UNITED STATES
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 27, 1998
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. [X]
As of March 19, 1999, 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 $2,912,790. 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".
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PART I
Item 1. Business
--------
Unless 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.
During the fiscal years ended December 27, 1998, December 28, 1997, and
December 29, 1996, the Company's sales of parts for automobiles (including
light duty trucks) accounted for approximately 82%, 78% and 74%,
respectively, of the Company's net sales, and sales of parts for heavy duty
trucks and farm equipment accounted for approximately 18%, 22% and 26%,
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, mechanical and constant velocity drive
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 27, 1998, approximately 6%
were to automotive warehouse distributors; approximately 30% were to
manufacturers of automobiles, trucks and farm equipment and heavy duty fleet
specialists; and approximately 64% 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 salesperson 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 27, 1998, the three largest customers
of the Company accounted for approximately 43% (AutoZone, Inc.), 21%
(Advance Auto Parts) and 18% (John Deere), 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 that 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
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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 27, 1998, one direct salesman and 9 sales agencies made sales
calls.
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 acquired 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
1998 fiscal year.
COMPETITION
The remanufactured automotive parts industry is highly competitive as the
Company competes with a number of other companies (including certain
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original equipment manufacturers) which sell remanufactured automotive
parts. The Company competes with several large regional remanufacturers
and with remanufacturers that are franchised by certain original equipment
manufacturers to remanufacture their products for regional distribution.
The Company also competes with numerous remanufacturers that 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 warranty policy. 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
Product engineers support each of the Company's main product lines.
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 product engineers
are in improving the quality of existing products, formulating specifications
and procedures for remanufactured products for use on makes and models of
vehicles for which they were originally designed, converting cores from
earlier makes and models for use on other makes and models and developing
specifications, supplies and procedures for remanufacturing newly introduced
products.
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.
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.
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. Accordingly, there can be no assurance that
these reserves will be adequate. See Item 3, Legal Proceedings -
Environmental Matters for additional discussion.
EMPLOYEES
As of December 27, 1998, the Company employed approximately 495 persons,
including 60 salaried employees at corporate headquarters and plant
locations; and approximately 435 production, warehouse and maintenance
employees.
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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:
<TABLE>
<CAPTION>
Warehouse Remanufacturing
Area Area
Location (Sq. Ft.) (Sq.Ft)
- ------------------------------- ------------ ----------------
<S> <C> <C>
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 3,400 -0-
</TABLE>
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.
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Item 3. Legal Proceedings
-----------------
Environmental Matters:
1. Beech Creek, Pennsylvania Facility Soil and Groundwater Contamination
----------------------------------------------------------------------
In May 1991, the Pennsylvania Department of Environmental Protection (PADEP)
notified the Company that there was evidence of trichloroethylene and
trichloroethane in the soil, and possibly the groundwater under the Beech
Creek facility. Further, PADEP was concerned that the contamination had
migrated off site. PADEP 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 PADEP 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, Environmental Consulting, Inc.
(ECI), currently is unable to predict how long the groundwater pump and treat
system will have to operate.
In November 1998, the Company submitted a plan to PADEP to monitor
groundwater and to stop operation of the remediation system under
Pennsylvania's "Act Two".
The Beech Creek matter is a subject of the insurance carrier litigation (see
paragraph 3 below).
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 it requires cleanup of the property.
The remedy is likely to consist of soil vapor extraction. As part of the
settlement described in paragraph 4 below, the Company and two other
defendants to that action deposited a total of $423,000 into a remediation
escrow, which is believed to be sufficient funding for the cleanup. Under
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an interim agreement, the Company paid one-third of this amount. If the
cleanup costs more than the remediation escrow amount, the current owner of
the property is solely responsible for the overruns.
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 the
regional aquifer. The Company and approximately 42 other potentially
responsible parties (PRP's) were parties to an Administrative Consent Order
with the United States Environmental Protection Agency (USEPA) pursuant
to which the PRP's undertook a remedial investigation/feasibility study
(RI/FS) of the Puente Valley Site. The RI/FS has been completed, and the
USEPA has issued a Record of Decision (ROD) identifying the preferred
cleanup alternative for the Puente Valley Site. The ROD estimates that the
future cleanup costs will be approximately $28,000,000.
It is too early to determine what amount of the cleanup costs Champion may
ultimately be liable for paying. 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 described below. 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 also payed 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 regarding that carrier's responsibility for Beech Creek and Spectron
(see below). In that settlement, the insurer paid the Company $120,000 and
received a release from the Company for its liability for cleanup costs at
those two sites.
The Company recently concluded another partial settlement with its insurance
carriers regarding the Company's liability for cleanup of the Lawson street
site. Under the terms of the settlement, the insurance carriers paid $235,000
to the Company for cleanup costs at the Lawson Street Site. The Company will
be dismissing the litigation, without prejudice with regard to the insurance
carriers liability for Puente Valley or any other site, with the right to
refile it at any time.
4. Soto Associates v. Lois Kipling, et al.
---------------------------------------
The Company recently settled the litigation brought by Soto Associates, the
current owner of the property located at 825 Lawson Street, City of Industry,
California, regarding the contamination of the Lawson Street property and the
Puente Valley Site. Pursuant to the settlement agreement, the Company and
the other two defendants to the action jointly funded a $423,000 remediation
escrow for the remediation of the Lawson Street property. Soto remains
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responsible for providing any funds necessary to complete the remediation
activities. Pursuant to the settlement, Soto purchased insurance coverage for
any such cost overruns.
Pursuant to the settlement, the Company and the other defendants released
Soto from any claims they may have for the past contamination at that
Lawson Street property. Further, pursuant to an interim allocation and
settlement agreement between the Company and the other two defendants,
the funding of the remediation escrow and any subsequent liabilities for
the Puente Valley Site are subject to a final allocation. Furthermore, the
Company and the other two defendants all waive the right to reallocate past
costs already paid for the Lawson Street and the Puente Valley Site.
5. Spectron, Maryland Superfund Proceeding
---------------------------------------
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 asked 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 is estimated at $160,000. This amount would be payable over
several years. In addition, the Steering committee PRPs appear to be
planning on a de minimis settlement option. Settlement of the de minimis
settlement option would cost the Company an estimated $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 (see paragraph 3. above). 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 is responsible for a share of any liability the Company incurs
for the Spectron Site cleanup. The Company plans to pursue the transporter
for the claim.
6. Robert Cooper v. Raybestos-Manhattan, Inc., et al.
--------------------------------------------------
In November 1998, the Company was one of numerous defendants named in an
action brought by Robert Cooper alleging personal injuries caused by exposure
to products containing asbestos. The Company put its insurance carriers on
notice and filed an answer denying the allegations in the Complaint. Some of
the Company's insurance carriers have agreed to defend the Company, under a
reservation of rights. It is too early to predict the outcome of this matter.
Summary:
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.
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Item 4. Submission of Matters to a Vote of Shareholders
-----------------------------------------------
None
PART II
Item 5. Market for the Company's Common Shares and Related
Shareholder Matters
--------------------------------------------------
The Company's Common Shares are traded over the counter on the NASD
Electronic Bulletin Board under the symbol "CREB". As of March 19, 1999,
there were 776 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 Commodity Systems, Inc. historical quotation reports
available through Yahoo Finance.
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Ended Year Ended
December 27, 1998 December 28, 1997
Quarter Low High Low High
Ended: Price Price Price Price
- ------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
March 31 1/4 25/64 3/8 1/2
June 30 1/4 9/16 3/8 1/2
September 30 19/64 27/64 9/32 3/8
December 28 19/64 23/32 7/32 7/16
</TABLE>
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.
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Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
(in thousands, except per share data)
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales (1) $ 26,442 $ 24,165 $ 27,556 $ 52,954 $ 95,337
Costs and Expenses:
Operating costs (2) 24,588 23,948 27,527 69,454 99,050
Gain on disposal
of assets (5) (277) -0- -0- -0- -0-
Interest - net 865 973 1,489 2,339 2,423
-------- -------- -------- -------- --------
Total Expenses 25,176 24,921 29,016 71,793 101,473
Earnings (Loss)
Before Inc. Taxes and
Extraordinary Gain 1,266 (756) (1,460) (18,839) (6,136)
Income Taxes (Benefit) 42 -0- 7 1 (297)
-------- -------- -------- -------- --------
Earnings (Loss) Before
Extraordinary Gain 1,224 (756) (1,467) (18,840) (5,839)
Extraordinary Gain (3) 279 596 -0- -0- -0-
-------- -------- -------- -------- --------
Net Earnings (Loss) $ 1,503 $ (160) $ (1,467) $(18,840) $ (5,839)
======== ======== ======== ======== ========
Average Common Shares
Outstanding and Common
Share Equivalent 3,655 3,655 3,655 3,655 3,655
Basic and Diluted Earnings per Common Share:
Net Earnings (Loss)
From Operations Before
Extraordinary Gain Per
Common Share $ 0.33 $ (0.21) $ (0.40) $ (5.15) $ (1.60)
-------- -------- -------- -------- --------
Extraordinary Gain Per
Common Share $ 0.08 $ 0.16 $ -0- $ -0- $ -0-
-------- -------- -------- -------- --------
Net Earnings (Loss)
Per Common Share: $ 0.41 $ (0.05) $ (0.40) $ (5.15) $ (1.60)
-------- -------- -------- -------- --------
At Year-End:
Total assets $ 17,319 $ 17,276 $ 19,666 $ 28,565 $ 55,312
Long-Term Obligations
(Note 4) $ 6,263 $ 2,377 $ 43 $ 701 $ 1,451
</TABLE>
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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: In 1998, an extraordinary gain was reported which consisted of a
$187,000 net gain from the forgiveness of prior loans and fees by lenders
plus a $92,000 gain from creditor debt restructuring settlements. In 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, an extraordinary gain of $596,000 was reported in 1997.
Note 4: In 1997, 1996, 1995 and 1994 long-term obligations do not reflect
amounts due on the bank credit agreement and other maturities. In August of
1998, the $1.3 million of the $1.5 million Industrial Revenue Bond,
previously reported as a short-term obligation, was reclassified as long-term
debt due to the bank refinancing (see Note 4, to the Consolidated Financial
Statements).
Note 5: In 1998, the Company recorded a $265,000 gain on the sale of the
Ft. Worth Texas property. This gain is included in gain on disposal
of assets.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
On August 6, 1998, the Company entered into an agreement with NationsCredit
Commercial Corporation for a four-year credit facility to replace its bank
financing. In connection with this agreement, the Company granted
NationsCredit security interests in its property, equipment, inventory and
receivables. Interest on amounts outstanding under this facility is payable
at 1-3/4% above the prime rate plus commitment fees. This compares to
3-1/2% over prime that the Company was paying under its prior bank financing.
The amount available under the new credit facility varies in relationship to
collateral values, up to a maximum amount of $8.5 million including letter of
credit accommodations of $2,200,000. At December 27, 1998 the balance
outstanding on the new facility was $3,503,000 and letter of credit
accommodations were $2,193,000.
In August, an extraordinary gain of $187,000 resulted from the former banks'
forgiveness of $300,000 of prior loans and fees, which was netted with legal
costs of $113,000 incurred in relation to the settlement.
Creditor debt restructuring settlements resulted in a total of $92,000 of
extraordinary gains recognized in the second and third quarters of 1998.
Sale of the Company's Ft. Worth, Texas property in August 1998 resulted in
proceeds of $323,000 and a net gain of $265,000. The gain was recorded as
non-operating income.
1998 COMPARED TO 1997
Net sales for 1998 of $26.4 million were 9% higher than 1997 net sales of
$24.2 million. The higher sales reflect an increase in carburetor business
with existing customers and increased constant velocity joint sales to a new
original equipment customer. Partially offsetting these increases were lower
heavy-duty and domestic passenger car product sales reflecting soft orders
from two large OEM customers.
The Company's primary product line is remanufactured carburetors, which
accounted for 73% of 1998 net sales compared to 68% in 1997. The Company's
main distribution channel is through two large retailers which accounted for
94% of 1998 net carburetor sales compared to 84% of 1997 net carburetor
sales. The balance of the carburetor sales was to original equipment
aftermarket customers and traditional warehouse distributors. The loss of
a major retail customer could have a material adverse effect on the Company's
financial condition and results of operations.
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 near 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
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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
and was successful in adding a major OEM customer in 1998. The Company
anticipates continued overall market 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 assurance the Company will
be able to increase it's market share in the constant velocity joint business
in upcoming years.
Reflected in net sales are deductions for product and net core returns, which
were 24% and 22% of total sales in 1998 and 1997, respectively. The higher
return percentage in 1998 is a function of the increase in product 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. However, there can be no assurance that these
reserves will be adequate.
Cost of products sold was 84% of net sales in 1998 and 85% in 1997. This
decrease in cost of products sold resulted primarily from reductions achieved
in manufacturing overhead.
Selling, distribution and administration expenses were $2.5 million in 1998,
29% lower than 1997 expenses of $3.5 million. The principal reason for the
improvement was lower administrative spending as a result of corporate-wide
cost control efforts and lower professional fees.
Non-operating expenses of $509,000 in 1998 were $362,000 (42%) lower than
1997 expenses of $871,000. Primarily accounting for this is the $265,000
gain on the sale of the Ft. Worth Texas property.
Interest expense declined to $865,000 in 1998 from $973,000 in 1997. The
decline in interest expense was due to a lower level of average borrowing and
lower interest and fees under the new loan facility. In 1998, the total bank
debt was reduced by $1,652,000. The Company did not record a tax benefit on
the 1998 income or the 1997 losses due to uncertainties over the realization
of tax loss carry forwards.
The Company reported a net income of $1,503,000 after an extraordinary gain
of $279,000 versus a net loss in 1997 of $160,000 after an extraordinary gain
of $596,000. Without the inclusion of the extraordinary gain in both years,
the result of operations was a net income of $1,224,000 in 1998 compared to
a net loss of $ 756,000 in 1997.
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.
-13-
<PAGE>
Reflected in net sales are deductions for product and core returns, which
were 22% and 21% of total sales in 1997 and 1996, respectively. The higher
returns percentage in 1997 is a function of the increase in product return
volume. The Company has a customer product return policy to control
product and core returns. It also had 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 $3.5 million in 1997,
21% lower than 1996 expense 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.
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 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 volume retailers gaining additional market presence at
the expense of traditional wholesalers. In response, the Company has
attempted to diversify 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.
The Company's six largest customers accounted for an aggregate of 94% of
the Company's total sales in 1998. 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 financial condition
and results of operations.
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.
-14-
<PAGE>
There can be no assurance that the impact of the Year 2000 issue will not
have a materially adverse impact on the Company's results. See "Year 2000
Compliance" for additional information.
Accordingly, actual results may differ materially from those set forth in
the forward-looking statements.
YEAR 2000 COMPLIANCE
In 1997, the Company initiated a project to address Year 2000 issues and
then develop and implement a Year 2000 readiness plan. The first phase of
the readiness plan was to address its current computer systems and upgrade
them to Year 2000 compliance. The Company elected to embark on a systems
and hardware conversion utilizing certified Year 2000 systems technology on
a Year 2000 compliant operating platform. The initial implementation of
systems and hardware will be completed in the first Quarter of 1999.
In addition, as a part of the first phase of the readiness plan, the Company
completed an inventory of the software applications currently running on its
personal computers. A plan is being developed to upgrade, where necessary,
all applications software to be Year 2000 compliant by the third quarter of
1999.
The Company has analyzed its products and non-IT systems such as imbedded
chips in production equipment, and found that there are no material Year 2000
issues.
The second phase of the readiness project is to address Year 2000 issues with
significant customers, vendors and service providers, including electronic
commerce. This phase is in an audit and inquiry phase, and is approximately
75% complete. There can be no assurance that the systems of other companies
and service providers that interact with the Company will be sufficiently
Year 2000 compliant so as to avoid an adverse impact on the Company's
operations, financial condition and results of operations. Phase two is
estimated to be completed at the end of the second Quarter of 1999. There
are no significant costs associated with this phase.
The third and final phase of this project will be completed before the end of
the third Quarter of 1999. The company expects to resolve all internal Year
2000 issues and finalize testing of modifications during this phase. A
contingency plan will also be developed and completed by the end of the third
quarter to address a worst case scenario for unresolved Year 2000 issues with
customers, vendors and service providers.
The Company does not presently anticipate that the costs to address the Year
2000 issue will have a material adverse impact on the Company's financial
condition, results of operations or liquidity. Present estimated costs for
remediation are as follows:
<TABLE>
<CAPTION>
Prior Fiscal Years Fiscal 1999
------------------ -----------
<S> <C> <C>
Software $ 332,000 $ 200,000
Hardware and Network 62,000 15,000
</TABLE>
-15-
<PAGE>
Liquidity and Capital Resources:
WORKING CAPITAL
Working capital at December 27, 1998 was a negative $861,000, compared to
a negative $7.2 million at the end of 1997. This improvement in working
capital is primarily a reflection of stating the new four-year bank loan
under long-term debt as compared to current maturities of long-term debt for
the prior facility, which was in default. This increase also reflects
reclassification of $1.0 million of the Hope facility $1.3 million Industrial
Revenue Bond to long-term debt, since the bond documents had cross-default
provisions. The $300,000 due on December 1, 1999 is reflected in the current
maturitites of long-term debt. Proceeds of $323,000 for the sale of the
Ft. Worth, Texas property also contributed to the working capital increase.
Accounts receivable at December 27, 1998, were $4,701,000, or $204,000 (4.5%)
higher versus the year-end 1997 balance of $4,497,000. The increase was due
to higher net sales volume in the fourth quarter of 1998, which was up
$930,000, or 16%, over 1997.
At December 27, 1998, net inventories were higher by $222,000, compared to
year-end fiscal 1997. The increase in net inventories primarily reflects
higher core inventories of heavy-duty products due to high customer returns
combined with lower sales of those products in 1998.
Accounts payable at December 27, 1998 of $5,297,000 were $182,000 less than
year-end 1997. The decrease reflects lower expenses, a reduction in payables
for raw materials and creditor debt restructuring agreements.
Accrued liabilities and other payables at December 27, 1998 of $ 7,163,000
were $295,000 higher than year-end 1997. Accounting for this is an increase
in accrued stock adjustments for estimated stock adjustment credits to
customers to be issued in 1999. Secondly, an increase in accrued payroll due
to cut-off date differences.
DEBT
On August 6, 1998, the Company entered into an agreement with NationsCredit
Commercial Corporation for a four-year credit facility to replace its bank
financing. In connection with this agreement, the Company granted
NationsCredit security interests in its property, equipment, inventory
and receivables. Interest on amounts outstanding under this facility is
payable at 1-3/4% above the prime rate plus commitment fees. This compares
to 3-1/2% over prime that the Company was paying under its prior bank
financing. The amount available under the new credit facility varies in
relationship to collateral values, up to a maximum amount of $8.5 million
including letter of credit accommodations of $2,200,000. At
December 27, 1998 the balance outstanding on the new facility was $3,503,000
and letter of credit accommodations were $2,193,000.
In August, an extraordinary gain of $187,000 resulted from the former banks'
forgiveness of $300,000 of prior loans and fees, which was netted with legal
costs of $113,000 incurred in relation to the settlement.
In addition, creditor debt restructuring settlements resulted in $92,000 of
extraordinary gains recognized during the second and third quarters of 1998.
-16-
<PAGE>
The Company is continuing discussions with certain other unsecured creditors
with past due balances to restructure approximately $1.6 million of associated
indebtedness upon substantially the same terms as the settlement with the
trade creditors. There is no assurance than any of these creditors will
accept the proposal.
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.
The Company has provided a reserve for contingent liability to the venture's
bank. The amount of the loan plus accrued and unpaid interest was Canadian
$858,000 at December 27, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure these
instruments at fair market value. The Company, to date, has not engaged in
derivative and hedging activities.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on Costs of Start-Up Activities," which requires
costs of start-up activities and organization costs to be expensed as
occurred. The Company has not engaged in start-up activities nor has it
incurred any organization costs.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130) and No. 131, "Disclosures About Segments of an Enterprise
and Related Information" (SFAS No. 131), and No. 132 "Employers' Disclosures
About Pension and Other Postretirement Plans" (SFAS No. 132). SFAS 130
establishes standards for reporting and displaying comprehensive income, its
components and accumulated balances. SFAS 131 establishes standards for the
way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the
public. SFAS 132 enhances the disclosures related to pensions and other
postretirement benefits. SFAS 130, SFAS 131 and SFAS 132 are effective for
periods beginning after December 15, 1997. The Company adopted these new
standards in 1998, and their adoption had no material effect on the Company's
financial statements and disclosures.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The Company's management believes that fluctuations in interest rates in the
near term would not materially affect the Company's consolidated operating
results, financial position or cash flows as the Company has limited risks
related to interest rate fluctuations.
-17-
<PAGE>
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
----------------------------------------------------------------
Not Applicable
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.
<TABLE>
<CAPTION>
Served as
Director
Name (Age) Directors, Affiliation Since
- ---------------------- ----------------------------------- ---------
<S> <C> <C>
John R. Gross (67) Owner, Chaney Auto Parts,Inc., 1966
Crest Hill, Illinois
Raymond Gross (60) Vice President, Erecta Shelters, 1968
Inc., Ft. Smith, Arkansas
Gary S. Hopmayer (59) Director, Original American Scones 1987
Inc., 1987, Chicago, Illinois
Barry L. Katz (47) President and General Counsel, 1993
Belmont Holdings Corp.
Edward R. Kipling (67) Retired 1987
Raymond G. Perelman (81) Chairman of the Board and Chief 1988
Executive Officer, RGP Holding, Inc.
Philadelphia, Pennsylvania and
Belmont Holdings Corp.,
Bala Cynwyd, Pennsylvania
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Name (Age) Officers of the Company
- ---------------------- -----------------------
<S> <C>
Jerry A. Bragiel (47) President and CEO of the Company
Richard W. Simmons (56) Corporate Controller and Secretary of the Company
</TABLE>
Jerry A. 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.
Richard W. Simmons joined the Company in April 1996 as Division Controller of
the Hope Facility. In August 1998, he was promoted to Corporate Controller
and was elected Secretary of the Corporation in January 1999. Mr. Simmons
held the position of Vice President of Finance with the New West Group of
Winsloew Furniture, Inc. prior to joining the Company. He has been the CFO
of several corporations and has eight years experience in the remanufacturing
industry.
John R. Gross is the owner of Chaney Auto Parts, Inc., a retailer of auto
parts. John R. Gross is the brother of Raymond F. Gross.
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.
Gary S. 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.
Barry L. 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.
Edward R. 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.
-19-
<PAGE>
Raymond G. 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. From
1985 until 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
Directors received a fee of $10,000 for service as a director during the
Company's fiscal year ended December 27, 1998. 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 1998.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payout
----------------------- -----------------------------
Rest-
Other ricted Secur. All
Name and Annual Stock Under. LTIP Other
Principal Year Salary Bonus Comp.(1) Awards Opt/SAR Payouts Comp.
Position No. $ $ $ $ # $ $
- ---------------- ---- ------- ------ ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry A. Bragiel 1998 180,773 39,210 -0- -0- -0- -0- -0-
President and
Chief Executive 1997 112,492 -0- -0- -0- -0- 125,000 -0-
Officer (Note 2)
</TABLE>
-20-
<PAGE>
(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
an officer of the Company. The following table provides certain information
with respect to the number and value of unexercised options outstanding as of
December 27, 1998. (No options were exercised by the named executive officer
during 1998.)
Aggregated 1998 Option Exercises and December 27, 1998 Option Values:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options/ Options/
Exercise Realized Exercisable/ Exerc./
Name (#) ($) Unexercisable Unexer.
- --------------------- -------- ---------- ---------------------- --------
<S> <C> <C> <C> <C>
Jerry A. Bragiel, CEO -0- -0- 125,000/50,000/75,000 $0/$0
</TABLE>
All outstanding options were out of the money at December 27, 1998.
Compensation Committee Interlocks and Insider Participation
Messrs. Perelman, Kipling and John R. 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 1998.
(b) Director Compensation Arrangements
----------------------------------
Information regarding director compensation is set forth under Item 10(b)
above.
-21-
<PAGE>
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
----------------------------------------
The following tabulation shows, as of December 27, 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.
<TABLE>
<CAPTION>
Number of Common
Shares Beneficially Percent of Common
Beneficial Owner Owned (1) Shares Outstanding
- --------------------------- ------------------- ------------------
<S> <C> <C>
RGP Holding, Inc.
225 City Line Avenue
Bala Cynwyd, Pennsylvania 661,600 (2) 18.1% (2)
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 600,000 (3) 16.4% (3)
John R. Gross
Director (6) 110,212 3.0%
Champion Parts, Inc.
Employee Stock Ownership Plan
c/o Champion Parts, Inc.
751 Roosevelt Rd.
Bldg. 7, Suite 110
Glen Ellyn, IL 43,134 (3) 1.2% (4)
Raymond F. Gross
Director 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 *
All directors and
executive officers as
a group (8 persons)(5) 821,210 22.5%
</TABLE>
* Not greater than 1%. -22-
<PAGE>
(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. 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 27, 1998, the Company did not purchase
or sell any components used in the remanufacture of automotive parts to 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
was 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 nominated as directors pursuant to the
Stock Purchase Agreement.
(4) Mr. Jerry A. Bragiel votes shares held by this plan 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 43,134 shares allocated to the accounts of employees
other than executive officers under the Stock Ownership Plan. 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 December 27, 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.
-23-
<PAGE>
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
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHAMPION PARTS, INC.
Date: March 26, 1999 By: /s/ Jerry A. Bragiel
----------------- -------------------------
Jerry A. Bragiel
President and Chief Executive Officer
And Principle Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons have signed this report below on March 26, 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/ Richard W. Simmons
- ----------------------------- -----------------------------
John R. Gross, Director Richard W. Simmons
Corporate Controller/Secretary
-25-
<PAGE>
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 27, 1998,
December 28, 1997, and December 29, 1996 and Report of Independent Certified
Public Accountants.
-26-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants 28
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 27, 1998 and
December 28, 199 29-30
Consolidated statements of operations - years ended
December 27, 1998, December 28, 1997 and
December 29, 1996 31
Consolidated statements of stockholders' equity
(deficit) - years ended December 27, 1998,
December 28, 1997 and December 29, 1996 32
Consolidated statements of Comprehensive Income (Loss)
- years ended December 27, 1998, December 28, 1997 and
December 29, 1996 33
Consolidated statements of cash flows - years ended
December 27, 1998, December 28, 1997 and
December 29, 1996 34-35
Notes to consolidated financial statements 36-51
Consolidated Financial Statement Schedule (Item 14(a)(2)):
Schedule II - Valuation and qualifying accounts 52
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.
-27-
<PAGE>
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 27, 1998 and December 28, 1997
and the related consolidated statements of operations, stockholders' equity
(deficit), comprehensive income (loss) and cash flows for each of the three
years in the period ended December 27, 1998. We have also audited the
accompanying Schedule II, "Valuation and Qualifying Accounts." 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
schedules. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 10, 82% of the Company's sales in the year ended
December 27, 1998 are concentrated in three customers. The loss of one or
more of these customers could have a material adverse effect on the Company's
financial condition and results of operations.
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 27, 1998 and December 28, 1997 and
the results of their operations and their cash flows for each of the three
years in the period ended December 27, 1998 in conformity with generally
accepted accounting principles.
Also, in our opinion the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO Seidman, LLP
Chicago, Illinois
March 22, 1999
-28-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 27, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 784,000 $ 488,000
Accounts receivable, less allowance
for uncollectible accounts of
$339,000 and $448,000 in 1998 and
1997, respectively 4,701,000 4,497,000
Inventories 6,414,000 6,192,000
Prepaid expenses and other assets 388,000 342,000
Deferred income tax asset 380,000 417,000
------------ ------------
Total current assets 12,667,000 11,936,000
PROPERTY, PLANT AND EQUIPMENT:
Land 197,000 259,000
Buildings 7,821,000 7,821,000
Machinery and equipment 12,720,000 12,675,000
------------ ------------
20,738,000 20,755,000
Less: Accumulated depreciation 16,125,000 15,473,000
------------ ------------
4,613,000 5,282,000
OTHER ASSETS 39,000 58,000
------------ ------------
TOTAL ASSETS $ 17,319,000 $ 17,276,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-29-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
December 27, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,297,000 $ 5,479,000
Accrued expenses:
Salaries, wages and employee benefits 817,000 778,000
Other accrued expenses 6,211,000 5,805,000
Taxes other than income 170,000 285,000
Current maturities of long-term debt:
Current maturities - term notes 601,000 -0-
Current maturities - Vendor debt 167,000 118,000
Current maturities - IRB Loan 300,000 1,500,000
Short-term notes payable - revolver -0- 5,155,000
------------ -------------
Total current liabilities 13,563,000 19,120,000
DEFERRED INCOME TAXES 351,000 351,000
LONG-TERM DEBT:
Long-term notes payable - revolver 699,000 -0-
Long-term notes payable - term notes 2,203,000 -0-
Long-term notes payable - Vendors 2,361,000 2,377,000
Industrial Revenue Bond (IRB) 1,000,000 -0-
------------ ------------
Total long-term debt 6,263,000 2,377,000
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
(Accumulated deficit) (18,385,000) (19,888,000)
Accumulated other comp. inc/(loss) (417,000) (628,000)
------------ ------------
Total Stockholders' Equity (Deficit) (2,858,000) (4,572,000)
------------ ------------
Total Liabilities and
Stockholders' Equity (Deficit) $ 17,319,000 $ 17,276,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-30-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 26,442,000 $ 24,165,000 $ 27,556,000
Costs and Expenses:
Cost of products sold 22,192,000 20,545,000 23,225,000
Selling, dist. and admin. 2,475,000 3,505,000 4,382,000
------------ ------------ ------------
Total costs and expenses $ 24,667,000 $ 24,050,000 $ 27,607,000
Operating income (loss) 1,775,000 115,000 (51,000)
Non-operating (income) expense:
Gain on disposal of assets (277,000) -0- -0-
Interest expense 865,000 973,000 1,489,000
Other non-operating income (79,000) (102,000) (80,000)
------------ ------------ ------------
Total non-operating expense 509,000 871,000 1,409,000
Earnings/(Loss) Before Income
Taxes and Extraordinary Gain 1,266,000 (756,000) (1,460,000)
Income Taxes 42,000 -0- 7,000
------------ ------------ ------------
Earnings/(Loss)
Before Extraordinary Gain 1,224,000 (756,000) (1,467,000)
Extraordinary Gain 279,000 596,000 -0-
------------ ------------ ------------
Net Income/(Loss) $ 1,503,000 $ (160,000) $ (1,467,000)
Weighted Average Common Shares
Outstanding at Year-end 3,655,266 3,655,266 3,655,266
Earnings per Common Share - Basic and Diluted:
- ----------------------------------------------
Net Income/(Loss) From Operations
Per Common Share $ 0.33 $ (0.21) $ (0.40)
------------ ------------ ------------
Extraordinary Gain
per Common Share $ 0.08 $ 0.16 $ -0-
------------ ----------- ------------
Net Income/(Loss)
per Common Share $ 0.41 $ (0.05) $ (0.40)
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
-31-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE YEARS ENDED DECEMBER 27, 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in (Accumulated Comprehensive
Shares Amount Capital Deficit) Income/(Loss)
--------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE,
Dec. 31, 1995 3,655,266 $ 366,000 $ 15,578,000 $(18,261,000) $(592,000)
Net Loss - - - (1,467,000) -
Foreign currency
translation adj. - - - - (109,000)
--------- --------- ------------ ------------ ----------
BALANCE,
Dec. 29, 1996 3,655,266 $ 366,000 $ 15,578,000 $(19,728,000) $ (701,000)
Net loss - - - (160,000) -
Foreign currency
translation adj. - - - - 73,000
--------- --------- ------------ ------------ ----------
BALANCE,
Dec. 28, 1997 3,655,266 $ 366,000 $ 15,578,000 $(19,888,000) $ (628,000)
Net Income - - - 1,503,000 -
Foreign currency
translation adj. - - - - 211,000
--------- --------- ------------ ------------ ----------
BALANCE,
Dec. 27, 1998 3,655,266 $ 366,000 $ 15,578,000 $(18,385,000) $ (417,000)
========= ========= ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-32-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE YEARS ENDED DECEMBER 27, 1998
<TABLE>
<CAPTION>
Years Ended
------------------------------------------
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Income/(loss) $ 1,503,000 $ (160,000) $(1,467,000)
Other comprehensive
income (loss):
Foreign currency
translation adj. 211,000 73,000 (109,000)
------------ ------------ ------------
Comprehensive income (loss) $ 1,714,000 $ (87,000) $(1,576,000)
=========== =========== ============
</TABLE>
Components of accumulated other comprehensive income (loss), included in
the Company's consolidated balance sheet, consist of the foreign currency
translation adjustment.
The accompanying notes are an integral part of these statements
-33-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
- ----------------------
Net Income/(Loss) $ 1,503,000 $ (160,000) $ (1,467,000)
Adj. to reconcile net
income/(loss) to net cash
provided by operations:
Extraordinary Gain (279,000) (596,000) -0-
Depr. and amort. 711,000 773,000 965,000
Prov. for losses on A/R -0- -0- 6,000
Prov. for inv. write-off 495,000 315,000 -0-
Gain on disposal of assets (277,000) -0- -0-
Deferred inc. tax & other -0- 17,000 50,000
Changes in assets and liab.:
Accounts receivable (204,000) 632,000 (398,000)
Inventories (717,000) 533,000 3,662,000
Accounts payable 68,000 422,000 727,000
Accrued expenses and other 321,000 (852,000) (403,000)
------------ ------------ ------------
Net cash provided by
operating activities 1,621,000 1,084,000 3,142,000
------------ ------------ ------------
CASH FLOW FROM
INVESTING ACTIVITIES:
- ----------------------
Capital expenditures (74,000) (561,000) (47,000)
Proceeds from sale of
property, plant and equip. 328,000 22,000 3,419,000
------------ ------------ ------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 254,000 (539,000) 3,372,000
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
- ----------------------
Net (payments) under line
of credit agreement (4,967,000) (773,000) (5,701,000)
Net borrowings under
revolving loan agreement 699,000 -0- -0-
Borrowings under term notes 3,005,000 -0- -0-
Principal payments on long
term debt obligations (527,000) (64,000) (869,000)
------------ ------------ ------------
NET CASH USED BY FINANCING
ACTIVITIES (1,790,000) (837,000) (6,570,000)
</TABLE>
-34-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH $ 211,000 $ 73,000 $ (111,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 296,000 (219,000) (167,000)
CASH AND CASH EQUIVALENTS
Beginning of year 488,000 707,000 874,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
End of year $ 784,000 $ 488,000 $ 707,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-35-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 27, 1998, DECEMBER 28, 1997
AND DECEMBER 29, 1996
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 27, 1998
and December 28, 1997 customers in a net credit balance position totaled
approximately $3,500,000 and $3,800,000, 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.
Expenditures for maintenance and repairs are charged to operations; major
expenditures for renewals and betterment's are capitalized and depreciated
over their estimated useful lives.
EXCESS OF PURCHASE PRICEOVER 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
$13,000 and $19,000 in 1998 and 1997, respectively. The accumulated
amortization was $42,000 and $36,000 in 1998 and 1997, respectively.
DEFERRED CHARGES:
Costs of issuing long-term debt are deferred and amortized over the terms of
the related issues.
-36-
<PAGE>
BUSINESS SEGMENTS:
The Company remanufactures and distributes replacement fuel systems
components, constant velocity joint assemblies, and other electrical and
mechanical replacement parts principally for the passenger car, agricultural
and heavy duty aftermarket industry in the United States and Canada. See Note
16 for a further discussion of business segments.
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 $16,000,000 (1998), $14,700,000 (1997) and $17,300,000 (1996).
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. 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. "Diluted" EPS gives effect to all dilutive potential
common shares outstanding for the period.
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.
-37-
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair market value. The
Company, to date, has not engaged in derivative and hedging activities.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on Costs of Start-Up Activities," which requires
costs of start-up activities and organization costs to be expensed as
occurred. The Company has not engaged in start-up activities nor incurred
any organization costs.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130) and No. 131, "Disclosures About Segments of an Enterprise and
Related Information" (SFAS No. 131), and No. 132 "Employers' Disclosures
About Pension and Other Postretirement Plans" (SFAS No. 132). SFAS 130
establishes standards for reporting and displaying comprehensive income, its
components and accumulated balances. SFAS 131 establishes standards for the
way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the
public. SFAS 132 enhances the disclosures related to pensions and other
postretirement benefits. SFAS 130, SFAS 131 and SFAS 132 are effective for
periods beginning after December 15, 1997. The Company adopted these new
standards in 1998, and their adoption had no material effect on the
Company's financial statements and disclosures.
RECLASSIFICATIONS:
Certain items in the prior year financial statements have been reclassified
to conform with the current year presentation.
2. EXTRAORDINARY GAIN:
-------------------
In 1998, an extraordinary gain of $187,000 resulted from the former banks'
forgiveness of $300,000 of prior loans and fees, which was netted with costs
of $113,000 incurred in relation to the settlement. In addition, creditor
debt restructuring settlements resulted in $92,000 of extraordinary gains
recognized in the second and third quarters of 1998. Total extraordinary
gains recorded in the fiscal year ending December 27, 1998 were $279,000.
In 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.
-38-
<PAGE>
3. INVENTORIES
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 2,491,000 $ 1,867,000
Work-in-process 2,208,000 2,641,000
Finished goods 1,715,000 1,684,000
------------ ------------
Total Inventories $ 6,414,000 $ 6,192,000
============ =============
</TABLE>
Included in inventories were cores of $2,624,000 (1998) and $2,460,000 (1997).
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 $570,000 (1998) and
$997,000 (1997) related to discontinued product lines.
-39-
<PAGE>
4. DEBT
----
<TABLE>
<CAPTION>
December 27, December 28,
Debt consists of the following: 1998 1997
- ----------------------------------------- ------------ ------------
<S> <C> <C>
Long-term revolving credit at prime
(7.75% at December 27, 1998) plus 1-3/4%
Secured by receivables, inventory,
and certain other fixed assets $ 699,000 $ -0-
$2,170,000 term note secured by property
Monthly principal payments of $36,167 with
entire unpaid balance (approximately $470,000)
due August 2002. Monthly interest is due at
prime plus 1-3/4% on unpaid principal balance 2,025,000 -0-
$835,000 term note secured by certain machinery
and equipment. Monthly principal payments of
$13,912 with entire unpaid balance (approx.
$470,000) due August 2002. Monthly interest is
due at prime plus 1-3/4% on unpaid principal bal. 779,000 -0-
Bank loan, revolving credit. Loan
Paid in full, 1998 -0- 5,155,000
Capitalized lease obligations under Industrial
Revenue Bonds, at approximately 60% of prime
rate, due in 2001, varying annual sinking
fund payments commencing in 1998 1,300,000 1,500,000
Promissory notes payable, non-interest bearing,
Payable in 24 equal payments starting from
June 1998 875,000 940,000
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 1,653,000 1,554,000
Other -0- 1,000
------------ ------------
Total debt 7,331,000 9,150,000
Less portion due within one year 1,068,000 6,773,000
------------ ------------
Total long-term debt $ 6,263,000 $ 2,377,000
============ ============
</TABLE>
Long-term debt maturities (including obligations under capital leases) are
$1,068,000 (1999), $1,068,000 (2000), $1,468,000 (2001), $1,867,000 (2002),
$167,000 (2003) and $1,693,000 (after 2003).
-40-
<PAGE>
In 1998, the Company entered into an agreement with NationsCredit Commercial
Corporation for a four-year credit facility, consisting of a revolver and
two term loans, to replace its bank financing. In connection with this
agreement, the Company granted NationsCredit security interests in its
property, equipment, inventory and receivables. Interest on amounts
outstanding under this facility is payable at 1-3/4% above the prime rate
plus commitment fees. This compares to 3-1/2% over prime that the Company
was paying under its prior bank financing. The amount available under the
new credit facility varies in relationship to collateral values, up to a
maximum amount of $8.5 million including letter of credit accommodations
of $2,200,000. At December 27, 1998 the balance outstanding on the
new facility was $3,503,000 and letter of credit accommodations of $2,193,000.
The Company has reflected outstanding amounts under the credit agreement,
long-term Vendor debt, and a $1,000,000 capitalized lease obligation as
long-term debt in its 1998 financial statements.
The carrying amount of long-term debt (excluding the restructured vendor
debt) approximates fair market value because the interest rates on
substantially all the debt fluctuate based on changes in market rates.
5. 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:
<TABLE>
<CAPTION>
CURRENT 1998 1997 1996
- -------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Federal $ 41,000 $ (8,000) $ (50,000)
Foreign -0- -0- -0-
State and local 1,000 1,000 7,000
------------ ------------ ------------
Total Current $ 42,000 $ (7,000) $ (43,000)
------------ ------------ ------------
DEFERRED
- -------------------
Federal $ -0- $ 7,000 $ 50,000
Foreign -0- -0- -0-
State and local -0- -0- -0-
------------ ------------ ------------
Total deferred $ -0- $ 7,000 $ 50,000
------------ ------------ ------------
Total Liability $ 42,000 $ -0- $ 7,000
============ ============ ============
</TABLE>
-41-
<PAGE>
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 27, 1998 the Company had federal, state and foreign net operating
loss carry forwards of $13,439,000, $11,917,000 and $1,641,000, respectively.
Federal loss carry forwards begin to expire in 2010. The Company also had
$499,000 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:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax (benefit) at
statutory rate $ 525,000 $ (54,000) $ (499,000)
Valuation allowance (537,000) 53,000 499,000
State income taxes
net of federal income tax 54,000 1,000 7,000
------------ ------------ ------------
$ 42,000 $ -0- $ 7,000
============ ============ ============
</TABLE>
Deferred tax assets and liabilities are comprised of the following at
December 27, 1998 and December 28, 1997:
<TABLE>
<CAPTION>
1998 1997
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Inventory reserves $1,945,000 $1,881,000
Accrued vacation 241,000 215,000
Fringe benefits 1,325,000 1,370,000
Depreciation 226,000 302,000
Bad debts 156,000 83,000
Write-off of
foreign subsidiary 520,000 547,000
Restructuring Reserves 218,000 154,000
Environmental 293,000 319,000
Net operating loss carry
forward 5,685,000 6,499,000
Tax credit carry forward 499,000 520,000
Valuation allowance (10,661,000) (11,465,000)
Other 159,000 125,000 294,000 49,000
---------- ---------- ---------- ----------
$ 380,000 $ 351,000 $ 417,000 $ 351,000
========== ========== ========== ==========
</TABLE>
-42-
<PAGE>
6. 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. There are no options
outstanding under the Plan at December 31, 1998.
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 1996, 1997 and 1998 income before taxes and
net income would have been immaterial.
Information with respect to stock options outstanding are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Granted 125,000 125,000 15,000
Average Option Price $0.4375 $0.4375 $ 1.00
At Year End:
Shares Underlying Options 125,000 125,000 70,000
Exercisable 50,000 25,000 70,000
Available for Grant -0- -0- 30,000
</TABLE>
On March 28, 1997 (the "Grant Date"), the Company granted its President and
Chief Executive Officer an option to purchase 100,000 Common Shares at a
price of $.4375 per share. The options vest ratably at the rate of 25,000
shares per year and will expire in ten years from the Grant Date, subject
to earlier termination of his employment. As of December 27, 1998 he had
not exercised any of these options.
An additional 25,000 non-qualifying options were granted and will be
available for exercise in the fifth year.
7. EMPLOYEE SAVINGS PLANS
----------------------
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.
-43-
<PAGE>
8. EMPLOYEE RETIREMENT PLANS
-------------------------
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.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ending
December 31, 1998, and a statement of the funded status as of December 31
of both years:
<TABLE>
<CAPTION>
Pension Benefits
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Reconciliation of benefit obligation:
Obligation at January 1 $ 7,526,000 $ 6,561,000
Service Cost 147,000 143,000
Interest Cost 516,000 485,000
Actuarial (gain) loss 337,000 557,000
Benefit payments 235,000 220,000
----------- -----------
Obligation at December 31 $ 8,291,000 $ 7,526,000
=========== ===========
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1 $ 7,134,000 $ 6,095,000
Actual return on plan assets 541,000 1,251,000
Employer contributions 11,000 8,000
Benefit payments 235,000 220,000
----------- -----------
Fair value of plan assets at December 31 $ 7,451,000 $ 7,134,000
=========== ===========
Funded status:
Funded status at December 31 $ (840,000) $ (392,000)
Unrecognized transition
(asset) obligation 5,000 4,000
Unrecognized prior service costs 73,000 79,000
Unrecognized (gain) loss (530,000) (984,000)
----------- -----------
Net amount recognized $(1,292,000) $(1,293,000)
=========== ===========
</TABLE>
The plan's accumulated benefit obligation was $8,291,000 at December 31, 1998,
and $7,526,000 at December 31, 1997.
-44-
<PAGE>
The following table provides the components of net periodic benefit cost for
the plans for fiscal years 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits
December 31, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
Service cost $ 147,000 $ 143,000
Interest cost 516,000 485,000
Expected return on plan assets (597,000) (510,000)
Amortization of transition
(asset) obligation (2,000) (2,000)
Amortization of prior-service cost 6,000 6,000
Amortization of net (gain) loss (61,000) (50,000)
----------- ------------
Net periodic benefit cost 9,000 72,000
----------- ------------
Curtailment (gain) loss -0- -0-
Settlement (gain) loss -0- -0-
----------- ------------
Net periodic benefit cost after
Curtailments and settlements $ 9,000 $ 72,000
=========== ============
</TABLE>
The amount included within other comprehensive income arising from a change
in the additional minimum pension liability was $0 at December 31, 1998, and
$0 at December 31, 1997.
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses
in excess of 10% of the greater of the benefit obligation and the market-
related value of assets are amortized over the average remaining service
period of active participants.
The assumptions used in the measurement of the company's benefit obligation
are shown in the following table:
<TABLE>
<CAPTION>
Pension Benefits
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Weighted-average assumptions
as of December 31:
Discount Rate 6.75% 7.00%
Expected return on plan assets 7.50% 8.50%
Rate of compensation increase N.A. N.A.
</TABLE>
-45-
<PAGE>
9. 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 $159,000 (1998),
$216,000 (1997), and $365,000 (1996).
Minimum commitments under all noncancelable operating leases at
December 27, 1998 for the following five years are as follows:
<TABLE>
<CAPTION>
Year Amount
----- ---------
<S> <C> <C>
1999 $ 95,000
2000 91,000
2001 80,000
2002 22,000
2003 2,000
----- ----------
Totals $ 290,000
==========
10. SALES TO MAJOR CUSTOMERS
------------------------
In 1998, sales to the Company's three largest customers were approximately
43%, 21%, and 18% of net sales. 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. At December 27, 1998 accounts receivable balances
of the Company's three largest customers were approximately 38%, 30% and 17%
of total gross receivables. 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.
The Company's primary product line is remanufactured carburetors, which
accounted for 73% of 1998 net sales compared to 68% in 1997. The Company's
main distribution channel is through two large retailers which accounted for
94% of 1998 net carburetor sales compared to 84% of 1997 net carburetor
sales. The balance of the carburetor sales was to original equipment
aftermarket customers and traditional warehouse distributors.
The loss of one of the Company's largest customers could have a material
adverse effect on the Company's financial condition and results of operations.
-46-
<PAGE>
11. RELATED PARTY TRANSACTIONS
--------------------------
On March 9, 1992, Echlin, Inc. exercised its market value rights under a
1992 stock purchase agreement with the Company. The Company reduced its
Additional Paid-In Capital by $2,400,000 and recorded a note payable of the
same amount, which is being paid to Echlin in quarterly installments of
$200,000. The note 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.
Total purchases from Echlin approximated $0, $750,000, and $1,175,000 in 1998,
1997, 1996, respectively, of which $0, $23,000, and $634,000 were unpaid at
year-end 1998, 1997 and 1996 respectively.
12. ENVIRONMENTAL MATTERS
---------------------
The Company is subject to various Federal, state and local environmental
laws and regulations incidental to its business. The Company continues to
modify, on an ongoing basis, processes that may have an environmental impact.
The Company has been named, along with a number of other companies, as a
Potentially Responsible Party in several Federal and state sites where the
Company had operations or where byproducts from the Company's manufacturing
processes were disposed. The current landowner at a former plant site has
sued the Company and two other parties. The plaintiff is seeking judgment
that the Company and co-defendants cover the costs to remediate the plant site
and related costs of a Federal cleanup action and unspecified damages. The
Company and its insurance carriers have agreed to provide a defense, with a
reservation of rights. Three of the sites are currently active, and the
others have been settled or are dormant. The Company has undertaken
voluntary actions at its current plant sites ranging from periodic testing
to modest amounts of soil and water remediation and storage tank removal.
The Company has $863,000 in reserves for anticipated future costs of pending
environmental matters at December 27, 1998. Such costs include the Company's
estimated allocated share of remedial investigation/feasibility studies and
clean up and disposal costs. Recoveries net of legal costs from insurance
policy coverage or other third parties totaling $75,000 were recorded to the
reserve in 1998. 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.
-47-
<PAGE>
13. INVESTMENTS
-----------
The Company has a 50% equity investment in a foreign joint venture. The
Company's wholly owned foreign subsidiary is a joint and several guarantor of
Canadian bank debt with its partner in the 50% owned Canadian venture. The
amount of the loan plus accrued and unpaid interest was Canadian $858,000 at
December 27, 1998. 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 subsidiary Company, the Company has continued to record its
investment at a zero estimated net realizable value and to maintain a
reserve for additional contingent financial exposure.
14. OTHER ACCRUED EXPENSES
----------------------
Other accrued expenses consist of the following:
</TABLE>
<TABLE>
<CAPTION>
December 27, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
Interest $ 143,000 $ 173,000
Workers' compensation 1,939,000 2,195,000
Pension (See Note 8) 1,292,000 1,293,000
Medical insurance 8,000 (12,000)
Rebates 219,000 56,000
Environmental costs 863,000 938,000
Restructuring 14,000 22,000
Joint venture 802,000 802,000
Stock adjustments 614,000 202,000
Other items 317,000 136,000
----------- -----------
Total other accrued expenses $ 6,211,000 $ 5,805,000
=========== ===========
</TABLE>
-48-
<PAGE>
15. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash paid during the year for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Interest $ 895,000 $ 1,040,000 $ 1,461,000
Income taxes 7,000 -0- -0-
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
In 1998 and 1997, as a result of the vendor composition agreement,
approximately $250,000 and $2,500,000 of trade payables were restructured
into long-term notes payable, respectively. The extinguishment of the vendor
debt resulted in an additional $92,000 and $596,000 of trade payables being
forgiven, thus, resulting in an extraordinary gains in 1998 and 1997,
respectively.
-49-
<PAGE>
16. BUSINESS SEGMENTS
-----------------
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Following the provisions of SFAS No. 131, the Company is
reporting two operating business segments in the same format as reviewed
by the Company's senior management. Segment one, Fuel Systems & C.V.
Assemblies, 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. Segment two, Electrical & Mechanical
Products, remanufactures and sells replacement electrical and mechanical
products for passenger car, agricultural and heavy-duty truck original
equipment applications. Management uses operating income as the measure of
profit or loss by business segment. Accounting policies of the operating
segments are the same as described in the "Summary of Significant Accounting
Policies" (see Note 1, page 39). Segment assets include amounts specifically
identified with each operation. Corporate assets consist primarily of
property and equipment.
Business segment information is as follows:
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Fuel Systems & C.V. Assemblies $ 20,311,000 $ 17,020,000 $ 17,894,000
Electrical & Mechanical Products 6,131,000 7,145,000 9,662,000
------------ ------------ ------------
Total Revenues $ 26,442,000 $ 24,165,000 $ 27,556,000
============ ============ ============
Depreciation & Amortization Expense:
Fuel Systems & C.V. Assemblies $ 259,000 $ 314,000 $ 424,000
Electrical & Mechanical Products 374,000 427,000 436,000
Corporate 78,000 32,000 105,000
------------ ------------ ------------
Total $ 711,000 $ 773,000 $ 965,000
============ ============ ============
Net Income/(Loss):
Fuel Systems & C.V. Assemblies $ 3,594,000 $ 2,270,000 $ 1,623,000
Electrical & Mechanical Products (957,000) (949,000) (220,000)
Corporate (1,413,000) (2,077,000) (2,870,000)
------------ ------------ ------------
Sub-Total Income/(Loss) 1,224,000 (756,000) (1,467,000)
Extraordinary Gains 279,000 596,000 -0-
------------ ------------ ------------
Total Income/(Loss) $ 1,503,000 $ (160,000) $ (1,467,000)
============ ============ ============
</TABLE>
-50-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Additions:
Fuel Systems & C.V. Assemblies $ 15,000 $ 39,000 $ 8,000
Electrical & Mechanical Products 28,000 127,000 8,000
Corporate 31,000 395,000 31,000
------------ ------------ ------------
Total capital additions $ 74,000 $ 561,000 $ 47,000
============ ============ ============
Total Assets:
Fuel Systems & C.V. Assemblies $ 7,535,000 $ 8,292,000 $ 11,514,000
Electrical & Mechanical Products 8,138,000 7,216,000 7,001,000
Corporate 1,646,000 1,768,000 1,151,000
------------ ------------ ------------
Total assets $ 17,319,000 $ 17,276,000 $ 19,666,000
============ ============ ============
</TABLE>
-51-
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions to/
Balance at Charged (Deductions) Balance
Beginning to From at End
of Period Operations Reserves of Period
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR
UNCOLLECTIBLE
ACCOUNTS:
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
----------- ----------- ----------- -----------
Year Ended
December 27, 1998 $ 448,000 $ -0- $ (109,000) $ 339,000
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Additions to/
Balance at Charged (Deductions) Balance
Beginning to From at End
of Period Operations Reserves of Period
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVENTORY RESERVES:
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
------------ ------------ ------------ ------------
Year Ended
December 27, 1998 $ 4,674,000 $ 495,000 $ (221,000) $ 4,948,000
------------ ------------ ------------ ------------
-52-
<PAGE>
CHAMPION PARTS, INC.
EXHIBIT INDEX
___________
(Pursuant to Item 601 of Regulation S-K)
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.
(4)(b) Specimen of Common Share Certificate
(4)(c) Articles of Incorporation (see Exhibit (3)(a) above).
(4)(d) 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").
Material Contracts:
(10)(a) 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)(b) Letter Agreement dated October 9, 1995 between Registrant and RGP
Holding, Inc. (incorporated by reference to Registrant's quarterly
report on Form 10-Q filed November 24, 1995).
(10)(c) 1995 Stock Option Plan as of November 1, 1995 (incorporated by
reference to Registrant's 1995 Proxy).
(10)(d) Severance Agreement dated March 28, 1997 between the Registrant and
Jerry A. Bragiel (incorporated by reference to the Registrant's
annual report on Form 10K, year ended December 28, 1997). (1)
(10)(e) Employment and Stock Option Agreement between the registrant and
Jerry A. Bragiel dated March 28, 1997. (incorporated by reference
to the Registrant's annual report on Form 10K, year ended
December 28, 1997). (1)
-53-
<PAGE>
(10)(f) 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).
(10)(g) Loan and Security Agreement dated August 6, 1998 between the
Registrant and NationsCredit Commercial Corporation through its
NationsCredit Commercial Funding Division (incorporated by reference
to Registrant's quarterly report on Form 10-Q, June 29, 1998).
Additional Exhibits:
(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).
(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.
_________
-54-
</TABLE>
<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 27, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> DEC-27-1998
<CASH> 784000
<SECURITIES> 0
<RECEIVABLES> 5040000
<ALLOWANCES> 0
<INVENTORY> 6414000
<CURRENT-ASSETS> 12667000
<PP&E> 20738000
<DEPRECIATION> 16125000
<TOTAL-ASSETS> 17319000
<CURRENT-LIABILITIES> 17319000
<BONDS> 0
0
0
<COMMON> 366000
<OTHER-SE> (2858000)
<TOTAL-LIABILITY-AND-EQUITY> 17319000
<SALES> 26442000
<TOTAL-REVENUES> 26442000
<CGS> 22192000
<TOTAL-COSTS> 24311000
<OTHER-EXPENSES> 2119000
<LOSS-PROVISION> 339000
<INTEREST-EXPENSE> 865000
<INCOME-PRETAX> 1503000
<INCOME-TAX> 42000
<INCOME-CONTINUING> 1224000
<DISCONTINUED> 0
<EXTRAORDINARY> 279000
<CHANGES> 0
<NET-INCOME> 1503000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.41
</TABLE>
Exhibit (4)(a)
STOCK PURCHASE AGREEMENT
This Agreement is made this 18th day of March, 1987 between CHAMPION PARTS
REBUILDERS, INC., an Illinois corporation ("Seller"), and ECHLIN INC., a
Connecticut corporation ("Purchaser").
Recitals
A. Seller is a major United States remanufacturer of automotive replacement
parts. Purchaser is a major supplier of products to the automotive
aftermarket and is a supplier to other manufacturers of new and
remanufactured automotive products.
B. Seller is a long-time customer of Purchaser with 1986 purchases from
Purchaser and its affiliates totaling over $6,000,000. Seller is an important
customer of the Purchaser's divisions which supply it. Seller and Purchaser
have a number of common customers but do not presently compete with each other
except in remanufactured clutches and, to a lesser extent, in calipers and
water pumps.
C. Since mid-1985, Seller and Purchaser have been discussing and exploring
possible business transactions and ways in which they can be of more help to
each other in product areas and in operation of their respective businesses,
including the servicing of customers. The parties have considered
transactions in which Purchaser would become a substantial equity owner in
Seller.
D. Purchaser is aware of the litigation pending in Champion Parts
Rebuilders, Inc. v. Cormier Corporation, et al. (No. 86 C 8906, United States
District Court for Northern District of Illinois, E.D.) (the "Lawsuit") and
that the outcome of the Lawsuit could affect the Seller's business and the
value of Seller's Common Shares.
E. The transaction provided for below will improve Seller's financial
condition by increasing shareholders' equity and reducing existing high
interest debt. The proceeds are to be used by Seller primarily to prepay
outstanding subordinated indebtedness. Seller's cash earnings will thereby
increase. The transaction will also increase Seller's stability and value as a
customer to Purchaser. Purchaser's position as a major shareholder should
reassure Seller's existing and prospective customers, suppliers, lenders and
employees that major changes are unlikely to take place in Seller.
Now, therefore, Seller and Purchaser hereby agree as follows:
1. Sale and Purchase of Shares.
At the Closing provided for in paragraph 4 hereof (the
"Closing"), for an aggregate Purchase Price of $5,400,000 (the "Purchase
Price"), Seller shall sell and Purchaser shall purchase 600,000 authorized
Common Shares, $.10 par value, of Seller and a Stock Purchase Warrant (the
"Warrant") to acquire an additional 300,000 Common Shares, $.10 par value, of
Seller at an exercise price of $9.20 per share (which Warrant shall be in the
form of Exhibit A hereto). The 600,000 Common Shares, $.10 par value, to be
acquired hereunder are referred to as the "Shares".
2. Representations of Seller.
Seller represents and warrants to Purchaser that:
2.1 Seller is a corporation existing and in good standing under the laws of
the State of Illinois and has full corporate power and authority to own and
lease the properties used in its business and to carry on its business as now
conducted.
2.2 The authorized capital stock of Seller consists of 5,000,000 Common
Shares, $.10 par value ("Common Shares"), of which 2,513,746 shares (excluding
the Shares) are issued and outstanding on the date hereof.
2.3 On the date hereof, Seller has outstanding no warrants, options or rights
to purchase or acquire Common Shares or securities convertible into or
exchangeable for Common Shares, except for 58,340 Common Shares which may be
purchased under Seller's Incentive Stock Option Plan (of which 14,465 Common
Shares were reserved for options outstanding on February 20, 1987 and 43,875
Common Shares were reserved for future options), 52,484 Common Shares issuable
to employees under Seller's Stock Bonus Plan (of which 28,832 Common Shares
were reserved for issuance pursuant to awards outstanding on February 20, 1987
and 23,652 Common Shares were reserved for issuance under future awards), and
an aggregate of 990,000 Common Shares issuable under Seller's outstanding
Callable Common Share Purchase Warrants.
2.4 Seller has provided Purchaser with copies of the following, filed by
Seller with the Securities and Exchange Commission ("the S.E.C.") pursuant to
the Securities Exchange Act of 1934, as amended ("the 1934 Act"): (a) Seller's
Form 10-K Annual Report for the fiscal year ended December 31, 1985, (b)
Seller's Form 10-Q Quarterly Reports for the three months ended March 31, June
30 and September 30, 1986, and (c) Current Report on Form 8-K dated November
17, 1986. Seller has also provided Purchaser with a copy of Seller's press
release announcing Seller's results of operation for the year ended December
31, 1986. The above reports constitute all of the reports required to be filed
by Seller with the S.E.C. under the 1934 Act since December 31, 1985 and prior,
to the date hereof and do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading.
2.5 Seller has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof. This Agreement has been
duly authorized, executed and delivered by Seller and constitutes a valid and
legally binding obligation of Seller.
2.6 No governmental authorization, approval, or permit, and no registration
or filing by Seller with any governmental authority (except for reports
required to be filed in the future under the 1934 Act and Illinois law), is
required in connection with the execution, delivery and performance of this
Agreement by Seller.
2.7 Upon the issuance of the Shares and the Warrant at the Closing and upon
receipt by Seller of the Purchase Price from Purchaser, the Shares will be
duly and validly issued, fully-paid and non-assessable Common Shares and the
Warrant will be legally issued and will be the binding obligation of the
Seller in accordance with its terms. Common Shares which are issued upon
exercise of the Warrant, when issued in accordance with the terms thereof,
and additional Common Shares which are issued in accordance with 7.1(a) below
("Additional Common Shares"), will be duly and validly issued, fully-paid and
non-assessable. The Seller shall reserve and keep reserved out of its
authorized Common Shares the number of Common Shares which may be issuable
upon exercise of the Warrant. After the issuance of the Shares and the
Warrant, Seller will have 485,430 authorized but unissued Common Shares which
will not be reserved for specific purposes.
3. Representations of Purchaser.
Purchaser represents and warrants that:
3.1 Purchaser is a corporation validly existing and in good standing under
the laws of the State of Connecticut.
3.2 Purchaser is acquiring the Shares and the Warrant, and, upon exercise of
the Warrant or its rights under 7.1(a) will acquire Common Shares thereunder,
for its own account for investment and with no present intention to distribute
any thereof. Purchaser is aware that the Shares, the Additional Common Shares,
the Warrant and the Common Shares issuable upon exercise of the Warrant have
not been registered under the Securities Act of 1933, as amended ("the 1933
Act"), and that the Shares, the Additional Common Shares, the Warrant and the
Common Shares issuable upon exercise of the Warrant may not be resold by
Purchaser unless they are registered under the 1933 Act or an exemption from
such registration is available.
3.3 This Agreement has been duly authorized, executed and delivered by
Purchaser and constitutes a valid and legally binding obligation of Purchaser.
Purchaser has full corporate power and authority to enter into this Agreement
and to carry out the provisions hereof.
3.4 Prior to entering into this transaction Purchaser's representatives have
visited Seller's principal manufacturing facilities and have been provided
with reports and other information referred to in paragraph 2.4. Purchaser
is also informed as to the status of the Lawsuit and has not received any
assurance with respect thereto.
4. The Closing.
The Closing of the sale and purchase of the Shares shall take place at the
offices of Fried, Frank, Harris, Shriver & Jacobson, in New York, New York, on
the date hereof. At the Closing, Seller shall deliver to Purchaser a stock
certificate or certificates evidencing the Shares and the Warrant, each
registered in the name of Purchaser, and such other documents relating to the
issuance of the Shares and the Warrant as may be reasonably requested by
Purchaser's counsel, and Purchaser shall deliver to the Seller a certified or
bank cashier's check in immediately available funds payable to the order of
Seller in the amount of the Purchase Price.
5. Restriction on Offer, Sale or Transfer of Shares.
5.1 As a material inducement to Seller to enter into this Agreement,
Purchaser agrees that no Common Shares (including but not limited to the
Shares) shall be offered, sold or transferred by Purchaser, unless either:
(a) such proposed offer, sale or transfer shall be pursuant to a public
offering registered under the 1933 Act; provided, however, that, except as set
forth in paragraph 6 hereof, nothing contained in this paragraph 5 or in any
other provision of this Agreement shall be deemed to require Seller to effect
any such registration; or
(b) in the opinion of counsel to Purchaser, who are satisfactory to Seller,
such proposed offer, sale or transfer may be effected without registration
under the 1933 Act. In the event of any offer, sale or transfer of Common
Shares effected pursuant to subparagraph (b) of this 5.1 shall be otherwise
then pursuant to Rule 144 of the General Rules and Regulations under the 1933
Act, Seller may require that the purchaser thereof agree to be bound by this
paragraph 5 and that the certificates delivered to such purchaser bear legends
to such effect and to the effect that such securities have not been registered
under the Act.
5.2 Purchaser shall not, directly or indirectly, offer, sell or transfer any
Common Shares or Warrant:
(a) prior to March 1, 1994, to any person or group of persons, who, to the
knowledge of Purchaser, either (i) before such offer, sale or transfer own,
hold or have the right to acquire or (ii) immediately after such offer, sale
or transfer would own, hold or have the right to acquire, more than five
percent (5%) of the then outstanding Common Shares, or to any person or group
of persons acting in concert with such person or group; or
(b) to any (i) of the defendants in the Lawsuit or (ii) any person or entity
who has acted or is then acting in concert with, or is a member of a group
with, any of the defendants in the Lawsuit (all of the persons referred to in
(i) and (ii) are referred to as the "Cormier Affiliates");
provided, however, that notwithstanding the forgoing Purchaser may sell or
transfer Common Shares (y) pursuant to a tender offer if none of the Cormier
Affiliates participate in any manner whatsoever in making such tender offer
and such tender offer is made to all shareholders of Seller in accordance
with the 1934 Act and (z) in any transaction approved by a majority of the
disinterested directors of Seller (as defined in paragraph 8.1).
6. Registration Rights.
6.1 If at any time after February 28, 1989 Purchaser requests Seller in
writing to register under the Securities Act any of the Shares (which request
shall specify the number of Shares intended to be offered and sold
(which shall not be less than 300,000 Shares), shall express Purchaser's
present intent to offer such shares for distribution in a firm commitment
underwriting, and shall contain the undertaking of Purchaser to provide all
such information and materials and take all such action as may be required in
order to permit Seller to comply with all applicable requirements of the
S.E.C.), then Seller shall use all reasonable efforts to cause the offering of
the Shares so specified in such request to be registered so as to permit the
sale or other distribution by Purchaser of such Shares, and in connection
therewith Seller shall prepare and file on an appropriate form, as Seller
in its sole discretion shall determine, a registration statement under the
1933 Act to effect such registration; provided, however, Purchaser shall have
only one right to request registration of Shares pursuant to this 6.1.
6.2 If Seller shall at any time propose the registration under the Securities
Act of an offering of its Common Shares, Seller shall give notice as promptly
as possible of such proposed registration to Purchaser and Seller will use all
reasonable efforts to cause such number of Shares as Purchaser shall request
within ten (10) days after the receipt of such notice to be included in such
registration for sale, upon the same terms (including the method of
distribution) as Common Shares to be offered by Seller, provided that: (a)
Seller shall not be required to give notice or include Shares in any such
registration if the proposed registration is primarily (i) a registration of a
stock option or compensation plan or of securities issued and issuable
pursuant to any such plan, (ii) a registration of securities proposed to be
issued in exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation, or (iii) securities to be
issued upon the exercise of Seller's outstanding Callable Common Share
Purchase Warrants; (b) Seller shall not be required to include Shares in any
such registration if Seller is advised in writing by its investment banking
firm that the inclusion of such Shares would in its opinion have an adverse
effect on such proposed offering of its Common Shares; (c) Seller may,
without the consent of Purchaser, withdraw such registration statement and
abandon theproposed offering in which Purchaser requested to participate.
Purchaser may not request registration of any of the Shares under 6.2 until
March 1, 1988. One or more requests by Purchaser under 6.2 shall not affect
Purchaser's rights under 6.1.
6.3 If Seller is, at any time it receives a request for registration pursuant
to 6.1, conducting or about to conduct an offering of its securities and
Seller is advised in writing by its investment banker that such offering would
in its opinion be adversely affected by the registration so demanded, then if
such investment banker considers it practicable, the participation in such
offering shall be allocated between Purchaser and the Company in proportion to
the value of the securities proposed to be offered by each, and Purchaser
shall continue to be entitled to request one registration under 6.1. Seller
shall be entitled to postpone for a reasonable period of time the filing of
any registration statement otherwise required to be prepared and filed by it
pursuant to 6.1 if Seller is, at the time it receives a request for
registration pursuant to 6.1, engaged in negotiations for the acquisition or
disposition of a company or a material amount of assets which have not
theretofore been publicly disclosed and (i) is advised by its counsel that
the proposed transaction would be required to be disclosed in such
registration statement, and (ii) in the opinion of management of Seller,
such disclosure would have an adverse effect on such negotiations.
6.4 In connection with any registration of Shares undertaken by Seller
hereunder, Seller shall: (a) furnish to Purchaser or its underwriter such
number of copies of any prospectus (including any preliminary prospectus) as
Purchaser may reasonably request; (b) use its best efforts to qualify the
offering under applicable blue sky laws or other state securities laws as may
be necessary to enable Purchaser to offer and sell the Shares; and (c) pay all
SEC, NASD and blue sky registration and filing fees, printing and engraving
expenses, fees and disbursements of its accountants and legal counsel,
transfer agents' and registrars' fees, and fees and disbursements of experts
used by Seller in connection with such registration, and expenses incidental
to any post-effective amendment to any such registration statement.
Purchaser shall bear all other expenses, including, but not limited to,
underwriting discounts and commissions attributable to the Shares included
in the registration and fees and disbursements of its accountants and counsel.
6.5 In connection with any registration of the Shares undertaken by Seller
hereunder, Seller and Purchaser shall each indemnify the other (and any
underwriters) and shall agree to contribution on terms and conditions
customary in connection with underwritten registered public offerings.
6.6 Additional Common Shares and Common Shares acquired upon exercise of the
Warrant shall be deemed Shares for the purposes of this paragraph 6.
7. Decrease in Market Value.
7.1 If as of the last day of February in any year commencing February 28,
1989 and ending February 28, 1994 (the "Valuation Date") the market value (as
defined below) of the Common Shares is less than $9.00 per share, Purchaser
may, by written notice served on Seller within ten (10) days after the
Valuation Date, request Seller to pay Purchaser the amount of the difference
between $9.00 per share and the market value of the Common Shares on the
Valuation Date multiplied by the number of Shares owned by Purchaser on the
Valuation Date, provided that Seller's obligation hereunder shall not exceed
the amounts set forth below:
If the Valuation The maximum amount
Date is in the of the Seller's obligation
following year per Share shall be
1989 $1
1990 2
1991 3
1992 4
1993 4
1994 4
Payment shall be made by Seller on or before thirty (30) days after receipt of
such notice by Seller, at Purchaser's option either (a) by the issuance to
Purchaser of additional Common Shares having an aggregate market value on the
Valuation Date specified equal to the amount of the aggregate difference or
(b) by the payment of the aggregate difference to Purchaser in the following
manner:
(i) if the aggregate difference is $250,000 or less, by the payment of cash;
or
(ii) if the difference is more than $250,000, at Seller's option either by the
payment of cash or by the issuance of a negotiable promissory note payable in
quarterly installments of principal of $200,000 and bearing interest payable
quarterly at the prime rate plus 1%, said promissory note to be accompanied by
a letter of credit issued by a bank acceptable to Purchaser which letter of
credit shall guarantee one half of the principal payments in the inverse order
of maturity.
For the purposes hereof the market value of Common Shares on a particular
Valuation Date shall be the arithmetic average of the closing market prices
for the Common Share for the 30 consecutive trading days preceding such date.
The closing price for each day shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of the
closing bid and asked prices for such day, in either case on the principal
national securities exchange on which the Common Shares are listed or
admitted to trading, or, if they are not listed or admitted to trading on any
national securities exchange, but are traded in the over-the-counter market,
the average of the closing bid and asked quotations for the Common Shares on
NASDAQ or on any comparable system.
7.2 In the event of a stock dividend, stock split, reverse split or other
similar capital change affecting the Common Shares after the date hereof, the
$9 per Share price and maximum of $4 per Share difference used in 7.1 shall be
equitably adjusted to take into account such capital change.
7.3 Purchaser may exercise its right under this paragraph 7 only once and
such right is non-assignable. Common Shares issued upon exercise of the
Warrant shall not be deemed to be Shares for the purposes of this paragraph 7.
8. Additional Agreements.
8.1 Purchaser shall have full discretion to vote all Common Shares owned by
it as it sees fit. However, as a material inducement to Seller to enter into
this Agreement, Purchaser will not prior to March 1, 1994, without the prior
consent of a majority of the disinterested members of Seller's Board of
Directors, specifically expressed in a resolution adopted by such directors:
(a) acquire, or permit any subsidiary or affiliate of Purchaser to acquire,
directly or indirectly, by purchase or otherwise, any Common Shares or other
securities of Seller entitled to vote in the election of directors of Seller
("Voting Securities"), or any right, warrant or option to acquire any thereof,
if, immediately after such acquisition (and assuming the exercise at the time
of all conversion, exercise and other rights by which Purchaser and its
subsidiaries and affiliates may acquire any such securities), Purchaser and its
subsidiaries and affiliates would own in the aggregate more than 28% of the
total combined voting power of all Voting Securities at the time outstanding
(provided that this subparagraph (a) shall not apply to the acquisition by
Purchaser of Voting Securities pursuant to a tender offer made for all
outstanding Common Shares of Seller nor to the acquisition of the Additional
Common Shares); or
(b) solicit, or permit any of its subsidiaries or affiliates to solicit,
proxies with respect to Voting Securities; or be, or permit any of its
subsidiaries or affiliates to be, a "participant" (except by reason of
membership of any designee on Seller's Board of Directors) in any "election
contest" relating to the election of directors of Seller (as such terms are
used in Rule 14a-11 of Regulation 14A under the 1934 Act); or
(c) act, or permit any of its subsidiaries or affiliates to act, as a trustee
under, or otherwise participate in, any voting trust or any voting or similar
agreement or subject, or permit any of its subsidiaries or affiliates to
subject any Voting Securities to any such trust or agreement; or
(d) join, or permit any affiliate of Purchaser to join, a partnership,
limited partnership, or other group for the purpose of acquiring, holding or
disposing of Voting Securities within the meaning of the 1934 Act.
A disinterested member of Seller's Board of Directors means any member of
Seller's Board of Directors who is an "Unaffiliated Person" (such term meaning
a person who is designated by Purchaser but is not affiliated with or employed
by Purchaser, a person who is a current member of Seller's Board of Directors
who is not an employee of Seller or contractual consultant to Seller, and any
Unaffiliated Person whose appointment or election to Seller's Board of
Directors has been approved or recommended by a majority of the then
disinterested members of Seller's Board of Directors). Employee pension,
profit sharing and other similar trusts of Purchaser shall be deemed affiliates
of Purchaser.
8.2 Seller and Purchaser shall cooperate to amend Seller's Articles of
Incorporation to increase the number of Common Shares which Seller is
authorized to issue as soon as practicable.
9. Legends and Stop Transfer Orders.
9.1 Purchaser agrees that:
(a) each certificate evidencing the Shares shall bear the following legend:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933. The shares may not be sold or transferred in the
absence of such registration or an exemption therefrom under said Act. In
addition, the shares represented by this certificate are subject to the
provisions of an Agreement dated March 18, 1987, a copy of which is on file at
the office of the Secretary of the Company, to the provisions of which the
holder hereof, by acceptance hereof, agrees to be bound."
(b) Purchaser will, and will cause its subsidiaries and affiliates to,
present promptly to Seller all certificates representing Voting Securities of
Seller which are hereafter acquired by Purchaser or any of its subsidiaries and
affiliates for the placement thereon of such legend.
(c) Seller may enter stop transfer orders with the transfer agent and
registrar of Seller's securities against the transfer of certificates
evidencing the Shares held by Purchaser and its subsidiaries and affiliates
except in compliance with the requirements of this Agreement.
9.2 If Purchaser proposes to sell Shares as permitted by this Agreement,
Seller agrees to promptly remove the legend from the certificates evidencing
such Shares and to instruct its transfer agent and registrar to effect the
transfer of such certificates.
10. Board Designees.
10.1 At Purchaser's request, Seller's Board of Directors shall amend Seller's
by-laws to increase the size of Seller's Board of Directors to not more than
twelve members. Seller will nominate for election to its Board of Directors
at each meeting of Seller's shareholders at which directors are to be elected
that number of persons designated by Purchaser which Purchaser could elect by
cumulatively voting Common Shares owned by it, but not less than two persons
if Seller's Board of Directors shall be less than twelve members and three
persons if Seller's Board of Directors shall be twelve members. At
Purchaser's request, Seller's Board of Directors shall cause the election of
persons designated by Purchaser to Seller's Board of Directors on the basis
set forth above at a meeting of Seller's Board of Directors prior to the next
meeting of Seller's shareholders.
10.2 If, at any time during the term of office of a director of Seller
designated by Purchaser, such office shall become vacant for any reason, the
Board of Directors of Seller will fill such vacancy with a person designated
by Purchaser at the first meeting of directors held after such vacancy is
created.
10.3 Seller's obligations under this paragraph 10 shall be appropriately
modified by agreement of Seller and Purchaser if Purchaser shall sell or
otherwise dispose of Common Shares, and shall terminate after any such
disposition if Purchaser does not retain sufficient Common Shares to elect a
director by cumulatively voting such Common Shares.
11. By-law Amendment.
As a material inducement to Purchaser to enter into this Agreement, the
Warrant provides, among other things, that Seller shall give Purchaser notice
of certain transactions and events, including any special meeting of
shareholders and solicitation of written consents from shareholders, prior to
the record date for such transaction or event so as to enable Purchaser to
exercise the Warrant prior to such record date. Seller shall amend its
By-laws to provide that: (a) if shareholders (permitted to do so) desire to
call a special meeting of shareholders or solicit written consents from
shareholders, such shareholders shall first request in writing that Seller
determine and fix a record date, (b) Seller shall determine and fix a record
date within periods to be set forth in Seller's By-laws, which periods shall
allow Seller sufficient time to, among other things, deliver the advance
notice to Purchaser as provided in the Warrant and (c) if the advance notice
provided for in the Warrant is not delivered to Purchaser prior to such
record date, shares acquired upon exercise of the Warrant shall, on the terms
and conditions specified in the Warrant, be deemed issued and outstanding on
the record date for all purposes.
12. Indemnification.
12.1 Seller shall indemnify and hold harmless Purchaser, and its officers,
directors and employees, from and against any and all losses, claims, damages,
liabilities and expenses, including reasonable attorney's fees and expenses,
arising or resulting from, or in connection with, any actual or threatened
demand, claim, lawsuit or cause of action arising out of or related to the
transactions provided for in this Agreement, including any amount paid in
settlement of any litigation, commenced or threatened, if such settlement is
effected with the written consent of Seller, all on the terms and conditions
set forth in subparagraph 12.2 below.
12.2 Promptly after receipt of notice of the commencement of any action
against it for which indemnity may be sought from Seller pursuant to this
Agreement, Purchaser shall notify Seller in writing of the commencement
thereof. The parties shall cooperate and use their best efforts to defend
against and respond thereto. Seller shall assume the defense, including the
employment of counsel reasonably satisfactory to Purchaser, with respect to
any action for which Purchaser may seek indemnity hereunder. Purchaser may
employ separate counsel, but the fees and expenses of Purchaser's separate
counsel shall be the expense of Purchaser unless: (a) Seller has agreed to
pay such fees and expenses or (b) Seller shall have failed to assume the
defense of such action with counsel reasonably satisfactory to Purchaser.
12.3 The indemnification provided for herein shall be in addition to any other
rights the person indemnified may have under common law or otherwise.
13. Notices and Other Communications.
All notices and other communications provided for hereunder shall be in
writing and shall be deemed to have been given or made when delivered, or
mailed first class postage prepaid, or sent by telex (if promptly confirmed
by mail):
(a) if to Seller: 2525 22nd Street, Oak Brook, Illinois 60521, Attention:
Chairman of the Board, or to such other address as Seller may from time to
time hereafter designate by written notice given hereunder; or
(b) if to Purchaser: 100 Double Beach Road, Branford, Connecticut 06405,
Attention: Secretary, or to such other address as Purchaser may from time to
time hereafter designate by written notice given hereunder.
14. Miscellaneous.
14.1 This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Illinois.
14.2 If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
14.3 This Agreement may be executed in several counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, Seller and Purchaser have each caused this Agreement to be
executed by a duly authorized officer thereof on the day and year first above
written.
CHAMPION PARTS REBUILDERS, INC.
By
Chairman of the Board
ECHLIN INC.
By
Vice-President
Champion Parts Rebuilders, Inc.
Corporate Headquarters
2525 22nd Street
Oak Brook, Illinois 60521
March 18, 1987
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
Gentlemen:
This letter will serve to set forth our understanding with respect to the
proceeds under the Stock Purchase Agreement ("Agreement") of even date between
Champion Parts Rebuilders, Inc. and Echlin Inc.
The $5,400,000 Purchase Price shall be invested in short-term U.S. government
securities until such time as the Board of Directors of Seller by adoption of
a resolution declares that Seller is not in default as to any of its
obligations to Purchaser under the Stock Purchase Agreement and that the
funds may be used for general corporate purposes without violating Seller's
obligations under this letter. Seller shall move without delay for leave
to amend its Complaint in the Cormier litigation to seek a declaratory
judgment with respect to the Agreement and Buyer's investment in Seller.
The $5,400,000 may not be used for general corporate purposes, including
repayment of long-term debt, until after Seller institutes proceedings for
declaratory relief with respect to the Agreement and the defendants in such
proceeding, or any other judicial proceeding challenging the validity or
legality of the Agreement initiated after the Closing, do not obtain
equitable relief to rescind the Agreement or are not successful in seeking
to restrain or invalidate any of the transactions contemplated by the
Agreement. In any event, Seller shall give Buyer 30 days prior written
notice of its intention to use the funds for general corporate purposes
and such notice may not be given until the expiration of 60 days after
the Closing.
Please sign the enclosed copy of this letter where indicated below to confirm
the above understanding.
Very truly yours,
CHAMPION PARTS REBUILDERS, INC.
By: Charles P. Schwartz, Jr.
Chairman of the Board
Echlin Inc.
By:
Vice President
Page 1 of 1
EXHIBIT (10)(a)
CHAMPION PARTS, INC.
2525 22nd Street
Oak Brook, IL 60521
September 20, 1993
RGPH Holding, Inc.
Mr. Raymond G. Perelman
1820 Rittenhouse Square
Philadelphia, Pennsylvania 19103
Gentlemen:
This letter, when signed by you, sets forth the terms of a binding Agreement
between Champion Parts, Inc., an Illinois corporation (the "Company"), and
Raymond G. Perelman ("Perelman") and RGPH Holding, Inc., a Delaware
corporation ("RGPH").
In consideration of the mutual covenants contained herein, the parties to this
Agreement hereby agree as follows:
1. This Agreement shall govern the election of directors of the Company at
the 1993 Annual Meeting of Shareholders and at each shareholders meeting
thereafter at which directors are to be elected or removed. Either party may
terminate this Agreement by so notifying the other party in writing, such
notice to be delivered not less than 90 days prior to the first shareholders
meeting (or, in the case of filling a vacancy on the board directors to the
extent permitted by applicable law, the first meeting of the board) at which
this Agreement is not to govern.
2. The Company's board of directors will consist of nine members. The 1993
Annual Meeting of Shareholders will be held as soon as practicable following
the execution of this Agreement. At the 1993 Annual Meeting the board's
nominees shall be:
Thomas Blashill ("Blashill")
Calvin A. Campbell, Jr. ("Campbell")
John Gross
Raymond Gross
Gary Hopmayer
Barry Katz ("Katz")
Edward Kipling
Raymond Perelman ("Perelman")
Donald Santucci.
If any of Perelman, Katz or Campbell is unable or unwilling to serve as a
director of the Company, then in filling the resulting vacancy or in selecting
replacement nominees, the following provisions shall govern:
(a) Campbell shall be replaced by a nominee selected by the board (other than
Perelman and Katz) and reasonably acceptable to Perelman; and
(b) Katz and/or Perelman shall be replaced by a nominee selected by Perelman
or his executor or administrator and reasonably acceptable to the board.
3. In an election of directors, to the extent that other persons vote Company
common shares, in person or by proxy, for nominees other than those referred
to, or selected in accordance with, paragraph 2 hereof, the Company will
cumulate the votes it may cast for (a) Katz before Campbell and (b) Campbell
before Blashill. The Company agrees that it will take such action to deter
the election of Charles P. Schwartz, Jr. ("Schwartz") to the board as may be
determined, in the business judgment of a majority of the board members, to be
in the Company's best interest, including (i) not selecting Schwartz as a
nominee for election as a director by shareholders, (ii) not casting any votes
held by the Company or its representatives by proxy or otherwise for Schwartz'
election as a director should he be nominated and (iii) not electing
Schwartz to fill any vacancy that may arise on the board.
4. Perelman and RGPH hereby grants to the Company the proxy to vote their
shares of the Company's common stock for the election of directors in
accordance with Paragraphs 2 and 3; provided, however, that Perelman and
RGPH retain the discretion to vote their shares of the Company's common
shares in favor or against any other matter which may come before the
Company's shareholders. Perelman will not, directly or indirectly, solicit
proxies, or participate in the solicitation of proxies, in opposition to the
nominees described in this Agreement or in favor of any alternative nominees
or propose that or encourage any other person to do so or to nominate any
person not set forth as a nominee in accordance with this Agreement and will
advise the Company promptly if Perelman learns of any person who intends to
conduct any of the foregoing activities.
5. The Company will solicit proxies to be voted for the election of the
nominees for director as described in this Agreement and will not, directly or
indirectly, solicit proxies, or participate in the solicitation of proxies, in
opposition to the nominees described in this Agreement or in favor of
alternative nominees or propose that or encourage any other person to do so or
to nominate any person not set forth as a nominee in accordance with this
Agreement and will advise Perelman promptly if the Company learns of any
person who intends to conduct any of the foregoing activities.
6. This Agreement shall terminate and be automatically null and void and
Perelman and Katz will immediately resign from the board, if RGPH and Perelman
cease to own beneficially collectively 182,763 or more of the Company's common
shares (adjusted for stock splits, stock dividends combinations of shares or
other recapitalizations affecting the common shares).
7. The Company will reimburse Perelman for legal fees incurred by him in
connection with the matters covered by this Agreement upon presentation to the
Company of reasonable documentation of such fees; provided, however, that
Perelman shall not be required to waive any attorney client privilege in
presenting such documentation and the Company shall not be required to
reimburse Perelman for an amount of legal fees in excess of the amount of
legal fees paid by the Company to Kirkland & Ellis for services in connection
with the matters covered by this Agreement.
8. Except as otherwise expressly set forth herein, this Agreement embodies
the complete agreement and understanding among the parties hereto with respect
to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
9. All questions concerning the construction, validity and interpretation of
this Agreement will be governed by the internal law, and not the law of
conflicts, of Illinois.
If you are in agreement with the terms of this letter, please evidence your
agreement by signing and returning to the Company the enclosed copy of this
letter.
Very truly yours,
CHAMPION PARTS, INC.
By:
Donald G. Santucci,
Its President
Agreed to and accepted this
20 day of September, 1993.
Raymond G. Perelman
RGPH Holding, Inc.
By:
Its:
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