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 28, 1997
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 (IRS Employer Identification Number)
of incorporation or organization)
751 Roosevelt Rd., Bldg. 7, Suite 110, Glen Ellyn, IL 60137
_____________________________________________________ ___________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 630 942-8317
__________________________________________________ ____________
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, 1998, 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 $1,169,685. 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 system components
(carburetors and diesel fuel injection components) 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 28, 1997, December 29, 1996, and
December 31, 1995, the Company's sales of parts for automobiles (including
light duty trucks) accounted for approximately 78%, 74% and 89%,
respectively, of the Company's net sales, and sales of parts for heavy duty
trucks and farm equipment accounted for approximately 22%, 26% and 11%,
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 28, 1997, approximately 10% were to
automotive warehouse distributors; approximately 33% were to manufacturers of
automobiles, trucks and farm equipment and heavy duty fleet specialists;
and approximately 57% 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
applications of its products to varied automotive equipment.
During the fiscal year ended December 28, 1997, the four largest customers of
the Company accounted for approximately 38% (AutoZone, Inc.),19% (Advance
Auto Parts), 18% (John Deere), and 12% (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 Transnet computerized
order entry system which is administered by the Motor Equipment Manufacturers
Association. The MEMA Transnet 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 has direct Electronic Data Interchange with its
largest customers.
As of December 28, 1997, sales were made by two 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 such 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 1997 or 1996.
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 be 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 retains a Director of Quality Assurance who conducts periodic
quality audits of the Company's plants under its quality improvement program
to test product quality and compliance with specifications.
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. The Company believes such activities
improve the Company's ability to serve the needs of its customers.
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.
Although management believes that the current level of Environmental Reserves
are adequate to satisfy the future compliance with the environmental laws,
the ultimate outcome of its environmental matters and potential insurance
settlements are undeterminable. Given the Company's current financial
condition, the resolution of these matters could have a material impact
on the Company's financial condition and operating results. See Item 3,
Legal Proceedings - Environmental Matters for additional discussion.
Employees
As of December 28, 1997, the Company employed approximately 430 persons,
including 60 salaried employees at corporate headquarters and plant
locations; and approximately 370 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. In September 1997, the International Brotherhood of
Electrical Workers at the Company's Pennsylvania facility, reopened its
three year contract. The reopener was to address a wage increase and was
settled in February, 1998 with a modest increase and gain sharing program.
Item 2. Properties
The Company's corporate headquarters are presently located at 751 Roosevelt
Rd., Bldg. 7, Suite 110, Glen Ellyn, Illinois. It leases 3,600 square feet
of office space at that location. 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 -0-
Oshawa, Ontario, Canada 4,000 -0-
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
1. Beech Creek, Pennsylvania Facility Soil and Groundwater Contamination.
In May, 1991, the Pennsylvania Department of Environmental Resources
("PADER") notified the Company that there was evidence of trichloroethylene
and trichloroethane in the soil, and possibly the groundwater under the
Beech Creek facility. Further, PADER was concerned that the contamination
had migrated off site. PADER demanded that the Company conduct an
investigation to determine the source and extent of the contamination, and
perform any required cleanup.
The Company retained a qualified environmental consultant, Todd Giddings &
Associates, Inc. ("TGAI") to prepare a site investigation plan. In June of
1992 PADER approved the investigation plan. The plan included extensive soil
testing and groundwater monitoring. TGAI completed the investigation in 1995.
Cleanup commenced in 1995 at the Beech Creek plant. Cleanup activities
consist 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, recent experience has shown that the
maintenance and operation of the system has been approximately $20,000 per
year. The Company's current consultant, Advanced Resource Management
Group, Inc. ("ARMG") currently is unable to predict how long the groundwater
pump and treat system will have to operate.
The Company is currently considering other innovative technology approaches
and risk based site specific cleanup standards under Pennsylvania's new "Act
Two," which might shorten the remediation period. Finally, the Beech Creek
matter is a subject of the insurance carrier litigation (paragraph 3 below),
and the Company has settled with one and is in settlement negotiations with
the of balance of carriers.
2. Lawson Street, City of Industry, California Cleanup Proceedings, and
Puente Valley, California Superfund Proceeding. The Company formerly
operated a manufacturing facility at 825 Lawson Street, City of Industry,
California. In response to requirements imposed by the Los Angeles Regional
Water Quality Control Board (the "Los Angeles Board") in letters dated
March 27, 1992, and April 18, 1994, the Company, along with another former
lessee and a former owner of the Lawson Street property, retained an
environmental consultant to perform a site assessment of the Lawson Street
property. The site assessment, completed in July, 1994, revealed volatile
organic compounds in the soil and shallow groundwater beneath the Lawson
Street property. A site assessment report was submitted to the Los Angeles
Board in 1995.
The Los Angeles Board has indicated that they will require cleanup of the
property. It is too early to predict the cleanup methodology to be required
by the Los Angeles Board, or the cost of the cleanup. The Company, along
with others, has retained a consultant to prepare a remedial action plan.
The cost of implementing the plan is estimated at approximately
$360,000-$500,000, but the plan has not yet been submitted to or approved by
the Board. Under the present Cost Sharing Agreement with the other two
parties who funded the site assessment report and the Remedial Action Plan,
the Company would be responsible for paying one-third of the cost of cleanup
of the Lawson Street property. The Company and the other two parties to
this agreement are also in litigation (described in paragraph number 4 below)
with another potentially responsible party, the current property owner, for
its fair share of these costs. This could reduce the Company's liability for
these costs.
The Lawson Street property is also located within the Puente Valley Operable
Unit of the San Gabriel Valley Superfund Site (the "Puente Valley Site").
The Puente Valley Site is concerned with volatile organic compounds in a deep
groundwater aquifer. The Puente Valley site and its associated potential
liability, is also a subject of the Soto litigation described below. The
Company, and approximately 42 other potentially responsible parties, are
parties to an Administrative Consent Order with the United States
Environmental Protection Agency to undertake a remedial
investigation/feasibility study ("RI/FS") of the Puente Valley Site. The
Company entered into a separate agreement with the other Respondents to the
Administrative Consent Order to fund the RI/FS. The Company, and the other
two companies funding the Lawson Street property investigation are jointly
responsible for 3.75% of the cost of the RI/FS (the Company's share of the
Puente Valley RI/FS costs, therefore, is 1.25%). The group submitted the
RI/FS to USEPA for its review and USEPA approved the RI/FS. The Company
was responsible for paying approximately $50,000 toward the RI/FS, most of
which was reimbursed by the Company's insurance carriers (see paragraph 3
below).
While it is too early to know if cleanup of the Puente Valley aquifer will be
required, or the cost of any cleanup, USEPA has published a proposed cleanup
plan for public comment. The proposed plans's preferred remedial alternative
is predicted to cost $27. 80 million (present value cost estimate). It is
unclear over what period the amount would be payable. Other remedial
alternatives discussed in USEPA'S publication range from $0 to $68.1 million.
It is impossible to predict the Company's share of the potential cleanup
costs, but under the previous agreement for sharing the costs of the RI/FS,
the company's share was 1.25%.
3. Litigating Against Insurance Carriers. 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 of the company's
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
primary insurance carriers, whereby those carriers paid the Company a
significant percentage of its past defense and investigation costs at the
Beech Creek, City of Industry and Puente Valley Sites. Some of those
insurance carriers are also paying for the Company's defense, subject to a
reservation of rights, in the Soto litigation described below.
The Company also reached a partial settlement with one of its insurance
carriers, National Union, regarding that carrier's responsibility for Beech
Creek and Spectron (See below). In that settlement, National Union paid the
Company $120,000, and received a release from the Company for its liability
for cleanup costs at those two sites.
The Company is also presently in settlement negotiations with most of the
primary insurance carriers regarding partial settlement for the Company's
liability for cleanup of the Lawson street site. Under the terms of the
proposed settlement, the Company would also dismiss the litigation, without
prejudice with regard to the carrier's liability for Puente Valley or any
other site, with the right to refile at any time.
4. Soto Associates v. Lois Kipling, et al. On April 25, 1996, Soto
Associates (Soto), a current owner of the property located at 825 Lawson
Street, city of Industry, California, filed a complaint in the United States
District Court for the Central District of California against the Company,
Lois Kipling, and Maremont Corporation, for claims arising out of the
contamination at the Lawson Street property and at the Puente Valley site.
The complaint seeks relief requiring the Company and the other defendants to
clean up the Lawson Street property, and payment for any liability associated
with the Lawson Street property and the Puente Valley site. The complaint
also seeks damages for diminution in value of the Lawson Street property,
attorneys' fees, and other relief.
The Company has entered into a Joint Defense Agreement with the other
defendants, and along with the other defendants, has denied the allegations
and has counterclaimed against Soto for contribution for the investigation
and cleanup costs at the Lawson Street property and the Puente Valley site.
Champion tendered its defense and demanded indemnification from its insurance
carriers and the carriers have been defending the Company under a reservation
of rights.
The Company is presently in settlement negotiations with Soto and the
co-defendants. Pursuant to a draft side settlement agreement between the
defendants, the Company would be responsible initially for one-third of the
total amount (estimated at $360,000-$500,000) subject to a possible future
reallocation.
5. Spectron, Maryland Superfund Proceeding. 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, the United States Environmental Protection Agency
(USEPA) notified the Company (along with several hundred other companies) of
potential liability for response actions at the Spectron Superfund Site.
The USEPA letter asks the Company and the other PRPs to negotiate with USEPA
for their performance of a remedial investigation/feasibility study at the
Spectron Site.
In addition to the USEPA 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 site from the Company, the allegations on materials
sent to the Site by other PRPs, and the Steering committee PRPs' prediction
of total costs of investigation and cleanup at the 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 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 and one of the carriers has settled
with the Company. The Company plans to vigorously pursue its claims against
other insurance carriers, if necessary. Further, the Company believes that
its former solvent supplier and waste solvent transporter, Textile Chemical
Company, Inc. (formerly known as R. W. Eaken), is responsible for a share of
any liability the Company incurs for the Spectron Site cleanup. The Company
plans to vigorously pursue Textile for the claim.
6. Caldwell Systems, Inc. Site. In February, 1998, the Company received a
notice letter and de minimis settlement letter from USEPA regarding the
Caldwell Systems, Inc. Site. The Company has elected to enter into the
de minimis settlement, under which the Company will pay $631.87 to USEPA,
and receive a release from any further cleanup liability at the site.
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. See Management's Discussion and Analysis Part II,
(Item 7) for further discussion. It is uncertain as to the ultimate outcome
of the current or threatened 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 December 28, 1997,
there were 802 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 28, 1997 December 29, 1996
Quarter Low High Low High
Ended: Price Price Price Price
March 31 3/8 1/2 3/16 15/16
June 30 3/8 1/2 1/4 1
September 30 9/32 3/8 11/32 1/2
December 31 7/32 7/16 3/8 1/2
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
(Data in thousands, except per share data
1997 1996 1995 1994 1993
Net Sales (Note 1) $ 24,165 $ 27,556 $ 52,954 $ 95,337 $ 100,040
Costs and Expenses:
Operating costs (Note 2) 23,948 27,527 69,454 99,050 95,769
Interest - net 973 1,489 2,339 2,423 2,282
________ ________ _______ _______ ________
24,921 29,016 71,793 101,473 98,051
Earnings (Loss) Before
Income Taxes and
Extraordinary Gain (756) (1,460) (18,839) (6,136) 1,989
Income Taxes (Benefits) -0- 7 1 (297) 176
________ ________ ________ ________ ________
Earnings (Loss) Before
Extraordinary Gain (756) (1,467) (18,840) (5,839) 1,813
Extraordinary Gain (Note 3) 596 -0- -0- -0- -0-
________ ________ ________ ________ ________
Net Earnings (Loss) (160) (1,467) (18,840) (5,839) 1,813
________ ________ ________ ________ ________
Average Common Shares
Outstanding and Common
Share Equivalent 3,655,266 3,655,266 3,655,266 3,655,266 3,655,266
Net Earnings (Loss)
From Operations Before
Extraordinary Gain Per
Common Share (0.21) (0.40) (5.15) (1.60) 0.50
________ ________ ________ ________ ________
Extraordinary Gain Per
Common Share 0.16 -0- -0- -0- -0-
________ ________ ________ ________ ________
Net Earnings (Loss) Per
Common Share: (0.05) (0.40) (5.15) (1.60) 0.50
________ ________ ________ ________ ________
AT YEAR-END
Total assets $ 17,276 $ 19,666 $28,565 $ 55,312 $ 56,147
Long-Term Obligations
(Note 4) $ 2,377 $ 43 $ 701 $ 1,451 $ 19,281
Note 1: 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 2: Special Charges and Restructuring Charges of $1,602,000 in 1995, and
$3,400,000 in 1994, 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 3: On July 1, 1997, the Company reached a composition agreement with
approximately 90% of its unsecured creditors with past due balances of
$3.4 million. As a result of this settlement the Company reported an
extraordinary gain of $596,000.
Note 4: In 1997, 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
On July 1, 1997, the Company reached a composition agreement with over 90%
of its unsecured trade creditors with past due balances of approximately
$3.4 million. Under the terms of this agreement, the Company made a cash
distribution in the amount of 10% of the total restructured indebtedness,
issued approximately $1.0 million in non-interest bearing promissory notes
and issued other obligations entitling the trade creditors to a portion of
the Company's defined free cash flow in years 2005 to 2009 of up to an
aggregate of approximately $1.5 million. This resulted in an extraordinary
gain of $596,000 for the year ended December 28, 1997. Discussions are
continuing with unsecured trade creditors with past due balances of
approximately $214,000.
In addition, the Company is continuing discussions with other creditors to
restructure approximately $1.8 million of claimed associated indebtness upon
substantially the same terms as the settlement with the trade creditors.
There is no assurance that any of these creditors will accept the proposal.
The Company's banks have indicated that they do not intend to continue to
provide long term financing to the Company, and the Company has been asked
to replace the current facility with another credit facility. The current
bank agreement expired on August 31, 1997. The banks are at present limiting
the revolving facility to $5.2 million. The Company is seeking another credit
facility to replace the expired facility. However, there is no assurance that
the Company will secure a replacement facility. Without a new facility the
Company will not be able to continue as a going concern and would likely have
to seek court protection under the Bankruptcy Code.
1997 Compared to 1996
Net sales for 1997 of $24.2 million were 12% lower than 1996 net sales of
$27.6 million. This decline in sales was primarily due to lower product
shipments to two major customers. In 1997, sales to the Company's six largest
customers, which accounted for 90% of total sales, were 13.1% lower than 1996
sales to these customers.
The Company's primary product line is remanufactured carburetors which
accounted for 68% of 1997 net sales compared to 63% in 1996. The Company's
main distribution channel is through two large retailers which accounted for
84% of 1997 net carburetor sales compared to 80% of 1996 net carburetor
sales. The balance of the carburetor sales were to original equipment
aftermarket customers, traditional warehouse distributors and jobbers. The
loss of a major retail customer could have a material adverse impact on the
Company's results and could affect the Company's ability to remain a going
concern.
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 future 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 increase its constant velocity joint
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 constant velocity joint
business lost over the past years.
Reflected in net sales are deductions for product and core returns which were
37% and 38% of total sales in 1997 and 1996, respectively. The lower return
percentage in 1997 is a function of the decrease in core sales and return
volume. 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 85% of net sales in 1997 and 84% in 1996. This
slight increase in cost of products sold resulted from primarily higher
labor costs throughout the year.
Selling, distribution and administration expenses were $3.4 million in 1997,
23% lower than 1996 expenses of $4.4 million. The principal reason for the
reduction was due to lower sales volume and corporate-wide cost control
efforts, primarily related to professional fees and insurance costs.
Interest expense declined to $973,000 in 1997 from $1.5 million in 1996.
The decline in interest expense was due to a lower level of average borrowing
compared to the prior year. In 1997, the total bank borrowings were reduced
by $770,000. The Company did not record a tax benefit on 1997 or 1996 losses
due to uncertainties over the realization of tax loss carry forwards.
The Company reported a net loss of $160,000 after an extraordinary gain of
$596,000. Without the extraordinary gain, the result of operations was a net
loss of $756,000 compared to a net loss of $ 1.5 million in 1996.
1996 Compared to 1995
Net sales for 1996 were $27.6 million or 48% lower than 1995 net sales of
$53 million. 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.
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.
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.
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's revolving credit facility expired on August 31, 1997. The
Company's banks have requested the Company to secure a credit facility with
another lender to replace the current facility and are at present limiting
the revolving facility to $5.2 million. Therefore, the Company is seeking a
replacement credit facility. However, there is no assurance that the Company
will secure another facility. Without a new facility, the Company will not be
able to continue as a going concern and will likely have to seek court
protection under the Bankruptcy Code. In addition, the report of the
Company's Independent Certified Public Accountants contains an explanatory
paragraph, expressing substantial doubt about the Company's ability to
continue as a going concern.
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 equipment and large volume automotive retailers.
The anticipated decline in sales from the profitable carburetor product line
over the longer term will impact future results. The Company will seek to
offset these impacts through development of niche product markets, new product
development, improvements in its manufacturing processes and cost containment
with a strong focus on capacity utilization. There is no assurance that the
Company's efforts will be successful.
In 1997, the Company initiated a project to address Year 2000 issues. The
initial stage of this project is to address its current computer systems and
upgrade them to Year 2000 compliances. The Company elected to embark on a
system conversion utilizing current technology and operating platforms and
moving to a distributed processing structure. This stage of the project is
scheduled for 3rd Quarter 1998 completion at an estimated cost of $170,000.
The Company has analyzed its products and found that there are no Year 2000
issues. The second stage of the project is to address Year 2000 issues with
its support operations, and its relationship with customers and vendors.
This stage is in an investigative and inquiry phase, and is scheduled to be
completed in the 3rd Quarter of 1999 and no costs have been estimated at
this time.
The Company's six largest customers accounted for an aggregate of 90% of the
Company's total sales in 1997. Given the Company's current financial
condition and its manufacturing cost structure, the loss of a large customer
would 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 28, 1997, was ($7.2) million, compared to ($9.9)
million at the end of 1996. This improvement in working capital was
primarily due to a vendor composition agreement, which resulted in
approximately $3.4 million trade payables being reduced as follows:
approximately $.4 million was paid to the vendors, $2.4 million was converted
into long-term debt, and $.6 million was recorded as an extraordinary gain
through the extinguishment of debt.
Accounts receivable at the end of 1997 were $4.5 million, down $.6 million,
or 12%, from the previous year-end balance of $5.1 million. The decrease was
due to higher collections and lower sales volume.
Net inventory at the end of 1997 decreased to $6.2 million, from $7.0 million
at the end of the prior year as the Company reduced overall inventory levels,
particularly in its discontinued product lines.
Compared to prior year, interest expense declined approximately $.5 million
because of a lower level of average outstanding borrowings. In 1997, the bank
borrowings were reduced by $770,000.
Debt
The Company increased its debt by $1.6 million in 1997. The long-term debt
increased by $2.3 million primarily due to restructuring of approximately
$2.4 million of unsecured creditors' past due debt as long-term.
As stated earlier, on July 1, 1997, the Company reached a composition
agreement with over 90% of its unsecured trade creditors with past due
balances of approximately $3.4 million. Under the terms of this agreement,
the Company made a cash distribution in the amount of 10% of the total
restructured indebtedness, issued approximately $1 million in non-interest
bearing promissory notes and issued other obligations entitling the trade
creditors to a portion of the Company's defined free cash flow in years 2005
to 2009 of up to an aggregate of approximately $1.5 million. These
promissory notes and the defined free cash flow entitlements were classified
as long-term obligations. Discussions are continuing with the remaining
unsecured trade creditors.
The Company is continuing discussions with other unsecured creditors to
restructure approximately $1.8 million of claimed associated indebtedness
upon substantially the same terms as the settlement with the trade creditors.
The Company's revolving credit facility expired on August 31, 1997. The
Company's banks had requested the Company to secure a credit facility with
another lender to replace the current facility and are at present limiting
the revolving facility to $5.2 million. Therefore, the Company is seeking a
replacement credit facility. However, there is no assurance that the Company
will secure another facility. Without a new facility, the Company will not
be able to continue as a going concern and will likely have to seek court
protection under the Bankruptcy Code.
The Company has reflected outstanding amounts under the credit agreement and
a $1,500,000 capitalized lease obligation as current maturities in its 1997
financial statements.
The Company's wholly owned foreign subsidiary is a 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
contingent liability to the venture's bank. The amount of the loan plus
accrued and unpaid interest was Canadian $935,000 at December 28, 1997.
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.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". The new standard discusses how to report
and display comprehensive income and its components. This standard is
effective for years beginning after December 15, 1997. When the Company
adopts this statement, it is not expected to have a material impact on the
presentation of the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". This
standard requires enterprises to report information about operating segments,
their products and services, geographic areas, and major customers. This
standard is effective for years beginning after December 15, 1997. When the
Company adopts this statement, it is not expected to have a material impact
on the presentation of the Company's financial statements.
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
None
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
John R. Gross (66) Owner, Chaney Auto Parts, Inc., 1966
Crest Hill, Illinois
Raymond Gross (59) Vice President, Erecta Shelters, Inc., 1968
Ft. Smith, Arkansas
Gary S. Hopmayer (58) Director, Original American Scones, Inc., 1987
Chicago, Illinois
Barry L. Katz (46) President and General Counsel, Belmont 1993
Holdings Corp.
Edward R. Kipling (66) Retired 1987
Raymond G. Perelman (80) Chairman of the Board and Chief Executive 1988
Officer, RGP Holding, Inc.,
Philadelphia, Pennsylvania and Belmont
Holdings Corp., Bala Cynwyd, Pennsylvania
Jerry A. Bragiel (46) President and CEO of the Company
Roland H. Millington (51) Treasurer and Secretary of the Company
Mr. Bragiel joined the Company in May, 1997 as President and CEO of the
Company. He held the positions of General Manager and Vice President of
Business Development of IPM Products Corporation from 1994 to 1997. Prior to
1994, Mr. Bragiel had 20 years of employment with the Company in various
capacities. His final position prior to his resignation from the Company
in 1994 was Vice President and General Manager of Operations.
Roland H. Millington joined the Company in July 1996 as Manager of Finance.
In July 1997, he was appointed to Secretary and Treasurer of the Company.
Prior to joining the Company, Mr. Millington held the position of Assistant
Controller with SoloPak Pharmacueticals Inc. from 1989-1995. Mr. Millington
resigned on June 5, 1998 in order to accept a CFO position with another
Company.
In April 1997, Mr. Thomas W. Blashill resigned as President, CEO and
Director. In June 1997, Mr. Mark Smetana resigned as Vice President of
Finance and the Secretary of the Corporation. Mr. Richard B. Hebert also
resigned from his Treasurer position during the same month.
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., a Company with subsidiaries
operating mining and processing businesses.
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.
(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 28, 1997. 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.
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. There were no other
executives whose compensation exceeded $100,000 for services rendered in all
capacities to the Company, during 1997.
Long Term Compensation
________________________
Annual Compensation Awards Payout
_____________________ _________ _______
(a) (b) ( c ) (d) (e) (f) (g) (h) (l)
Securities
Name Other Restricted Underly- LTIP All
and Year Salary Bonus Annual Stock ing Payouts Other
Principal No. ($) ($) Compen- Award (s) Options ($) Compen-
Position sation ($) /SAR's sation(2)
(1) # ($)
$
Jerry A. Bragiel 1997 112,492 -0- --- -0- 25,000 -0- -0-
President and
Chief Executive
Officer (Note 2)
(1) The amounts are below threshold reporting requirements.
(2) Mr. Bragiel was hired as President and CEO in May 1997.
Mr. Bragiel has a severance compensation agreement 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.
Shown below is information with respect to stock options granted during the
year ended December 28, 1997.
Potential
Realizable
Percentage Value at Assumed
Option of Total Rates of Stock
Granted Options Exercise Price Appreciation
(in common Granted to or Base for Option
shares) Employees Price
Name in 1997 per Share Expiration Date Term ($) (b)
____________ ________ ____________ _________ _______________ ________________
5% 10%
_______ _______
Jerry A.
Bragiel, CEO 25,000 25% $.4375 03/28/02 $3,022 $6,677
( a ) The grant was made on March 28, 1997 with an exercise price equal to
the market price at that time. These options are immediately exercisable.
( b ) Under the rules and regulations of the SEC, the potential realizable
value of a grant is the product of ( I ) the difference between ( x ) the
products of the per share market price at the time of grant and the sum of 1
plus the adjusted stock price appreciation rate (the assumed rate of
appreciation compounded annually over the term of the option) and ( y ) the
per share exercise price of the option and ( ii ) the number of securities
underlying the grant at year-end. Assumed annual rates of stock price
appreciation of 5% and 10% are specified by the SEC and are not intended to
forecast possible future appreciation, if any, of the price of the shares of
Common Stock of the Company. (For example, if the price of shares of Common
Stock remained at the exercise price of the options, (i.e. a 0% appreciation
rate), the potential realized value of the grant would be $0). The actual
performance of such shares may be significantly different from the rates
specified by the SEC.
The following table provides certain information with respect to the number
and value of unexercised options outstanding as of December 28, 1997.
(No options were exercised by the named executive officer during 1997.)
Aggregated 1997 Option Exercises and December 28, 1997 Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/ Options/
Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($) Unexerciable Unexercisable
______________ ______________ _________________ ____________ _____________
Jerry A.
Bragiel, CEO 0 0 25,000/0 $0/$0
All outstanding options were out of the money at December 28, 1997.
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 1997.
(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, 1998, (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
Shares Beneficially Percent of Common
Owned (1) Shares Outstanding
Beneficial Owner
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,
Director (6) 108,212 3.0%
Champion Parts, Inc.
Employee Stock Ownership Plan
c/o Champion Parts, Inc.
751 Roosevelt Rd.
Bldg. 7, Suite 110
Glen Ellyn, IL 60137 48,893 (4) 1.3% (4)
Raymond F. Gross,
Director (6) 31,164 *
Gary S. Hopmayer,
Director (3) ---- ----
Barry L. Katz,
Director (2) 250 *
Edward R. Kipling,
Director (3) 2,000 *
Raymond G. Perelman,
Director 661,600 (2) 18.1% (2)
Jerry A. Bragiel
President and CEO 13,984 *
Roland H. Millington
Secretary/Treasurer ---- ----
All directors and executive officers
as a group (8 persons) (5) 803,226 22.0%
* 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.
(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 28, 1997, the Company
purchased approximately $750,000 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 had been 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 in 1995 and in 1997 the remaining $100,000 was
settled by means of the vendors' composition agreement.
Messrs. Hopmayer and Kipling were originally nominated as directors pursuant
to the Stock Purchase Agreement.
(4) Shares held by this plan are voted by Mr. Jerry A. Bragiel as trustee.
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 (5) below.
(5) Does not include 48,893 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 trustees as to the voting of
shares allocated to his or her account.
(6) As of March 7, 1998 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 Relationships 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 Statement 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 individual 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: June 17, 1998 By: /s/ Jerry A. Bragiel
_________________________ _____________________________________
Jerry A. Bragiel
President and Chief Executive Officer
and Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on June 17, 1998.
By: /s/ Jerry A. Bragiel By: /s/ Gary S. Hopmayer
___--________________________ __________________________
Jerry A. Bragiel, President Gary S. Hopmayer, Director
By : By: /s/ Edward R. Kipling
_____________________________ ___________________________
Raymond G. Perelman, Director Edward R. Kipling, Director
By : By: /s/ Raymond F. Gross
_____________________________ ____________________________
Barry L. Katz, Director Raymond F. Gross, Director
By: /s/ John R. Gross By: /s/ Taskin Akman
_____________________________ _____________________________
John R. Gross, Director Taskin Akman
Corporate Controller
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 28,
1997, December 29, 1996, and December 31, 1995 and Report of Independent
Certified Public Accountants.
CHAMPION PARTS, INC. AND SUBSIDIARIES TABLE OF CONTENTS
Page
______
Report of Independent Certified Public Accountants 31
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 28, 1997 and
December 29, 1996 32-33
Consolidated statements of operations - years ended
December 28, 1997, December 29, 1996 and December 31, 1995 34
Consolidated statements of stockholders' equity (deficit) -
years ended December 28, 1997, December 29, 1996 and
December 31, 1995 35
Consolidated statements of cash flows - years ended
December 28, 1997, December 29, 1996 and December 31, 1995 36
Notes to consolidated financial statements 37-52
Consolidated Financial Statement Schedule (Item 14(a)(2)):
Schedule II - Valuation and qualifying accounts 53
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.
Glen Ellyn, Illinois
We have audited the accompanying consolidated balance sheets of Champion
Parts, Inc. and Subsidiaries as of December 28, 1997 and December 29, 1996
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 28,
1997. We have also audited the 1997, 1996 and 1995 schedule 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 28, 1997 and December 29, 1996 and
the results of their operations and their cash flows for each of the three
years in the period ended December 28, 1997 in conformity with generally
accepted accounting principles.
Also, in our opinion, the 1997, 1996 and 1995 schedule 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 2 to the
financial statements, the Company has suffered recurring losses from
operations and has a deficiency in stockholders' equity. In addition, the
Company is in default under the terms of its revolving credit facility with
its banks. The banks have requested that the Company secure a credit facility
with another lender. The Company has yet to secure long-term financing with a
new lender 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 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ BDO Seidman, LLP
Chicago, Illinois
April 9 , 1998
CHAMPION PARTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 28, 1997 December 29, 1996
_________________ _________________
ASSETS
CURRENT ASSETS:
Cash $ 488,000 $ 707,000
Accounts receivable, less allowance
for uncollectible accounts of
$448,000 and $795,000 in 1997 and
1996, respectively 4,497,000 5,129,000
Inventories 6,192,000 7,040,000
Prepaid expenses and other assets 342,000 252,000
Deferred income tax asset 417,000 561,000
____________ ____________
Total current assets 11,936,000 13,689,000
PROPERTY, PLANT AND EQUIPMENT:
Land 259,000 259,000
Buildings 7,821,000 7,821,000
Machinery and equipment 12,675,000 12,603,000
Leasehold improvements -0- 509,000
____________ ____________
20,755,000 21,192,000
Less: Accumulated depreciation 15,473,000 15,683,000
____________ ____________
5,282,000 5,509,000
OTHER ASSETS 58,000 468,000
____________ ____________
$ 17,276,000 $ 19,666,000
============ ============
The accompanying notes are an integral part of these statements.
LIABILITIES AND STOCKHOLDERS' EQUITY December 28, 1997 December 29, 1996
____________________________________ _________________ _________________
CURRENT LIABILITIES:
Accounts payable $ 5,479,000 $ 8,047,000
Accrued expenses:
Salaries, wages and employee
benefits 778,000 891,000
Other accrued expenses 5,805,000 6,914,000
Taxes other than income 285,000 228,000
Current maturities of long-term debt 6,773,000 7,550,000
____________ ____________
Total current liabilities 19,120,000 23,630,000
DEFERRED INCOME TAXES 351,000 478,000
LONG-TERM DEBT - Less current maturities 2,377,000 43,000
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - No par value;
authorized, 10,000,000 shares:
issued and outstanding, none -0- -0-
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 deficit (19,888,000) (19,728,000)
Cumulative translation adjustment (628,000) (701,000)
____________ ____________
(4,572,000) (4,485,000)
____________ ____________
$ 17,276,000 $ 19,666,000
============ ============
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED
December 28, December 29, December 31,
1997 1996 1995
NET SALES $ 24,165,000 $ 27,556,000 $ 52,954,000
COST AND EXPENSES:
Cost of products sold 20,549,000 23,145,000 55,920,000
Selling, distribution and
administration 3,399,000 4,382,000 11,932,000
Special charges -0- -0- 1,602,000
____________ ___________ ____________
23,948,000 27,527,000 69,454,000
____________ ___________ ____________
EARNINGS (LOSS) BEFORE INTEREST
INCOME TAXES & EXTRAORDINARY GAIN 217,000 29,000 (16,500,000)
INTEREST EXPENSE 973,000 1,489,000 2,339,000
____________ ___________ ____________
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN (756,000) (1,460,000) (18,839,000)
INCOME TAXES -0- 7,000 1,000
____________ ___________ ____________
LOSS BEFORE EXTRAORDINARY GAIN (756,000) (1,467,000) (18,840,000)
EXTRAORDINARY GAIN 596,000 -0- -0-
____________ ___________ ____________
NET LOSS $ (160,000) $(1,467,000) $(18,840,000)
============ =========== ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,655,266 3,655,266 3,655,266
=========== ========== ===========
NET LOSS FROM OPERATIONS
BEFORE EXTRAORDINARY
GAIN PER COMMON SHARE $ (0.21) $ (0.40) $ (5.15)
=========== ========== ===========
EXTRAORDINARY GAIN PER
COMMON SHARE $ 0.16 $ -0- $ -0-
=========== ========== ===========
NET LOSS PER COMMON SHARE $ (0.05) $ (0.40) $ (5.15)
=========== ========== ===========
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
(Data in thousands of Dollars)
Additional Retained Cumulative Guarantee
Common Paid-in Earnings Translation of ESOP
Stock Capital (Deficit) Adjustment Borrowings
_______ _________ _________ __________ __________
BALANCE, JANUARY 1,1995 $ 366 $ 15,578 $ 579 $ (645) $ (514)
Net Loss (18,840)
Exchange rate changes 53
Contribution to ESOP
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-
Net loss (160)
Exchange rate changes 73
_______ __________ _________ __________ _________
BALANCE,
DECEMBER 28,1997 $ 366 $ 15,578 $ (19,888) $ (628) $ -0-
======= ========= ========== ========== =========
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
December 28 December 29, December 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (160,000) $ (1,467,000) $(18,840,000)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Extraordinary Gain (596,000) -0- -0-
Depreciation and amortization 773,000 965,000 1,477,000
Provision for losses on accounts
receivable -0- 6,000 704,000
Provision for Inventory write offs 315,000 -0- 6,100,000
Special charges -0- -0- 1,602,000
Deferred income taxes 17,000 50,000 379,000
Changes in assets and liabilities:
Accounts receivable 632,000 (398,000) 7,424,000
Inventories 533,000 3,662,000 10,049,000
Accounts payable 422,000 727,000 (848,000)
Accrued expenses and other (852,000) (403,000) (667,000)
__________ __________ ___________
Net cash provided (used) by
operating activities 1,084,000 3,142,000 7,380,000
__________ __________ ___________
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (561,000) (47,000) (122,000)
Proceeds from sale of property,
plant and equipment 22,000 3,419,000 42,000
__________ __________ ___________
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (539,000) 3,372,000 (80,000)
__________ __________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
line of credit agreement (773,000) (5,701,000) (6,271,000)
Principal payments on long-term
debt obligations (64,000) (869,000) (529,000)
__________ __________ ___________
NET CASH USED BY FINANCING ACTIVITIES ( 837,000) (6,570,000) (6,800,000)
EFFECTS OF EXCHANGE RATE CHANGES
ON CASH 73,000 (111,000) 28,000
__________ __________ ___________
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (219,000) (167,000) 528,000
CASH AND CASH EQUIVALENTS -
Beginning of year 707,000 874,000 346,000
___________ __________ ___________
CASH AND CASH EQUIVALENTS -
End of year $ 488,000 $ 707,000 $ 874,000
=========== ========== ===========
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 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 28, 1997 and December 29, 1996 customers in a net credit balance
position totaled approximately $3,800,000 and $3,000,000, 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.
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 $19,000 and $18,000 in 1997 and 1996,
respectively. The accumulated amortization was $36,000 and $30,000 in 1997
and 1996, respectively.
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 components, 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 re-buildable 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 $14,700,000 (1997), $17,300,000 (1996) and
$43,500,000 (1995).
Translation of Foreign Currencies -The Company follows the translation policy
as provided by Statement of financial accounting Standards Board No. 52.
Accordingly, assets and liabilities are translated at the rates of exchange
on the balance sheet dates. Income and expense items are translated at the
average exchange rates prevailing throughout the years. The resultant
translation gains or losses are included as a component of stockholders'
equity designated as " cumulative translation adjustments". Gain and losses
from foreign currency transactions are included in net income and are not
significant.
Net Income (Loss) per common share - In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No.128 "Earnings Per Share", which the Company has adopted.
Pursuant to SFAS 128, the Company has replaced the reporting of "primary"
earnings per share ("EPS") with "basic" EPS. Basic EPS is calculated by
dividing the income (loss) available to common shareholders by the weighted
average number of common shares outstanding for the period, without
consideration for common stock equivalents. "Fully diluted" EPS has been
replaced with "diluted" EPS which is determined similarly to fully diluted
EPS under the provisions of APB Opinion No. 15.
For all periods presented in the Consolidated Statements of Operations, the
effect of including stock options and warrants would have been antidilutive.
Accordingly, basic and diluted EPS for all periods presented are equivalent.
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.
Recent Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". The
new standard discusses how to report and display comprehensive income and
its components. This standard is effective for years beginning after
December 15, 1997. When the Company adopts this statement, it is not
expected to have a material impact on the presentation of the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". This
standard requires enterprises to report information about operating segments,
their products and services, geographic areas, and major customers. This
standard is effective for years beginning after December 15, 1997. When the
Company adopts this statement, it is not expected to have a material impact
on the presentation of the Company's financial statements.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared on the
assumption that the Company will continue as a going concern and therefore
assume the realization of the Company's assets and the satisfaction of its
liabilities in the normal course of operations.
As discussed in Note 5 below, the Company is in default under the terms of
its revolving credit facility with its banks. The banks have requested that
the Company secure a credit facility with another lender. The Company has yet
to secure long-term financing with a new lender. Additionally, in part
because of that default and the resulting inability to obtain additional
working capital, the Company has been unable to make timely reductions in the
amount owed to its product suppliers and, as a consequence, is currently in
negotiation with a few vendors for payment of amounts owed to them.
The Company's ability to continue as a going concern is ultimately dependent
on its ability to increase sales to a level that will allow it to operate
profitably and generate positive operating cash flows. Although the reduction
of expenses, which was begun in the last half of fiscal 1995 and is
continuing in fiscal 1997, can contribute to the necessary return to
profitability, achieving profitability without an increase in sales would
require much greater levels of expense reductions and in all likelihood could
only be accomplished through a significant reduction and restructuring of the
nature and scope of the Company's operations.
The Company's sales have been adversely affected by its lack of working
capital and liquidity; accordingly, to increase sales the Company must first
resolve its working capital shortage.
Management believes that the completion of a restructuring of its bank
financing would allow it to reduce outstanding trade debt, obtain trade
credit and resolve the negotiations discussed above. Those
steps, taken together, would, in the opinion of management, allow the Company
to achieve sales increases by reducing the limiting effects that the
Company's lack of working capital have had on marketing and the ability to
obtain the products necessary to accept and fill customer orders on a timely
basis. The increases in sales would ultimately allow the Company to return to
profitability and generate positive cash flows.
There can be no assurance that a definitive agreement for the elimination of
the amounts outstanding under the expired credit facility can be reached or
if one is reached, that the Company would be able to obtain the necessary
new debt and equity financing to settle the expired credit facility. There
can be no assurance that the completion of such a restructuring would allow
the Company to increase its sales. The failure of any of these steps would
force the Company to significantly reduce its operations in order to reduce
expenses or take other significant actions to resolve its liquidity
constraints.
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.
3. EXTRAORDINARY GAIN
On July 1, 1997, the Company reached a composition agreement with over 90% of
its unsecured trade creditors with past due balances of approximately $3.4
million. Under the terms of this agreement, the Company made a cash
distribution in the amount of 10% of the total restructured indebtedness,
issued approximately $1.0 million in non-interest bearing promissory notes
and issued other obligations entitling the trade creditors to a portion of
the Company's defined free cash flow in years 2005 to 2009 of up to an
aggregate of approximately $1.5 million. This resulted in an extraordinary
gain of $596,000 for the year ended December 28, 1997. Discussions are
continuing with unsecured trade creditors with past due balances of
approximately $214,000.
In addition, the Company is continuing discussions with other creditors to
restructure approximately $1.8 million of claimed associated indebtedness
upon substantially the same terms as the settlement with the trade creditors.
There is no assurance that any of these creditors will accept the proposal.
4. INVENTORIES
Inventories consist of the following:
December 28, December 29,
1997 1996
Raw materials $ 1,867,000 $ 1,753,000
Work in process 2,641,000 2,622,000
Finished goods 1,684,000 2,665,000
_____________ ____________
$ 6,192,000 $ 7,040,000
Included in inventories were cores of $2,460,000 (1997) and $2,984,000 (1996).
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. Write downs reflect losses realized and expected
to be realized on liquidating the inventory made excess by this decision.
Included in inventories above were reserves of $997,000 (1997) and
$2,009,000 (1996) related to discontinued product lines.
5. DEBT
Debt consists of the following: December 28, December 29,
1997 1996
Bank loan, revolving credit at prime
(8.50% at December 28, 1997) plus 3-1/2%
payable on demand secured by receivables,
inventory and certain other assets $ 5,155,000 $ 5,928,000
Note payable, converted in 1997 into a
promissory and earnout notes payable
in connection with the vendor composition
agreement -0- 100,000
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
Promissory notes payable, non-interest bearing,
payable in 24 equal payments starting from
June 1998 940,000 -0-
Earnout notes payable, non-interest bearing,
contingent to the availability of defined
free cash flow, payable up to $500,000
annually in years 2005-2009 1,554,000 -0-
Other 1,000 65,000
___________ __________
9,150,000 7,593,000
Less portion due within one year 6,773,000 7,550,000
___________ __________
$ 2,377,000 $ 43,000
=========== ==========
Long-term debt maturities (including obligations under capital leases) are
$6,773,000 (1998), $156,000 (1999), $156,000 (2000), $156,000 (2001),
$156,000 (2002) and $1,753,000 (after 2002).
Under the bank loans, 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.
The Company's revolving credit facility expired on August 31, 1997. The
Company's banks have requested the Company to secure a credit facility with
another lender to replace the current facility and are at present limiting
the revolving facility to $5.2 million. Therefore, the Company is seeking a
replacement credit facility. However, there is no assurance that the Company
will secure another facility. Without a new facility, the Company will not
be able to continue as a going concern and will likely have to seek court
protection under the Bankruptcy Code.
The Company has reflected outstanding amounts under the credit agreement and
a $1,500,000 capitalized lease obligation as current maturities in its 1997
financial statements.
Without 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 in the process of seeking a
replacement credit facility. There is no assurance that the Company will
secure a replacement facility.
The carrying amount of long-term debt (excluding the restructured troubled
debt) approximates fair value because the interest rates on substantially
all the debt fluctuate based on changes in market rates.
6. 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 1997 1996 1995
Federal $ (8,000) $(50,000) $ (379,000)
Foreign -0- -0- -0-
State and local 1,000 7,000 1,000
_________ _________ ____________
$ (7,000) $ (43,000) $ (378,000)
DEFERRED
Federal $ 7,000 $ 50,000 $ (378,000)
Foreign -0- -0- -0-
State and local -0- -0- -0-
_________ _________ ___________
$ 7,000 $ 50,000 $ (378,000)
_________ _________ ___________
$ -0- $ 7,000 $ -0-
========= ========= ===========
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 28, 1997 the Company had federal, state and foreign net operating
loss carry forwards of $16,274,000, $563,000 and $548,000, respectively.
Federal loss carry forwards begin to expire in 2010. The Company also had
$520,000 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:
1997 1996 1995
Income tax (benefit) at
statutory rate $ (54,000) $ (499,000) $ (6,406,000)
Valuation allowance 53,000 499,000 6,406,000
State income taxes
net of federal income tax 1,000 7,000 1,000
_________ __________ ____________
$ -0- $ 7,000 $ 1,000
Deferred tax assets and liabilities are comprised of the following at
December 28, 1997 and December 29, 1996
1997 1996
________________________ ______________________
Assets Liabilities Assets Liabilities
__________ ___________ __________ ___________
Inventory reserves $1,881,000 $2,649,000
Accrued vacation 215,000 215,000
Fringe benefits 1,370,000 1,819,000
Depreciation 302,000 378,000
Bad debts 83,000 83,000
Write-off of foreign
subsidiary 547,000 547,000
Restructuring Reserves 154,000 542,000
Environmental 319,000 305,000
Net operating loss carry
forward 6,499,000 5,123,000
Tax credit carry forward 520,000 495,000
Valuation allowance (11,465.000) (11,262,000)
Other 294,000 49,000 45,000 100,000
___________ __________ __________ ___________
$ 417,000 $ 351,000 $ 561,000 $ 478,000
=========== ========== ========== ===========
7. 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. The
remaining balance of $132,000, at the end of 1996, was used to cover the
associated expenses in 1997. Sales to customers affected by the Company's
decision accounted for approximately 56% of 1995 sales.
8. 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, 1996 and 1997 income before taxes and
net income would have been immaterial.
Information with respect to stock options outstanding under this plan is as
follows:
1997 1996 1995
Granted 25,000 15,000 55,000
Average Option Price $ .4375 $ 1.00 $ 0.625
At Year End:
Shares Underlying Options 25,000 70,000 55,000
Exercisable 25,000 70,000 -0-
Available for Grant 75,000 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 March 28, 1997 (the "Grant Date"), the Company granted its President and
Chief Executive Officer an option to purchase 25,000 Common Shares at a price
of $.4375 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 28, 1997 he had not exercised any of these
options.
9. 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.
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 restructuring plans (See Note 7),
curtailment losses of $40,000 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 31, 1997 December 31, 1996
_________________ _________________
Accumulated Accumulated
Benefits Benefits
Exceed Assets Exceed Assets
_________________ __________________
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 7,500,000 $ 6,562,000
Non-vested benefit obligation 26,000 14,000
Accumulated benefit obligation 7,526,000 6,576,000
Plan assets at fair value,
primarily equity funds 7,134,000 6,094,000
Projected benefit obligations in
excess of plan assets (392,000) (482,000)
Unrecognized net (gain) from past
experience different from that
assumed and effects of changes
in assumptions (984,000) (836,000)
Unrecognized prior service cost 79,000 85,000
Unrecognized net (obligation) asset
at January 1, 1988 being recognized
over 18 to 26 years 4,000 2,000
Adjustment to recognize minimum
liability -0- -0-
____________ _____________
Accrued pension cost included in
accrued expenses $ (1,293,000) $ (1,231,000)
============ =============
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation at December 31, 1997 and
December 31, 1996, were 7.00% and 7 1/2% respectively. The expected rate of
return on assets was 8.5%. 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; rather benefit payments will be equal to the
number of years of benefit service multiplied by a factor as defined by each
benefit plan. <PAGE>
Pension cost for 1997, 1996 and 1995 consists of the following:
1997 1996 1995
Service cost - benefits earned
during the period $ 143,000 $ 124,000 $ 149,000
Interest cost on projected
benefit obligation 485,000 458,000 432,000
Actual return on plan assets (1,251,000) (705,000) (1,192,000)
Net amortization and deferral 695,000 233,000 790,000
__________ __________ __________
$ 72,000 $ 110,000 $ 179,000
__________ __________ __________
10. LEASES
The Company leases certain plants and offices, 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 $216,000 (1997), $365,000
(1996), and $621,000 (1995).
Minimum commitments under all noncancelable operating leases at December 28,
1997 for the following five years are as follows:
Year Amount
1997 $ 251,000
1998 245,000
1999 75,000
2000 74,000
2001 64,000
__________
TOTAL $ 709,000
==========
11. SALES TO MAJOR CUSTOMERS
In 1997, sales to the Company's four largest customers were approximately
38%, 19%, 18% and 12% of net sales. 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 three largest customers were approximately
14%, 13% and 12% of net sales. At December 28, 1997 accounts receivable
balances of the Company's four largest customers were approximately 26%, 25%,
21% and 14% of total gross receivables. 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.
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.
12. 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 carried an interest rate of 1% above prime. In 1997, the
balance of the note payable was restructured in conjunction with the vendor
composition agreement (Notes 3 and 5).
Total purchases from Echlin approximated $750,000, $1,175,000, and $2,030,000
in 1997, 1996, 1995, respectively, of which $23,000, $634,000, and $631,000
were unpaid at year end 1997, 1996 and 1995 respectively.
13. 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 $938,000 in reserves for anticipated future costs of pending
environmental matters at December 28, 1997. 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.
14. 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 $935,000 at December 28, 1997. 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.
15. OTHER ACCRUED EXPENSES.
Other accrued expenses consist of the following:
December 28, December 29,
1997 1996
______________ ______________
Interest $ 173,000 $ 240,000
Workers' compensation 2,195,000 2,374,000
Pension (See Note 8) 1,293,000 1,231,000
Medical insurance (12,000) 248,000
Deferred compensation -0- 608,000
Rebates 56,000 57,000
Environmental costs 938,000 898,000
Restructuring 22,000 132,000
Joint venture 802,000 802,000
Other items 338,000 324,000
____________ _____________
$ 5,805,000 $ 6,914,000
============ =============
16. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and income taxes was as follows:
1997 1996 1995
Interest $1,040,000 $1,461,000 $ 2,237,000
Income taxes -0- -0- 86,000
Supplemental Schedule of Noncash Investing and Financing Activities:
In 1997, as a result of the vendor composition agreement (see Note 3),
approximately $2.5 million of trade payables were restructured into long-term
notes payable; the extinguishment of the troubled debt resulted in an
additional $596,000 of trade payables being forgiven, thus, resulting in an
extraordinary gain.
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
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
Year Ended
December 28, 1997 $ 795,000 $ -0- $ (347,000) $ 448,000
(1) Represents a reclassification of previously established reserves.
Additions to/
Balance at Charged (Deductions) Balance
Beginning to From at End
of Period Operations Reserves of Period
_____________ _____________ _____________ ___________
INVENTORY RESERVE
Year Ended
December 31, 1995 $ 4,284,000 $ 6,100,000(1) $ 71,000 $10,455,000
Year Ended
December 29, 1996 $10,455,000 $ -0- $(3,797,000) $ 6,658,000
Year Ended
December 28, 1997 $ 6,658,000 $ 315,000 $(2,299,000) $ 4,674,000
(1) Represents a provision to reflect the Company's decision to discontinue
certain products and exit certain markets (See Note 4)
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 current
report on Form 8-K filed June 5, 1997)
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)
Total
Pages
(4)(f) Articles of Incorporation (see Exhibit (3)(a) above)
(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).
Total
Pages
(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.)
(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 Agreement 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)
Total
Pages
(10)(y) Letter Agreement dated October 9, 1995 between Registrant
and RGP Holding, Inc. (Incorporated by reference to form 10-Q filed
November 24, 1995.)
(10)(z) 1995 Stock Option Plan as of November 1, 1995. (Incorporated
by reference to Registrant's 1995 Proxy). (1)
(10)(aa) Severance Agreement dated March 28, 1997 between the
Registrant and Jerry A. Bragiel (Included herein on page 53) (1)
(10)(bb) Severance Agreement dated March 28, 1997 between the
Registrant and Roland H. Millington.(Included herein on page 53) (1)
(10)(cc) Employment and Stock Option Agreement between the registrant
and Jerry A. Bragiel dated March 28, 1997 (Included herein on
Page 53) (1).
(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).
(10)(ff) Eleventh Amendment to Amended and Restated Credit Agreement
dated August 30, 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).
(10)(gg) Sixteenth Amendment to Amended and Restated Credit
Agreement dated on May 30, 1997 expiring on August 31, 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 Subsidiaries).
Total
Pages
(10)(hh) Settlement Agreement dated July 1, 1997 between the Registrant
and Unsecured Trade Creditors (Incorporated by reference to Current
Report on Form 8-K July 30, 1997).
(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.
SIXTEENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Sixteenth Amendment to Amended and Restated Credit Agreement (this
"Sixteenth Amendment") is made and entered into as of the 30th day of
May, 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 agreements, documents and instruments executed and delivered by the
Company to any or all of the Banks, the Agent or the Collateral Agent,
whether in connection with the Credit Agreement, the IRB Agreement, the
Workmen's Compensation Agreement or otherwise (collectively the "Other
Agreements"), including, but not limited to, that certain Forbearance
Agreement dated May 30, 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 May 30, 1997, to August 31, 1997; and
WHEREAS, the Banks are willing to extend the Termination Date from May 30,
1997, to August 31, 1997, but solely on the terms and subject to the
conditions set forth in this Sixteenth 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
Sixteenth Amendment.
1.Terms.
All terms which have an initial capital letter in this Sixteenth 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. /Discretionary Advances.
A. Subject to the conditions precedent contained in Section 4 of this
Sixteenth Amendment, the Termination Date of the Credit Agreement is hereby
extended to and including August 31, 1997.
B. The Banks, the Agent and the Collateral Agent shall not be committed to
make any Advances from and after the date hereof and all Advances requested
by the Company from and after the date hereof shall be made of or not made at
the sole and absolute discretion of the Banks, the Agent and the Collateral
Agent notwithstanding (I) any term, provision or condition the contrary
contained in this Sixteenth Amendment, the "Other Sixteenth Amendment
Documents" (hereinafter defined), the Champion Loan Document or otherwise,
(ii) the nature, amount or timing of such requested Advance, or (iii) the
extent, priority, condition or status of the collateral securing the
Liabilities.
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
August 31, 1997, and to enter into this Sixteenth Amendment, subject to the
full and timely performance of any conditions precedent contained in the
Champion Loan Documents and this Sixteenth Amendment and the full and
timely performance of the following covenants either prior to or
contemporaneously with the execution and delivery of this Sixteenth
Amendment.
1. The Company will execute and deliver or cause to be executed and
delivered the following documents, all in form and substance acceptable
to the Banks, the Agent and the Collateral Agent:
(a) that certain Secretary's Certificate as to Officers and Directors
and Directors' Resolutions for the Company;
(b) that certain Promissory Note of even date herewith executed and
delivered by the Company to LaSalle in the principal amount of Three
Million Four Hundred Thirteen Thousand Six Hundred Forty-three
and 36/100 Dollars ($3,413,643.36);
(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 Eleven Thousand Four Hundred Sixty-two and 56/100
Dollars ($1,111,462.56);
(d) that certain Promissory Note of even date herewith executed and
delivered by the Company to NBD in the principal amount of One Million
Four Hundred Seventy-Four Thousand Eight Hundred Ninety-Four and 08/100
Dollars ($1,474,894.08); 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 Sixteenth Amendment, any other
agreements, documents and instruments executed and delivered in
connection with this Sixteenth Amendment (the "Other Sixteenth Amendment
Documents"), and the indebtedness evidenced by the Champion Loan
Documents, this Sixteenth Amendment and/or the Other Sixteenth 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
Sixteenth 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
Sixteenth Amendment or the Other Sixteenth Amendment Documents.
4. The representations and warranties contained in the Champion Loan
Documents, this Sixteenth Amendment and the Other Sixteenth 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. Without limiting the discretionary nature of the advances as
provided in Paragraph 2 B hereof, the Banks, the Agent and the
Collateral Agent will not make any advances unless the following
conditions exist or occur prior to each request of the Company for an
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 Sixteenth Amendment, the Other
Sixteenth Amendment Documents and the Champion Indebtedness. The Agent
acknowledges that it will use its best efforts to provide copies of any
bills and statements relating thereto at least five (5) business days
prior to the last business day of each month, but the failure to deliver
copies thereof will not affect the Company's obligation to pay such
fees, costs, charges, obligations and expenses.
3. Other than (a) the alleged default described in Section 3 of the
Fifth Amendment, (b) those defaults described in Section 3 of the Sixth
Amendment, ( c ) those defaults described in Section 9.A. of this
Sixteenth 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 Sixteenth Amendment or the Other
Sixteenth Amendment Documents.
4. The representations and warranties contained in the Champion Loan
Documents, this Sixteenth Amendment and the Other Sixteenth Amendment
Documents shall be true and correct.
5. The Company will not spend or withdraw 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.
Notwithstanding the discretionary nature of the advances to be made
pursuant 2 B hereunder, the Total Revolving Commitment of all of the Banks
from the date hereof through and including August 31, 1997, is Six Million
and no/100 Dollars ($6,000,000.00).
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 Sixteenth Amendment and
the Other Sixteenth 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 Sixteenth Amendment and the Other Sixteenth Amendment
Documents.
B. The Company will prepare and deliver each and every business day to
the Banks, the Agent and the Collateral Agent a borrowing base
certificate, in form and substance acceptable to the Banks, the Agent
and the Collateral Agent; provided, however, if the Company fails to
deliver a borrowing base certificate on a business day when it has not
requested nor received an Advance, such failure shall constitute an
Event of Default if such borrowing base certificate has not been
delivered within two (2) days after notice from the Agent.
C. The Company covenants that a petition under the United States
Bankruptcy Code or any similar federal, state or local law, statute or
regulation has not been filed by or against the Company.
7. Default.
The Company shall be in default under the terms and provisions of this
Sixteenth 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 Sixteenth Amendment or the Other
Sixteenth 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 Sixteenth
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 Sixteenth Amendment or the Other Sixteenth
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
Sixteenth 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 Sixteenth Amendment is and shall constitute an Event of
Default under the Champion Loan Documents and the Other Sixteenth
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 Sixteenth Amendment and the Other Sixteenth
Amendment Documents, as well as any and all other rights and remedies
available at law, in equity or otherwise, and (ii) take any action,
legal or equitable, to collect the Champion Indebtedness and any and all
other sums now or hereafter due and owing from the Company to the Banks,
the Agent and the Collateral Agent. The Company acknowledges and agrees
that the Banks, the Agent and the Collateral Agent have made no
assurances, have not committed and are under no obligation to extend the
Termination Date.
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 Sixteenth Amendment, the Other Sixteenth 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 Sixteenth Amendment or the Other Sixteenth 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 Sixteenth Amendment or the Other Sixteenth Amendment Documents
or upon an additional or other default or event of default under the
Champion Loan Documents, then the Continuing Covenant Defaults shall be
deemed reinstated and existing, without further act or deed, as if no
conditional waiver were granted and any and all rights of the Banks, the
Agent or the Collateral Agent with respect thereto shall remain reserved,
unimpaired and fully enforceable.
C. Nothing contained in this Sixteenth Amendment or the Other Sixteenth
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
Sixteenth Amendment or the Other Sixteenth Amendment Documents, at law,
in equity or otherwise. Nothing contained in this Sixteenth Amendment or
the Other Sixteenth 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 Sixteenth
Amendment, the Company hereby waives, releases and forever discharges
the Banks, the Agent and the Collateral Agent, their predecessors,
parents, subsidiaries, affiliates, agents, employees, officers,
directors, shareholders, attorneys, legal representatives, successors
and assigns, and each of them, of and from any and all claims, demands,
counterclaims, set-offs, defenses, debts, liabilities, obligations,
costs, expenses, actions, causes of action and damages of every kind,
nature and description whatsoever, known or unknown, foreseeable and
unforeseeable, liquidated and unliquidated, insured and uninsured, which
the Company heretofore and/or presently owns, holds or has by reason of
any matter, cause or thing whatsoever, arising from, relating to or in
connection with the Champion Loan Documents, this Sixteenth Amendment,
the Other Sixteenth Amendment Documents, the Champion Indebtedness or
the default by the Company. The Company hereby acknowledges and agrees
that the foregoing release shall not be or be deemed to create, construe
or admit any liability on behalf of the Banks, the Agent and the
Collateral Agent.
11. Consultant. Pursuant to the terms and provisions of the Champion Loan
Documents, the Company shall fully cooperate with the management consulting
firm of Glass & Associates, Inc., or such other consulting firm or firms
designated by the Banks (individually, the "Consultant"), to the extent
requested by the Banks or such consulting firms. Such cooperation, shall
include, without limitation, the Company providing the Consultant with (i)
unlimited access to the Company's assets and books and records., whether
during normal business hours or otherwise, as well as use of photocopy and
other office facilities, and (ii) reasonable access to the Company's offices
and employees for the purpose of discussing the Company's assets and books
and records. The Company shall reimburse the Banks, the Agent and the
Collateral Agent for all reasonable costs, fees and expenses incurred by the
Banks, the Agent and Collateral Agent in connection with the Consultant.
12. Authority To Execute This Sixteenth 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 Sixteenth Amendment and the Other Sixteenth 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
Sixteenth Amendment and the Other Sixteenth Amendment Documents, and ( c )
the execution and delivery of this Sixteenth Amendment and the Other
Sixteenth Amendment Documents shall not breach any agreement, instrument or
document to which the Company is a party or by which it is bound.
13. Construction. This Sixteenth Amendment shall be interpreted, construed
and governed by and under the laws of the State of Illinois.
A. Wherever possible, each provision of this Sixteenth Amendment shall
be interpreted in such manner as to be valid and enforceable under applicable
law, but if any provision of this Sixteenth Amendment is held to be invalid
or unenforceable by a court of competent jurisdiction, such provision shall
be severed here from and such invalidity or unenforceability shall not affect
any other provision of this Sixteenth Amendment, the balance of which shall
remain in and have its intended full force and effect; provided, however, if
such provision may be modified so as to be valid and enforceable as a matter
of law, such provision shall be deemed to be modified so as to be valid and
enforceable to the maximum extent permitted by law.
B. The Paragraph headings contained in this Sixteenth 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 Sixteenth Amendment, or any
Paragraph or provision hereof.
C. This Sixteenth 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 Sixteenth 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 Sixteenth Amendment and the Other Sixteenth
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 Sixteenth Amendment or the Other Sixteenth 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 Sixteenth Amendment may not be altered, changed, amended or
modified, except in accordance with Section 11.1 of the Credit Agreement.
F. This Sixteenth Amendment, together with the Other Sixteenth
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 Sixteenth
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 Sixteenth
Amendment shall govern and control; provided, however, to the extent the
terms and provisions of this Sixteenth Amendment do not contradict, modify,
supersede or conflict with the terms and provisions of the Champion Loan
Documents, including, but not limited to, the Forbearance Documents, then
the Champion Loan Documents, including, but not limited to, the Forbearance
Documents, shall remain in and have their intended full force and effect,
and the Company, the Banks, the Agent and the Collateral Agent hereby affirm,
confirm and ratify the same.
IN WITNESS WHEREOF, the parties have caused this Sixteenth 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:___________________________
Title:_________________________
Amount of LaSalle's Percentage LA SALLE NATIONAL BANK,
individually Revolving Share
Commitment as Agent and
as Collateral Agent
As of May 30, 1997, 56.894056% By:__________________________
through and including Title:_______________________
August 31, 1997, $3,413,643.36
Amount of NBD's Percentage NBD BANK Revolving Commitment
Share
As of May 30, 1997, 24.581568% By:__________________________
through and including Title:_______________________
August 31, 1997, $1,474,894.08
Amount of Harris' Percentage HARRIS TRUST AND SAVINGS
Revolving Commitment Share BANK
As of May 30, 1997,
through and including 18.524376% By: ________________________
Title:______________________
August 31, 1997, $1,111,462.56
TOTAL REVOLVING COMMITMENT
As of May 30, 1997,through
and including August 31, 1997, $6,000,000.00
Doc ID: 41601-1
EXHIBIT "A"
WAIVER LETTERS
Attached.
EXHIBIT "B"
UPDATED SCHEDULES
Attached.
Doc ID: 18704-5
<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 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 488000
<SECURITIES> 0
<RECEIVABLES> 4945000
<ALLOWANCES> 448000
<INVENTORY> 6192000
<CURRENT-ASSETS> 11936000
<PP&E> 20755000
<DEPRECIATION> 15473000
<TOTAL-ASSETS> 17276000
<CURRENT-LIABILITIES> 17276000
<BONDS> 0
0
0
<COMMON> 366000
<OTHER-SE> (4572000)
<TOTAL-LIABILITY-AND-EQUITY> 17276000
<SALES> 24165000
<TOTAL-REVENUES> 24165000
<CGS> 20549000
<TOTAL-COSTS> 20549000
<OTHER-EXPENSES> 3399000
<LOSS-PROVISION> 315000
<INTEREST-EXPENSE> 973000
<INCOME-PRETAX> (160000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (756000)
<DISCONTINUED> 0
<EXTRAORDINARY> 596000
<CHANGES> 0
<NET-INCOME> (160000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
