SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1998
Commission File Number 0-20984
HAHN AUTOMOTIVE WAREHOUSE, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 16-0467030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
415 West Main Street Rochester, New York 14608
(Address of principal executive offices) (Zip Code)
(716) 235-1595
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.
<PAGE 1>
YES X NO
Number of shares outstanding of the registrant's common stock,
par value $.01 per share, on August 12, 1998; 4,745,014.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Index
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and September 30, 1997 3
Condensed Consolidated Statements of Operations -
for the nine months and three months ended
June 30, 1998 and June 30, 1997 4
Condensed Consolidated Statements of Cash Flows -
for the nine months ended June 30, 1998
and June 30, 1997 7
Notes to Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
EXHIBIT INDEX 20
<PAGE 2>
<TABLE>
<CAPTION>
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands except share data)
6/30/98 9/30/97
ASSETS Unaudited
<S> <C> <C>
Current assets:
Cash $408 $632
Trade accounts receivable net of
allowance for doubtful accounts 16,936 16,995
Inventory 41,430 42,516
Other current assets 2,828 4,862
Total current assets 61,602 65,005
Property, equipment, and leasehold
improvements, net 7,167 5,062
Other assets 7,608 7,725
Total assets $76,377 $77,792
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and capital lease obligations $1,686 $1,330
Notes payable-officers and
affiliates 2,157 2,704
Accounts payable 9,718 12,062
Compensation related liabilities 1,586 1,880
Discontinued operations 4,060 5,066
Other accrued expenses 3,358 3,215
Total current liabilities 22,565 26,257
Long-term debt 37,845 38,896
Capital lease obligations 3,040 275
Total liabilities 63,450 65,428
<PAGE 3>
Shareholders' equity:
Common stock (par value $.01 per
per share; authorized 20,000
shares; issued and
outstanding 4,745,014) 47 47
Additional paid-in capital 25,975 25,975
Retained earnings (13,095) (13,658)
Total shareholders' equity 12,927 12,364
Total liabilities and
shareholders' equity $76,377 $77,792
</TABLE>
<TABLE>
<CAPTION>
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands except share and per share data)
(Unaudited)
For the 9
Months Ended
June 30,
1998 1997
<S> <C> <C>
Net sales $99,660 $105,422
Cost of products sold 62,343 65,580
Gross profit 37,317 39,842
Selling, general
administrative expense 32,721 33,942
Depreciation and amortization 1,199 1,280
Operating Income 3,397 4,620
Interest expense (2,832) (3,526)
Interest and service charge
income 326 341
Income from continuing
operations before provision
<PAGE 4>
for taxes 891 1,435
Provision for income taxes 328 550
Income from continuing
operations 563 885
Loss from discontinued
operations:
Write-down of investment in
subsidiary, net of tax 0 (18,789)
Loss from discontinued
operations, net of tax 0 (3,937)
Total loss from discontinued
operations 0 (22,726)
Net income (loss) $563 ($21,841)
Basic and diluted earnings
per share:
Income from continuing
operations $0.12 $0.19
Loss from discontinued
operations $0.00 ($4.79)
Net income (loss) per share $0.12 ($4.60)
Basic and diluted weighted
average number of shares 4,745,014 4,745,014
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands except share and per share data)
(Unaudited)
For the 3
Months
Ended June 30,
1998 1997
<S> <C> <C>
Net sales $35,808 $37,920
Cost of products sold 22,654 23,871
Gross profit 13,154 14,049
Selling, general
administrative expense 11,286 12,114
<PAGE 5>
Depreciation and amortization 389 433
Operating Income 1,479 1,502
Interest expense (928) (1,281)
Interest and service charge
income 101 107
Income from continuing
operations before provision
for taxes 652 328
Provision for income taxes 242 125
Income from continuing
operations 410 203
Loss from discontinued
operations:
Write-down of investment in
subsidiary, net of tax 0 (18,789)
Loss from discontinued
operations, net of tax 0 (1,851)
Total loss from discontinued
operations 0 (20,640)
Net income (loss) $410 ($20,437)
Basic and diluted earnings
per share:
Income from continuing
operations $0.09 $0.04
Loss from discontinued
operations $0.00 ($4.35)
Net income (loss) per share $0.09 ($4.31)
Basic and diluted weighted
average number of shares 4,745,014 4,745,014
</TABLE>
<PAGE 6>
<TABLE>
<CAPTION>
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands except per share data)
(Unaudited)
9 Months 9 Months
Ended Ended
6/30/98 6/30/97
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $563 $885
Adjustments to reconcile
income to net cash provided by
operating activities:
Depreciation and amortization 1,199 1,280
Provision for doubtful accounts
and notes 491 458
Loss from discontinued operations
before non-cash items (3,103)
Changes in assets and liabilities:
Trade receivables (432) (5,235)
Inventory 1,086 (774)
Other assets 2,113 (1,612)
Accounts payable and other
accruals (3,501) (161)
Net assets of discontinued
operations 0 (1,457)
Net cash provided by (used in)
operating activities 1,519 (9,719)
Cash flows from investing
activities:
Additions to property, equip. and
leasehold improvements, net (130) (1,026)
Net cash used in investing
activities: (130) (1,026)
<PAGE 7>
Cash flows from financing
activities:
Net borrowings under (payment of)
line of credit (685) 12,069
Proceeds from long-term debt and
demand notes 119 1,908
Payment of long-term debt and
demand notes (244) (2,425)
Payment of notes payable -
officers and affiliates (547) (203)
Payment of capital lease
obligations (256) (325)
Net cash provided by (used in)
financing activities (1,613) 11,024
Net increase (decrease) in cash (224) 279
Cash at beginning of year 632 79
Cash at end of period $408 $358
Supplemental disclosures of cash
flow information
Cash paid during the quarter for:
Interest $2,994 $3,867
Income taxes paid $95 $135
In January, 1998 the company
renewed capital lease
agreements relating to the
rental of Distribution
Centers $3,136 $0
</TABLE>
HAHN AUTOMOTIVE WAREHOUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
<PAGE 8>
Basis of Presentation
The condensed interim consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. The condensed consolidated balance sheet at September
30, 1997 has been derived from the Company's audited financial
statements at that date. The interim financial statements
reflect all adjustments which are, in the opinion of management,
necessary to fairly present such information. Although the
Company believes that the disclosures included on the face of the
interim consolidated financial statements and in the other
footnotes herein are adequate to make the information presented
not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that all
condensed consolidated financial statements contained herein be
read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report for the fiscal
year ended September 30, 1997, on Form 10-K, filed with the
Securities and Exchange Commission, Washington, D.C. 20549. This
information may be obtained through the web site of the
Securities and Exchange Commission, EDGAR Filing section at
http://www.sec.gov.
As a result of its Chapter 11 bankruptcy filing, the Company's
AUTOWORKS, Inc. subsidiary (see note 2 below) has been
deconsolidated.
Operating results for the nine month period ended June 30, 1998
are not necessarily indicative of the results that may be
expected for the entire fiscal year.
2. Discontinued Operations
In the third quarter of fiscal 1997, the Company made the
decision to exit its retail business. On July 24, 1997, the
Company's retail subsidiary, AUTOWORKS, Inc. ("AUTOWORKS"), filed
for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court in the
Western District of New York to assure orderly administration of
AUTOWORKS' assets and liabilities. Under Chapter 11, AUTOWORKS
has operated as a debtor-in-possession while its assets are sold
or liquidated, and its debts restructured. As a result, the
Company has deconsolidated, and classified as a discontinued
operation, the AUTOWORKS subsidiary. The consolidated financial
statements presented herein, (including all prior period
statements which have been restated to reflect the
reclassification and to conform to current year presentation),
reflect discontinued operations separately from continuing
operations.
<PAGE 9>
The assets and liabilities of AUTOWORKS are summarized as
follows:
<TABLE>
<CAPTION>
Assets 6/30/98 9/30/97
<S> <C> <C>
Cash $0 $833
Accounts Receivable, net 1,600 40
Inventory 0 220
Property, Plant and Equipment 500 712
Other Assets 0 127
Total Assets 2,100 1,932
Liabilities
Current Liabilities $18,074 $17,906
Due to Affiliates 33,375 33,375
Total Liabilities 51,449 51,281
Liabilities Exceeding Assets $49,349 $49,349
</TABLE>
3. Stockholder's Equity
On March 15, 1997, the Board of Directors declared a 4% stock
dividend on the Company's common stock, distributable May 1, 1997
to stockholders of record as of April 10, 1997. Accordingly, an
amount equal to the fair market value of the additional shares
issued has been charged to retained earnings and credited to
common stock and additional paid-in capital at September 30,
1997, which were restated to reflect this 4% stock dividend.
4. Earnings Per Share
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share", which was issued
by the Financial Accounting Standards Board in 1997. SFAS No.
128 requires dual presentation of basic earnings per share (EPS)
and diluted EPS on the face of all statements of earnings for
periods ending after December 15, 1997. Basic EPS is computed as
net earnings divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable
through stock-based compensations including stock options.
Reported earnings per share in prior periods have been restated
to conform with the provisions of SFAS 128. This restatement did
not have an impact on earnings per share as reported in prior
periods.
<PAGE 10>
<TABLE>
<CAPTION>
Nine Months
Ended June 30
1998 1997
BASIC AND DILUTED EARNINGS PER SHARE
<S> <C> <C>
Basic and Diluted Shares Outstanding:
Weighted average number of
shares outstanding 4,745,014 4,745,014
Net income (Loss) $563 ($21,841)
Basic and Diluted EPS $.12 ($4.60)
</TABLE>
The exercise of outstanding stock options has not been included
in the calculation of diluted EPS since the effect would be
antidilutive because all outstanding options, which amounted to
560,329, were out of the money as of June 30, 1998.
5. Debt (in thousands)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
6/30/98 9/30/97
<S> <C> <C>
Credit Facility Agreement 37,145 37,830
Other Long-term Debt 2,094 2,220
Less Current Maturities (1,394) (1,154)
$37,845 $38,896
</TABLE>
The Company's credit facility agreement, which expires on October
22, 2002, provides for a revolving credit facility subject to a
borrowing base, up to a maximum of $50.0 million. Borrowings
under the Credit Facility Agreement bear interest at an annual
rate equal to, at the Company's option, either (a) LIBOR plus
1.75% to 2.5%, dependent upon the Company's financial
performance, or (b) the bank prime rate plus 0% to .75%,
dependent upon the Company's financial performance. LIBOR and
prime were 5.7% and 8.5%, respectively, on June 30, 1998.
As of August 12, 1998, the Company had an outstanding balance of
$32.6 million under the Credit Facility Agreement.
<PAGE 11>
Borrowings outstanding under the Credit Facility Agreement are
collateralized by substantially all of the Company's assets. The
Credit Facility Agreement contains covenants and restrictions,
including limitations on indebtedness, liens, leases, mergers and
sales of assets, investments, dividends, stock purchases and
other payments in addition to tangible net worth, fixed charge
ratio, minimum tangible net worth and minimum fixed charge
coverage ratio requirements. As of June 30, 1998, the Company
was in compliance with all covenants except the fixed charge
ratio. An appropriate waiver of this covenant was received for
the fiscal quarter ended June 30, 1998.
The Company has outstanding subordinated notes to its Chief
Executive Officer and President in the original principal amount
of $2,150,000 which bear interest at an annual rate of 12%. The
Notes require monthly principal and interest payments with
possible mandatory prepayments of principal if the Company's net
income exceeds certain defined amounts. Final principal and
interest payments are due February 1, 2001. The remaining
balance of notes payable due to officers and affiliates is
comprised of a number of notes to related parties with varying
terms.
6. Contingencies
As disclosed in previous filings, the Official Unsecured
Creditors' Committee ("Committee") in the AUTOWORKS, Inc.,
("AUTOWORKS") bankruptcy proceeding had indicated that it may
pursue claims against the Company, for alleged preferential
transfers between the Company and AUTOWORKS, amounting to
approximately $6.5 million and under the doctrine of substantive
consolidation and for alleged fraud in connection with the
Company's acquisition of AUTOWORKS, and under fraudulent
conveyance laws. On April 22, 1998, a Settlement Agreement and
Release was negotiated, subject to approval by the United States
Bankruptcy Court in the Western District of New York, between the
Company and the Committee. Under the settlement agreement and
release, the Committee agreed to release the Company from all
claims in exchange for the Company's payment to the AUTOWORKS
bankruptcy estate of up to a maximum of $2.0 million over five
years. If certain payments are made in a timely manner, the
Company will pay less than $2.0 million, but not less than $1.6
million by June 15, 2002. Such amounts are appropriately
reserved for in the discontinued operations line item on the
balance sheet. The bankruptcy court approved the Settlement
Agreement and Release by order dated June 18, 1998. The
Settlement Agreement and Release was thereafter signed by all
parties and the Company made the first payment to the AUTOWORKS
bankruptcy estate in the amount of $320,000 on July 1, 1998.
<PAGE 12>
Year 2000
The Company is a licensee of its mainframe warehouse and jobbing
store software under a long-term licensing agreement. The
software provider is responsible for maintenance of the systems
including modifications to enable uninterrupted usage after the
year 2000. Accordingly, the Company will not incur any
significant costs related to correcting any year 2000
deficiencies. The software provider has a formal plan for
compliance with year 2000 system enhancements which is expected
to be completed midway through 1999. However at this time it is
unwilling to release the details of the plan to its clients or
third parties. Additional investigation of all other areas of
the Company are in process. It is anticipated that financial
exposure will be minimal.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussions set forth in this Form 10-Q may contain forward-
looking comments. Such comments are based upon the information
currently available to management of the Company and management's
perception thereof as of the date of this report. Actual results
of the Company's operations could materially differ from those
indicated in the forward-looking comments. The difference could be
caused by a number of factors identified from time to time by the
Company in press releases, other communications with the Company's
stockholders and the Company's filings with the Security and
Exchange Commission from time to time including, but not limited
to, those discussed under the heading "Important Information
Regarding Forward-Looking Statements" in the Company's Annual
Report on Form 10-K, dated December 29, 1997, which has been filed
with the United States Securities and Exchange Commission (the
"Commission"). That Annual Report may be obtained by contacting
the Commission's public reference operations or through the
worldwide web site at http://www.sec.gov, EDGAR Filing section.
Readers are strongly encouraged to obtain and consider all such
factors listed in the December 29, 1997, Annual Report and any
amendments or modifications thereof when evaluating any forward-
looking comments concerning the Company. The Company assumes no
obligation to update forward looking statements to reflect events
or circumstances after the date on which such statements were made.
Due to AUTOWORKS, Inc., ("AUTOWORKS") continuing losses and
negative cash flow, the Company decided, during the fiscal year
ended September 30, 1997 to exit the retail business and focus its
operations in the wholesale automotive aftermarket segment.
AUTOWORKS filed a Chapter 11 Petition for Reorganization in the
United States Bankruptcy Court for the Western District of New York
on July 24, 1997 to assure orderly administration of AUTOWORKS'
<PAGE 13>
assets and liabilities. As a result, the Company has
deconsolidated AUTOWORKS and classified it as a discontinued
operation in the Company's financial statements and all previous
periods have been restated to reflect this treatment; references
herein to previous period figures are to the restated figures and
do not include AUTOWORKS.
Hahn Automotive Warehouse, Inc. (the "Company") operates its
automotive aftermarket business both through the Company and its
wholly-owned subsidiary, Meisenzahl Auto Parts, Inc. Unless
otherwise indicated, the discussion herein refers to the financial
condition and results of operations of the Company on a
consolidated basis.
Results of Operations - three months ended June 30, 1998, compared
to three months ended June 30, 1997.
The Company's net sales for the fiscal quarter ended June 30, 1998
declined $2.1 million to $35.8 million, from $37.9 million for the
same fiscal quarter last year. This 5.6% decrease resulted from
mild winter weather conditions, increased competition at the
Advantage Store level and the general softness in the aftermarket
auto parts industry. For the quarter, on a comparable location
basis, net sales decreased by 6.6% at the full service Distribution
Centers, 6.6% at the Advantage Auto Stores, and .7% at the Direct
Distribution Centers.
Gross profit for the current quarter decreased $895,000 as
compared to the third quarter of fiscal 1997. Gross profit
expressed as a percentage of net sales decreased to 36.7% from
37.0% for the previous fiscal year due primarily to a change in
entitlements from the Direct Distribution Division's largest
vendor as a result of the discontinuance of AUTOWORKS.
Selling, general and administrative expense decreased $828,000
from $12.1 million in the third quarter of fiscal 1997, to $11.3
million for the comparable quarter of fiscal 1998 as a result of
the Company's efforts to control and reduce expenses. As a
percentage of net sales, selling, general and administrative
expense decreased to 31.5% from 31.9%.
Depreciation and amortization decreased $44,000 from $433,000
during the corresponding quarter last year, to $389,000 during
the third quarter of the current fiscal year. This decrease is
the result of utilization of operating leases rather than the
purchase of fixed assets (which occurred due to the capital
expenditure limitation imposed by the Company's Credit Facility
Agreement), which was partly offset by an increase in
depreciation and amortization of goodwill related to the
acquisitions of Nu-Way Auto Parts, Inc. and Finn Auto Parts of
Canandaigua, Inc., which occurred on October 14, 1996, and May 1,
1997 respectively.
<PAGE 14>
As a result of the factors discussed above, operating income
declined $23,000 from $1.5 million in the previous fiscal year to
$1.48 million in the current year's third quarter. As a
percentage of net sales, operating income increased to 4.1% from
4.0% in the same quarter of fiscal 1997.
Interest expense declined $353,000 to $928,000 from $1.3 million
for the same quarter of the previous fiscal year. This decline
is the result of lower average borrowings outstanding on the
Company's revolving line of credit.
As a result of the factors discussed above, income from
continuing operations increased $207,000 to $410,000, or $.09 per
share, from $203,000, or $.04 per share, for the same quarter
last year.
Net income increased $20.8 million, from a loss of $20.4 million
for the third quarter of fiscal 1997 to a profit of $410,000 for
the third fiscal quarter of 1998. This increase, taking into
consideration the change in income from continuing operations, is
largely due to the one time charge taken by the Company in June
of 1997 in connection with the discontinuance of the AUTOWORKS
business.
Basic and diluted earnings per share and weighted average number
of shares outstanding as of March 31, 1997 have been restated to
reflect the 4% stock dividend to shareholders of record on April
10, 1997. This dividend was distributed on May 1, 1997.
Results of Operations - nine months ended June 30, 1998, compared
to nine months ended June 30, 1997.
The Company's net sales decreased $5.8 million or 5.5% from
$105.4 million for the nine months ended June 30, 1997 to $99.6
million for the corresponding nine months of fiscal 1998. The
major factors in the sales decline were the closing of five
Advantage Auto Stores during the first nine months of the current
fiscal year, increased competition, mild winter and the general
softness in the industry. On a comparable location basis, net
sales declined by 6.3% at the Distribution Centers, 7.7% at the
Advantage Auto Stores and 0.2% at the Direct Distribution
Centers. Also as a percentage of the Company's net sales,
contributions by each division for the first nine months of
fiscal 1998 were as follows: Distribution Centers - 48.2%,
Advantage Auto Stores - 37.0% and Direct Distribution Centers -
14.8%.
Gross profit for the first nine months of the current fiscal year
decreased by $2.5 million to $37.3 million from $39.8 million for
the same period of the previous fiscal year. As a percentage of
sales, gross profit decreased to 37.4% from 37.8% for the
<PAGE 15>
previous year. This percentage decrease is primarily due to an
unfavorable change in sales mix resulting from the decrease in
Advantage Auto Store sales as a percentage of net sales and a
change in entitlements from the Direct Distribution division's
largest vendor as a result of the discontinuance of AUTOWORKS.
Selling, general and administrative expense declined $1.2 million
from $33.9 million for the first nine months of fiscal 1997 to
$32.7 million for the same period of the current fiscal year as a
result of the Company's efforts to control and reduce expenses.
As a percentage of sales, selling, general and administrative
expense increased to 32.8% from 32.2% in the previous fiscal
year. This percentage increase was largely due to decreased
sales as discussed above.
Depreciation and amortization decreased $81,000 from $1.3 million
in Fiscal 1997 compared to $1.2 million for the same period in
the present fiscal year. This decrease is the result of
utilization of operating leases rather then the purchase of fixed
assets (which occurred due to the capital expenditure limitation
imposed by the Company's Credit Facility Agreement), which was
partially offset by an increase in depreciation and amortization
of goodwill related to the Nu-Way Auto Parts Inc. and Finn Auto
Parts of Canandaigua, Inc. acquisitions which occurred on October
14, 1996 and May 1, 1997, respectively.
As a result of the factors discussed above, operating income
declined $1.2 million from $4.6 million for the first nine months
of fiscal year 1997 to $3.4 million for the first nine months of
fiscal 1998. As a percentage of sales, operating income declined
to 3.4% from 4.4% in the same nine month period of 1997.
Interest expense decreased $694,000, in the first nine months of
fiscal 1998, to $2.8 million. This decrease is attributable to
lower average borrowings outstanding under the Company's
revolving line of credit.
As a result of these factors the Company's income from continuing
operations for the nine month period ended June 30, 1998,
decreased to $563,000 or $.12 per share, compared to $885,000 or
$.19 per share for the nine months ended June 30, 1997.
Net income increased $22.4 million from a loss of $21.8 million
for the nine month period ended June 30, 1997, to a profit of
$563,000 for the comparable nine month period in the current
fiscal year. This increase, taking into consideration the change
in income from continuing operations, is largely due to the one
time charge taken in June of 1997 in connection with the
discontinuance of the AUTOWORKS business.
<PAGE 16>
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 1998, operations provided
net cash of $1.5 million, largely due to decreases in non cash
items, inventory and other assets of $1.7 million, $1.1 million
and $2.1 million respectively which was substantially offset by a
$3.5 million decrease in accounts payable. These changes reflect
the Company's efforts to improve its working capital position.
Investing activities consist mainly of routine capital
expenditures for delivery vehicles, computer equipment and
fixtures. Capital expenditures, net of disposals, were $130,000
during the first nine months of the current fiscal year.
Financing activities during the nine months ended June 30, 1998
consumed $1.6 million of cash, due to payments made on the
Company's revolving line of credit and other long-term debt.
On October 22, 1997, the Company entered into a Loan and Security
Agreement (the "New Credit Facility") with Fleet Capital
Corporation which provides for, among other things, a revolving
credit facility with $50.0 million in maximum availability
(subject to borrowing base restrictions), a $2.5 million term
loan, a $3.5 million supplemental availability line and a $2.0
million letter of credit sub-facility. For a description of the
Credit Facility Agreement terms see Note 5 to the Financial
Statements included in Part I Financial Information, Item I
Financial Statements in this Quarterly Report. As of August 12,
1998, the Company had an outstanding balance of $32.6 million
under its revolving line of credit and availability of $5.2
million.
In the future the Company expects to make minor strategic
acquisitions and open new direct distribution centers and
Advantage Auto stores to the extent that its debt service and
other funding requirements permit. The Company's ability to
continue to open new direct distribution centers will depend on
its ability to negotiate extended payment terms with vendors,
which initially minimizes additional working capital
requirements. The Company believes that it will be able to
continue to obtain such financing.
The Company is subject to various actual and potential losses,
claims, obligations and proceedings arising out of the AUTOWORKS
bankruptcy proceeding as disclosed in its annual report on Form
10-K for the fiscal year ended September 30, 1997, Part I, Item
3, and in Note 6 to the Financial Statements. The Company has
provided for certain anticipated operating expenses (such as
certain real estate and equipment lease obligations, self-insured
exposures, and the AUTOWORKS Settlement Agreement and Release as
discussed in footnote 6) of AUTOWORKS for which it may be jointly
liable with AUTOWORKS, amounting to $4.1 million and $5.1 million
<PAGE 17>
on June 30, 1998 and September 30, 1997, respectively.
As discussed under Part II Other Information - Item 1, Legal
Proceedings, the Company has negotiated a settlement of the
claims asserted against it by the Official Unsecured Creditor
Committee in the AUTOWORKS bankruptcy proceeding. The settlement
requires the Company to pay the AUTOWORKS bankruptcy estate up to
$2.0 million in five equal annual payments without interest. The
loss recorded by the Company for the AUTOWORKS bankruptcy
proceeding includes sufficient reserves for these settlement
payments as disclosed in Note 6 to the condensed Financial
Statements.
The Company's principal sources of liquidity for its operational
requirements are internally generated funds, borrowings under its
revolving credit facility, leasing arrangements and extended
payment terms from vendors. The Company anticipates that these
sources will provide sufficient working capital to operate its
business, make expected capital expenditures and to meet its
other short-term and longer-term liquidity needs, through the
balance of fiscal 1998.
Seasonality
The Company's business is somewhat seasonal in nature, primarily
as a result of the impact of weather conditions on the demand for
automotive aftermarket products. Historically, the Company's net
sales and gross profits have been higher in the second half of
each Fiscal year than in the first half.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, in July 1997, AUTOWORKS filed a petition
for reorganization under Chapter 11 of Bankruptcy Code. The
proceeding was brought in and is presently pending in the United
States Bankruptcy Court for the Western District of New York (the
"Bankruptcy Court"). Subsequent to the filing, the Official
Unsecured Creditor's Committee ("Committee") in the AUTOWORKS
bankruptcy proceeding and the Company have reached a compromise and
settlement in connection with the Committee's claims for alleged
preferential transfers between the Company and AUTOWORKS amounting
to approximately $6.5 million, under the doctrine of substantive
consolidation, for alleged fraud in connection with the Company's
acquisition of AUTOWORKS, and under fraudulent conveyance laws. On
June 18, 1998, the Bankruptcy Court approved a settlement between
AUTOWORKS, the Committee, the Company, Massachusetts Mutual Life
Insurance Company ("Mass Mutual"), Fleet Bank, The Chase Manhattan
Bank, Manufacturers and Traders Trust, and Sumitomo Bank, Ltd.
(collectively, the "Bank Group"). The basic terms of the Settlement
Agreement and Release are as follows: (1) the Company will make
payments to the AUTOWORKS bankruptcy estate up to a maximum of $2.0
<PAGE 18>
million over five years. If certain payments are made in a timely
manner, the Company will pay less than $2.0 million, but in no
event will the Company pay the AUTOWORKS bankruptcy estate less
than the amount of $1.6 million by June 15, 2002; (2) the Company
and its insiders and affiliates will release all claims against the
estate; (3) the Bank Group and Mass Mutual will release all claims
against AUTOWORKS and the Company; (4) the AUTOWORKS bankruptcy
estate and the Committee will release all claims against the
Company, the Bank Group and Mass Mutual; and (5) the Company will
provide reasonable support to the AUTOWORKS bankruptcy estate in
connection with claims objections and avoidance actions. A
Settlement Agreement and Release will be executed by the parties
upon receipt of Bankruptcy Court approval. The Bankruptcy Court
approved the Settlement Agreement and Release by order dated June
18, 1998, the Settlement Agreement and Release was thereafter
signed by all parties and the Company made the first payment to the
AUTOWORKS bankruptcy estate in the amount of $320,000 on July 1,
1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Settlement Agreement and Release dated June 29, 1998 between
AUTOWORKS, Inc., The Committee, The Company, Fleet Bank,
Manufacturers and Traders Trust, Sumitomo Bank, Ltd., Chase
Manhattan Bank and Massachusetts Mutual Life Insurance
Company.
27 Selected financial information as required for Edgar
electronic filing for the nine months ended June 30, 1998.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
HAHN AUTOMOTIVE WAREHOUSE, INC.
(Registrant)
By: s//Mike Futerman
Mike Futerman
Chief Executive Officer
By: s//Eli N. Futerman
Eli N. Futerman
President
<PAGE 19>
By: s//Albert J. Van Erp
Albert J. Van Erp
Vice President - Finance
Dated: August 12, 1998
EXHIBIT 3.1
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT NEW YORK
In Re: Chapter 11
AUTO WORKS, INC., Case No. 97-22809
Debtor.
SETTLEMENT AGREEMENT AND RELEASE
Auto Works, Inc. (hereinafter referred to interchangeably as
"Debtor" and "Auto Works"), Hahn Automotive Warehouse, Inc. and
its affiliates ("Hahn"), the Official Unsecured Creditors'
Committee of Auto Works, Inc. (the "Committee"), Fleet National
Bank as successor to Fleet Bank, The Chase Manhattan Bank,
Manufacturers Traders and Trust Company and The Sumitomo Bank,
Limited (the "Banks") and Massachusetts Mutual Life Insurance
Company ("Mass Mutual"), hereby agree and stipulate as follows:
I.
RECITATIONS
1. On July 24, 1997, Debtor filed a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code
("Bankruptcy Code") in the United States Bankruptcy Court for the
Western District of New York ("Bankruptcy Court"). The Debtor's
bankruptcy filing created an estate comprised of the property
identified in Bankruptcy Code 541 (the "Debtor's Estate")
including, without limitation, all of the claims and causes of
action of the Debtor, which are, in part, the subject of this
Agreement.
<PAGE 20>
2. On August 1, 1997, the United States Trustee, pursuant to
Bankruptcy Code 1102 appointed the Official Unsecured
Creditors' Committee (the "Committee").
3. On August 19, 1997, the Bankruptcy Court entered its
Order Pursuant to Section 363(b) of the Bankruptcy Code, Rule
6004 and Local Bankruptcy Rule 6004-1, Approving the Transfer of
Substantially All of the Debtor's Assets to Gordon Brothers, Inc.
Free and Clear of All Liens and Encumbrances (the "Sale Order").
4. Paragraph 20 of the Sale Order provided that the Sale
Order was without prejudice to the Committee bringing any claim
or cause of action, provided that any action against the Banks or
Mass Mutual, had to be asserted within 120 days of the entry of
the Sale Order.
5. The Sale Order was entered on August 19, 1997, and
accordingly, the original deadline for bringing claims and causes
of action against the Banks and Mass Mutual was on or about
December 17, 1997. Subsequently, the Committee, the Banks, Mass
Mutual, Debtor and Hahn agreed to amend paragraph 20 of the Sale
Order and stipulated to extensions of the deadline by which time
the Committee must bring any claims or causes of action, if any,
against the Banks and/or Mass Mutual. The last Stipulation filed
and approved by the Court provided for a deadline of June 1, 1998
for the Committee to bring any claims or causes of action, if
any, against the Banks and/or Mass Mutual.
6. On October 1, 1997, after reviewing Debtor's Statement
of Financial Affairs and Amended Statement of Financial Affairs
filed by Debtor, the Committee inquired whether the Debtor would
initiate actions against Hahn arising out of the transfer of
approximately $6.5 million dollars in proceeds from the Debtor to
Hahn on the basis that such transfers were preferential under 11
U.S.C. 547 (the "Preference Claims"). On or about October 31,
1997, Debtor responded to the Committee's demand and indicated
that it would not then institute suit against Hahn and that the
Debtor disputed the validity of the Preference Claims.
7. On or about January 13, 1998, in accordance with the
Sale Order, Debtor and the Committee entered into a stipulation
whereby the Committee was authorized to commence litigation on
behalf of the Debtor's Estate against the Banks and Mass Mutual,
to the extent that the Committee deemed it appropriate and
beneficial to Debtor's Estate, to avoid liens and recover
transfers by the Debtor to the Banks and Mass Mutual pursuant to
among other bases, 11 U.S.C. 544, 548 and 550 and 273-276 of
New York's Debtor and Creditor Law. (the "Avoidance Actions").
<PAGE 21>
8. The Banks and Mass Mutual have alleged that they are
entitled to recovery from Hahn in the event that the Avoidance
Actions are pursued and/or recovered upon by the Committee,
including but not limited to reimbursement of attorneys' fees
expended in defending the Avoidance Actions (the "Contribution
Claims").
9. Hahn asserts that Debtor's Estate is indebted to Hahn
in an amount no less than $35,000,000.00.
10. The Banks and Mass Mutual denied and continue to deny
all allegations with respect to the Avoidance Actions.
11. Hahn denies and continues to deny that it is liable on
account of the Preference Claim or the Contribution Claims.
12. The Committee, Hahn, Debtor, the Banks and Mass Mutual
have negotiated a compromise and settlement of all claims and
causes of action under the terms set forth in this Agreement.
II.
AGREEMENT
A. Hahn's Obligations
1. Payment Obligation of Hahn. Hahn agrees to pay to the
Debtor's Estate, or its successor in interest, up to a total
amount of $2,000,000 (the "Obligation") as follows:
a. Promissory Note. The Obligation shall be
memorialized by a Promissory Note payable to the Bankruptcy
Estate of Auto Works, Inc. by Hahn substantially in the form
attached hereto as Exhibit "A" with a face amount of a maximum of
$2,000,000.00.
b. Cash Payments. The Note shall obligate Hahn as follows:
(1) A cash payment in the amount of $320,000.00
on the later of June 15, 1998 or ten (10) days after
the entry of an order by the Bankruptcy Court approving
this Settlement Agreement that has not been appealed or
stayed.
(2) A cash payment in the amount of $320,000.00
on June 15, 1999.
(3) A cash payment in the amount of $320,000.00
on June 15, 2000.
<PAGE 22>
(4) A cash payment in the amount of $320,000.00
on June 15, 2001.
(5) A cash payment in the amount of $320,000.00
on June 15, 2002.
b. Contingent Payments. In addition, Hahn agrees to
make the following additional payment under the Note under the
conditions set forth below:
(1) In the event Hahn fails to timely make any
payment in accordance with paragraph 1.b(1)-(5) above,
then the Obligation shall be immediately due and
payable in an amount calculated as the sum of all
payments due but not paid under paragraph 1.b(1)-(5)
above plus an additional $100,000 for every payment due
but not paid at such time not to exceed the total
maximum amount of the Obligation.
(2) In the event at any time prior to June 15,
2002, Michael Futerman and Eli Futerman, combined,
cease to own, either legally or beneficially, at least
25% of the then issued and outstanding common stock of
Hahn, then the full amount of the Promissory Note shall
be fully due and payable deducting only the amounts
actually paid.
2. Non-monetary Obligations of Hahn. In addition to
Obligation set forth above, Hahn agrees as follows:
a. Neither Hahn nor any of its officers or directors,
in any capacity whatsoever, shall seek to convert the Debtor's
case to Chapter 7;
b. Hahn shall use its best efforts and fully
cooperate with Debtor in closing Debtor's bankruptcy case. All
of Hahn's efforts and cooperation under this Settlement Agreement
shall be at no cost to Debtor, its Estate, or the Committee.
Hahn's best efforts and cooperation shall include, but not be
limited to:
(1) providing Debtor's Estate and Committee
representatives (or their successors in interest)
copies of books and records of Auto Works for purposes
of analyzing and preparing claims objections and
avoidance actions on behalf for the Debtor's Estate.
The Estate shall have the obligation of using the
documents the Committee copied in connection with the
Committee's investigation as a source of first resort;
<PAGE 23>
(2) providing Debtor's Estate and Committee
representatives (or their successors in interest)
reasonable access to Hahn's accounting officers and
staff, consistent with their usual duties for Hahn, for
purposes of reasonable support, including testimony,
regarding claims objections and avoidance actions; and
(3) storing the Debtor's Estate's books and
records related to claims objections and avoidance
actions in a usable form until the Debtor's Bankruptcy
Case is closed; and
c. Hahn shall use its best efforts to assist Debtor
in securing approval of this Settlement Agreement by the
Bankruptcy Court.
B. Committee's Obligation.
The Committee shall use its best efforts to assist the
Debtor in securing approval of this Settlement Agreement by the
Bankruptcy Court.
C. Releases.
1. Release of Banks and Mass Mutual by Estate. Debtor, on
behalf of the Debtor's Estate and any other party who asserts any
derivative claims of Debtor or the Debtor's Estate, including,
but not limited to, the Committee and any trustee appointed
pursuant to any provision of the Bankruptcy Code (collectively
referred to as the "Auto Works Group") whether in its current
Chapter 11 status or as subsequently converted to Chapter 7, in
exchange for the consideration described in this Settlement
Agreement, the sufficiency of which is hereby acknowledged, does
hereby release, acquit, and forever discharge the Banks and Mass
Mutual together with their respective current and former
shareholders, directors, officers, employees, agents and
attorneys, their predecessors, successors, assigns and
subsidiaries of and from any and all claims, demands, rights,
damages, liabilities and causes of action of any kind or
character, whether known or unknown, including, without
limitation, any claims, demands, rights, damages, liabilities and
causes of action which the Auto Works Group asserts or could have
asserted for any reason, in whole or in part, as the result of
any transaction, communication, relationship, payment, or
agreement involving or relating to the Auto Works Group or Hahn
(hereinafter the "Secured Creditor Released Claims"). The
Secured Creditor Released Claims include, but are not limited to,
claims for contractual, statutory and other damages, property
damages, the Avoidance Actions, the Preference Claims, exemplary
damages, prejudgment interest, post-judgment interest, attorney's
fees and any and all other damages, liability or payment, of any
kind or character, which might be recoverable under any claim or
theory. The Auto Works Group acknowledges and agrees that the
<PAGE 24>
release set forth herein is a general release and is intended to
be all encompassing, and the Auto Works Group further expressly
waives any and all claims for damages which exist as of the date
of execution hereof, but of which it did not know or suspect to
exist, for any reason whatsoever, and which, if known, would
materially affect a decision to enter into this Settlement
Agreement; provided, however, with respect to Mass Mutual, this
release shall not affect any obligations, if any exist, under any
insurance contract. This release shall also not affect any
unrelated transactions, customer or banking relationships between
the Banks and Hahn, Hahn's affiliates, insiders, officers or
directors, the Committee, the Committee members together with the
Debtor's and the Committee's respective attorneys, predecessors,
successors and assigns, if any exist.
2. Release of Hahn by the Estate. Debtor, on behalf of the
Debtor's Estate and any other party who asserts any derivative
claims of Debtor or the Debtor's Estate, including, but not
limited to, the Committee and any trustee appointed pursuant to
any provision of the Bankruptcy Code (collectively referred to as
the "Auto Works Group") whether in its current Chapter 11 status
or as subsequently converted to Chapter 7, in exchange for the
consideration described in this Settlement Agreement, the
sufficiency of which is hereby acknowledged, does hereby release,
acquit, and forever discharge Hahn together with its current and
former shareholders, directors, officers, employees, agents and
attorneys, their predecessors, successors, assigns and
subsidiaries of and from any and all claims, demands, rights,
damages, liabilities and causes of action of any kind or
character, whether known or unknown, including, without
limitation, any claims, demands, rights, damages, liabilities and
causes of action which the Auto Works Group asserts or could have
asserted for any reason, in whole or in part, as the result of
any transaction, communication, relationship, payment, or
agreement (other than this Settlement Agreement) involving or
relating to Auto Works or Hahn (hereinafter the "Hahn Released
Claims"). The Hahn Released Claims include, but are not limited
to, claims for contractual, statutory and other damages, property
damages, the Avoidance Action, the Preference Claims, exemplary
damages, prejudgment interest, post-judgment interest, attorney's
fees and any and all other damages, liability or payment, of any
kind or character, which might be recoverable under any claim or
theory. The Auto Works Group acknowledges and agrees that the
release set forth herein is a general release and is intended to
be all encompassing, and the Auto Works Group further expressly
waives any and all claims for damages which exist as of the date
of execution hereof, but of which it did not know or suspect to
exist, for any reason whatsoever, and which, if known, would
materially affect a decision to enter into this Settlement
Agreement.
<PAGE 25>
3. Banks' and Mass Mutual's Release of the Estate. The Banks
and Mass Mutual, in exchange for the consideration described in
this Settlement Agreement, the sufficiency of which is hereby
acknowledged, do hereby release, acquit and forever discharge the
Debtor's Estate, the Committee, the Debtor's current directors,
and officers, the Committee's members, together with the Debtor's
and Committee's respective attorneys, predecessors, successors,
assigns and subsidiaries from any and all claims, demands,
rights, damages, liabilities and causes of action of any kind or
character, whether known or unknown, including, without
limitation, any claims, demands, rights, damages, liabilities and
causes of action arising from any indebtedness of Hahn or Debtor
owed to the Banks or Mass Mutual, arising pursuant or any way
related to, with respect to the Banks, those certain lending
agreements between the Banks (individually or collectively), and
Hahn entered into prior to June 26, 1996, including, without
limitation, the loan and security agreements between Hahn and
NorStar Bank, N.A. (predecessor by merger to Fleet National Bank)
as well as the Credit Facility Agreement dated June 26, 1996, as
amended, and all related security agreements between the Banks,
Hahn and the Debtor, excluding the mortgage loan between EDR
Associates and The Chase Manhattan Bank or its predecessors,
(collectively the "Bank Agreement") and with respect to Mass
Mutual those certain agreements by and between Mass Mutual, the
Banks, and the Debtor, including without limitation, that certain
Note Agreement dated December 15, 1989 by and between Mass Mutual
and Hahn, as amended and all related security agreements
(collectively the "Mass Mutual Agreement") prior to the date of
this Settlement Agreement. The Banks and Mass Mutual acknowledge
and agree that the release set forth herein is a general release,
and further expressly waive any and all claims for damages which
exist as of the date of execution hereof, but of which they did
not know or suspect to exist, for any reason whatsoever, and
which, if known, would materially affect their respective
decision to enter into this Settlement Agreement; provided,
however, with respect to Mass Mutual, this release shall not
affect any obligations, if any exist, under any insurance
contract. This release shall also not affect any unrelated
transactions, customer or banking relationships between the Banks
and Hahn, Hahn's affiliates, insiders, officers, directors, the
Committee, the Committee members together with the Debtors and
the Committee's respective attorneys, predecessors, successors
and assigns, if any exist.
4. Hahn Entities' Release of the Estate. Hahn, its affiliates
and insiders, as these terms are defined in 101 of the
Bankruptcy Code, (collectively the "Hahn Entities") in exchange
for the consideration described in this Settlement Agreement, the
sufficiency of which is hereby acknowledged, do hereby release,
acquit and forever discharge the Debtor's Estate, the Committee,
the Debtor's current directors and officers, the Committee's
individual members, together with the Debtor's and
<PAGE 26>
Committee's respective attorneys, predecessors, successors,
assigns and subsidiaries (collectively the "Hahn Released
Parties") from any and all claims, demands, rights, damages,
liabilities and causes of action of any kind or character,
whether known or unknown, including, without limitation, any
claims, demands, rights, damages, liabilities and causes of
action arising from any indebtedness of Hahn or Debtor to any
party, including any indebtedness of the Debtor to Hahn, prior to
the date of this Settlement Agreement. The Hahn Entities
acknowledge and agree that the release set forth herein is a
general release, and further expressly waive any and all claims
for damages which exist as of the date of execution hereof, but
of which it did not know or suspect to exist, for any reason
whatsoever, and which, if known, would materially affect their
decision to enter into this Settlement Agreement. To effectuate
this release, Hahn agrees to cause to be withdrawn any claims now
asserted or which may be asserted by any of its affiliates or
insiders against the Hahn Released Parties.
5. Banks' and Mass Mutual's Release of Hahn. The Banks and
Mass Mutual, in exchange for the consideration described in this
Settlement Agreement, the sufficiency of which is hereby
acknowledged, do hereby respectively release, quit and forever
discharge Hahn, its affiliates, insiders and its current
directors, officers, attorneys, predecessors, successors, assigns
and subsidiaries from any and all claims, events, rights,
damages, liabilities and causes of action of any kind or
character arising pursuant to or in any way relating to the Bank
Agreement or the Mass Mutual Agreement, respectively, prior to
the date of this Settlement Agreement, including any and all
claims for attorney's fees, whether known or unknown, including
without limitation any claims, demands, rights, damages,
liabilities, and causes of action arising from (a) any
Contribution claims; and (b) any indebtedness of Hahn or the
Debtor to the Banks or Mass Mutual. The Banks and Mass Mutual
acknowledge and agree that the release set forth herein is a
general release as it relates to Bank Agreement and the Mass
Mutual Agreement, and further expressly waive any and all claims
for damages and attorney's fees arising pursuant to the Bank
Agreement or the Mass Mutual Agreement which exist as of the date
of execution hereof, but of which they did not know or suspect to
exist, for any reason whatsoever, and which, if known, would
materially affect their decision to enter into this Settlement
Agreement; provided, however, with respect to Mass Mutual, this
release shall not affect any obligations, if any exist, under any
insurance contract. This release also shall not affect any
unrelated transaction, customer or banking relationship between
the Banks and Hahn, Hahn's affiliates, insiders, officers or
directors, if any exist, including but not limited to the
existing lending arrangement between Hahn and its affiliates and
Fleet Capital Corp., The Chase Manhattan Bank and Manufacturing
Traders and Trust Company. In the event an Order for Relief is
<PAGE 27>
ever entered in respect of Hahn under the Bankruptcy Code and any
transfers by Hahn to the Banks or Mass Mutual are avoided Hahn
shall indemnify the Banks or Mass Mutual as the case may be, but
only to the extent of any recovery by Hahn or a representative of
its Bankruptcy Estate (including any trustee or committee) in
respect of such avoidance.
6. Hahn's Release of Banks and Mass Mutual. Hahn, its
affiliates, insiders, officers and directors, in exchange for the
consideration described in this Settlement Agreement, the
sufficiency of which is hereby acknowledged, do hereby
respectively release, quit and forever discharge The Banks and
Mass Mutual, together with their current directors, officers,
attorneys, predecessors, successors, assigns and subsidiaries
from any and all claims, events, rights, damages, liabilities and
causes of action of any kind or character whether known or
unknown, including without limitation any claims, demands,
rights, damages, liabilities, and causes of action arising
pursuant or in any way relating to the Bank Agreement or the Mass
Mutual Agreement, respectively, prior to the date of this
Settlement Agreement including (a) any Contribution Claims; (b)
any indebtedness of Hahn or the Debtor to the Banks or Mass
Mutual; and (c) any and all attorney's fees. Hahn acknowledges
and agrees that the release set forth herein is a general release
as it relates to the Bank Agreement or Mass Mutual Agreement and
further expressly waives any and all claims for damages which
exist as of the date of execution hereof, but of which it did not
know or suspect to exist, for any reason whatsoever, and which,
if known, would materially affect its decision to enter into this
Settlement Agreement; provided, however, with respect to Mass
Mutual, this release shall not affect any obligations, if any
exist, under any insurance contract. This release shall also not
affect any unrelated transactions, customer or banking
relationships between the Banks and Hahn, Hahn's affiliates,
insiders, officers or directors, if any exist, including but not
limited to the existing lending arrangement between Hahn and its
affiliates and Fleet Capital Corp.
7. Warranties and Representations of Authority. Each
party signing hereto warrants and represents that prior to
executing this Settlement Agreement that: (a) the respective
party has not assigned, encumbered, conveyed or transferred any
portion of or interest in claims released under this Settlement
Agreement; (b) the respective party has read and understand the
terms of this Settlement Agreement; and (c) the respective party
has executed this Settlement Agreement voluntarily and of said
party's own accord and judgment and after consultation with
counsel of its choice.
<PAGE 28>
8. Contract. The parties agree and understand that the
release, the forbearance and other agreements set forth herein
are contractual and not merely recitals and that they are made in
compromise and settlement of claims and shall not be construed as
an admission of liability or wrongdoing on the part of any party
hereto. It is understood and agreed that it is in the best
interests of the parties to settle and compromise their claims,
rather than to incur the risks, hazards, and expenses of further
litigation and that this Settlement Agreement is entered into for
the sole purpose of avoiding the time, expense and uncertainty
which would accompany future litigation. The Bankruptcy Court
shall retain jurisdiction for the interpretation, settlement, and
enforcement of any dispute arising from this Agreement.
9. Entire Agreement. This Settlement Agreement contains
the entire agreement between the parties with regard to the
matters set forth herein. No other agreement, statement or
promise made by any party, or by any employee, officer, or agent
of any party, that is not expressly contained in this Settlement
Agreement shall have any force or effect. This Settlement
Agreement may not be altered or amended except by subsequent
agreement in writing signed by all parties hereto.
10. Governing Law. This Settlement Agreement shall be
governed by and construed in accordance with the laws of the
State of New York.
11. Multiple Counterparts. This Settlement Agreement may
be executed in more than one counterpart and by facsimile and the
signature pages (original or facsimile) may be combined to form
an original and complete agreement.
12. Binding Agreement. This Settlement Agreement shall be
binding upon the heirs, assigns, administrators, executors,
appointed representatives and successors of Hahn, the Banks, Mass
Mutual, Debtor, the Committee, and the Debtor's Estate including,
but not limited to in the case of the Debtor, the Committee and
the Debtor's Estate, any trustee subsequently appointed in the
Debtor's bankruptcy case under any provision of the Bankruptcy
Code and the order of the Bankruptcy Court approving this
Settlement Agreement shall expressly state the same.
13. Bankruptcy Court Approval. The Settlement Agreement is
valid and binding on the parties hereto, subject to Bankruptcy
Court approval. In the event this Agreement is not approved by
the Bankruptcy Court it will be retroactively null and void and
of no further effect.
EXECUTED on this day of , 1998.
<PAGE 29>
AUTO WORKS, INC.
By:
Eli N. Futerman
Its: Chief Executive Officer
HAHN AUTOMOTIVE
WAREHOUSE, INC.
By:
Eli N. Futerman
Its: President
THE OFFICIAL UNSECURED
CREDITORS' COMMITTEE OF
AUTO WORKS, INC.
By:
Charles H. Mendeljian
Its: Chairman
FLEET NATIONAL BANK
By:
[Printed name]
Its:
THE CHASE MANHATTAN BANK
By:
[Printed name]
Its:
MANUFACTURERS TRADERS AND
TRUST COMPANY
By:
[Printed name]
Its:
<PAGE 30>
THE SUMITOMO BANK, LIMITED
By:
[Printed name]
Its:
By:
[Printed name]
Its:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:
[Printed name]
Its:
Exhibit 27
Selected financial information as required for Edgar
electronic filing for the nine months ended June 30, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 16,936
<ALLOWANCES> 0
<INVENTORY> 41,430
<CURRENT-ASSETS> 61,602
<PP&E> 7,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,377
<CURRENT-LIABILITIES> 22,565
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 12,880
<TOTAL-LIABILITY-AND-EQUITY> 76,377
<SALES> 99,660
<TOTAL-REVENUES> 99,660
<CGS> 62,343
<TOTAL-COSTS> 33,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,832
<INCOME-PRETAX> 891
<INCOME-TAX> 328
<INCOME-CONTINUING> 563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
