be
modified so as to be valid and enforceable to the maximum extent
permitted by law.
B. The Paragraph headings contained in this Eleventh
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 Eleventh Amendment, or any Paragraph or
provision hereof.
C. This Eleventh 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.
D. This Eleventh 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
Eleventh Amendment and the Other Eleventh Amendment Documents without
notice to or the consent of the Company.
E. 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 Eleventh Amendment or the Other
Eleventh 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 Eleventh Amendment may not be altered,
changed, amended or modified, except in accordance with Section 11.1
of the Credit Agreement.
F. This Eleventh Amendment, together with the Other
Eleventh Amendment Documents, constitutes the entire agreement among
the Company, the Banks, the Agent and the Collateral Agent with regard
to the subject matter hereof.
G. If, and to the extent the terms and provisions of this
Eleventh 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 Eleventh Amendment shall govern and control; provided, however,
to the extent the terms and provisions of this Eleventh Amendment do
not contradict, modify, supersede or conflict with the terms and
provisions of the Champion Loan Documents, including, but not limted
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 Eleventh 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, individually
Revolving Commitment Share as Agent and as Collateral Agent
As of March 17, 1997, 56.894056% By: /s/ Christopher G. Cllifford
----------------------------
through and including Title: Senior Vice President
m -------------------------
March 31, 1997, $3,653,167.34
Amount of NBD's Percentage NBD BANK
Revolving Commitment Share
As of March 17, 1997, 24.581568% By: /s/ P. McCaffrey
---------------------------
through and including Title: Vice President
------------------------
March 31, 1997, $1,578,382.48
Amount of Harris' Percentage HARRIS TRUST AND
Revolving Commitment Share SAVINGS BANK
As of March 17, 1997, 18.524376% By: /s/ Michael Wood
----------------------------
through and including Title: Vice President
-------------------------
March 31, 1997, $1,189,450.18
TOTAL REVOLVING COMMITMENT
As of March 17, 1997, through and including
March 31, 1997, $6,421,000.00
<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 TWELVE MONTHS ENDED DECEMBER 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 707000
<SECURITIES> 0
<RECEIVABLES> 5924000
<ALLOWANCES> 795000
<INVENTORY> 7040000
<CURRENT-ASSETS> 13689000
<PP&E> 21192000
<DEPRECIATION> 15683000
<TOTAL-ASSETS> 19666000
<CURRENT-LIABILITIES> 23630000
<BONDS> 43000
<COMMON> 366000
0
0
<OTHER-SE> (4851000)
<TOTAL-LIABILITY-AND-EQUITY> 19666000
<SALES> 27556000
<TOTAL-REVENUES> 27556000
<CGS> 23145000
<TOTAL-COSTS> 23145000
<OTHER-EXPENSES> 4382000
<LOSS-PROVISION> 6000
<INTEREST-EXPENSE> 1489000
<INCOME-PRETAX> (1460000)
<INCOME-TAX> 7000
<INCOME-CONTINUING> (1467000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1467000)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
