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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 [FEE REQUIRED]
For the fiscal year ended January 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 1-7807
CHAMPION PARTS, INC.
(Exact name of Registrant as specified in its charter)
Illinois 36-2088911
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2525 22nd Street, Oak Brook, Illinois 60521
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 708/573-6600
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Shares, $.10 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 10, 1995, 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 NASDAQ) was approximately $6,002,000. For
information as to persons considered to be affiliates for
purposes of this calculation, see "Item 5. Market for the
Company's Common Shares and Related Shareholder Matters".
PART I
Item 1. BUSINESS
Unless the context indicates otherwise, the term "Company" as
used herein means Champion Parts, Inc. and its subsidiaries.
PRODUCTS
The Company remanufactures a broad line of functional
replacement parts for automobiles, trucks and farm and
industrial equipment.
The Company's general product line includes carburetors, water
pumps, clutches, starters, alternators, generators, starter
drives and solenoids, and constant velocity drive shaft
assemblies for substantially all makes and models of domestic
and foreign automobiles and trucks, and many makes and models of
farm and industrial equipment. In selected markets, the Company
sells disc brake calipers, master cylinders, power steering
pumps, windshield wiper motors, and distributors. The Company's
product line also includes diesel fuel injection systems
primarily for light duty vehicles and for some domestic
automobiles and heavy duty trucks.
During the fiscal years ended January 1, 1995, January 2, 1994
and January 3, 1993, the Company's sales of parts for
automobiles (including light duty trucks) accounted for
approximately 92%, 89% and 87%, respectively, of the Company's
net sales, and sales of parts for heavy duty trucks and farm
equipment accounted for approximately 8%, 11% and 13%,
respectively, of such net sales.
MARKETING AND DISTRIBUTION
The Company's products are marketed throughout the continental
United States and in Canada. The Company sells 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 who distribute products through their
stores. Other customers of the Company include manufacturers of
automobiles, trucks and farm equipment, which purchase the
Company's products for resale through their dealers, independent
fleet specialists who distribute replacement parts for these
vehicles and large volume automotive retailers. Of the
Company's net sales in the year ended January 1, 1995,
approximately 54% were to automotive warehouse distributors;
approximately 13% were to manufacturers of automobiles, trucks
and farm equipment and heavy duty fleet specialists; and
approximately 33% were to retailers and other customers.
The Company exhibits its products at trade shows and advertises
in nationally and regionally distributed automotive trade
magazines. The Company also prepares and publishes catalogs of
its products, including a guide with information as to the
various vehicle models for which the Company's products may be
used and a pictorial product identification guide to assist
customers in the return of used units. The Company's
salespersons and sales agents call on selected customers of
warehouse distributors which carry the Company's products to
familiarize these customers with the Company's products and the
applications of its products to varied automotive equipment.
During the fiscal year ended January 1, 1995, the three largest
customers of the Company accounted for approximately 20%
(Northern Automotive Corporation), 15% (APS, Inc.) and 13%
(Genuine Parts Company), respectively, of net sales, and no
other customer accounted for more than 6% of net sales.
Most of the Company's products are distributed from each of the
Company's plants. Heavy duty products are stocked at and
delivered from the same facilities as automotive products.
The Company makes available to its customers the MEMA
Transnet(TM) computerized order entry system which is administered
by the Motor Equipment Manufacturers Association. The MEMA
Transnet(TM) system enables a customer in any area of the United
States to place orders into the Company's central computer,
which transmits the orders to the Company's plant servicing that
customer's geographic area.
As of February 1, 1995, sales were made by a total of 27 sales
personnel. Of these, 23 were salaried salespersons, and 4 were
employed by the Company as support staff. The Company also
utilizes 11 sales agencies to supplement the direct sales force.
Approximately 45% of the Company's net sales during the fiscal
year ended January 1, 1995 were under trade names of the
Company, and the balance was sold under private labels of
certain customers such as vehicle manufacturers, warehouse
distributor groups and retailers.
The Company does not consider its business to be highly
seasonal. Typically, fourth quarter sales are lower than those
in prior quarters due to customer ordering patterns.
MATERIALS
In its remanufacturing operations, the Company obtains used
units, commonly known as "cores". A majority of the units
remanufactured by the Company are purchased back from customers
as trade-ins, which are encouraged by the Company in the sale of
remanufactured units.
The price of a finished product is comprised of a separately
invoiced amount for the core included in the product ("core
value") and an amount for remanufacturing. Upon receipt of a
core as a trade-in, credit is given to the customer for the then
current core value of the part returned. The Company limits
trade-ins to cores for units included in its sales catalogs and
in rebuildable condition, and credit for cores is allowed only
against purchases by a customer of similar remanufactured
products within a specified time period. A customer's total
allowable credit for core trade-ins is further limited by the
dollar volume of the customer's purchases of similar products
within such time period. In addition to allowing core returns,
the Company permits warranty and stock adjustment returns
(generally referred to as "product returns") pursuant to
established policies. The Company's core return policies are
consistent with industry practice, whereby remanufacturers
accept product returns from current customers regardless of
whether the remanufacturer actually sold the product. The
Company has no obligation to accept product returns from
customers that no longer purchase from the Company.
Other materials and component parts used in remanufacturing,
and some cores, are purchased in the open market. When cores
are not available in sufficient supply for late models of
automobiles, trucks and farm equipment or for foreign model
automobiles, new units sometimes are purchased and sold as
remanufactured units. To market a full line of products, the
Company also purchases certain remanufactured and new automotive
parts which it does not produce.
PATENTS, TRADEMARKS, ETC.
The Company has no material patents, trademarks, licenses,
franchises or concessions.
BACKLOG
The Company did not have a significant order backlog at any
time during the fiscal years 1993 or 1994.
COMPETITION
The Company believes it is one of the largest remanufacturers
of functional automotive replacement parts in the United States,
although reliable information indicating its comparative
position in the industry is not available. Certain of the
Company's competitors are divisions or subsidiaries of
organizations also engaged in other businesses which have
substantially greater financial resources than the Company. The
remanufactured automotive parts industry is highly competitive
as the Company competes with a number of other companies
(including certain original equipment manufacturers) which sell
remanufactured automotive parts. The Company competes with
several large regional remanufacturers and with remanufacturers
which are franchised by certain original equipment manufacturers
to remanufacture their products for regional distribution. The
Company also competes with numerous remanufacturers which serve
comparatively local areas. In addition, sales of remanufactured
parts compete with sales of similar new replacement parts.
Manufacturers of kits used by mechanics to rebuild carburetors
may also be deemed to be competitors of the Company.
The Company competes in a number of ways, including price,
quality, product performance, prompt order fill, service and
warranties. The Company believes its ability to offer and
distribute a full line of products on a national level has been
an important factor in enabling the Company to compete
effectively.
ENGINEERING
The Engineering Department participates in product planning,
product line structuring, cataloging and engineering of the
Company's products and in developing manufacturing processes.
The primary activities of the Department are improving the
quality of existing products, formulating specifications and
procedures for adapting particular remanufactured products for
use on makes and models of vehicles in addition to those for
which originally designed, converting cores from earlier makes
and models for use on later makes and models and developing
specifications, supplies and procedures for remanufacturing
additional products. The Department also conducts periodic
quality audits of the Company's plants under its quality
improvement program to test product quality and compliance with
specifications.
The Company believes such activities improve the Company's
ability to serve the needs of its customers. The Department
also designs and builds new tools, machines and testing
equipment for use in all the Company's plants, and develops
specifications for certain components manufactured by the
Company for use in its remanufacturing operations. The
Department designs and tests new methods of reassembling
components and cleaning parts and cores. During the fiscal
years 1994, 1993 and 1992, the Company expended approximately
$944,000, $940,000 and $1,224,000, respectively, in these
engineering activities.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local
environmental laws and regulations incidental to its business.
The Company continues to modify, on an ongoing basis, processes
that may have an environmental impact. Management believes that
the effects of compliance with environmental laws that have been
enacted or adopted will not have a material effect on capital
expenditures, earnings or competitive position.
EMPLOYEES
As of January 31, 1995, the Company employed approximately
1,470 persons, including 205 salaried employees at corporate
headquarters and plant locations; and approximately 1,265
production, warehouse and maintenance employees and truck
drivers, 720 of whom were subject to union collective bargaining
agreements. In addition, the Company utilizes temporary workers
provided by employment agencies.
The Collective Bargaining Agreement between the Company and the
United Auto Workers 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. Since the commencement of the strike, the plant has
been operating with employees who opted to continue working, as
well as with permanent replacements. There have been no
significant interruptions in production as a result of the
strike, and management anticipates no significant interruptions
in the future as a result of the strike.
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
beginning September 1, 1993.
RECENT DEVELOPMENTS
On March 23, 1995, the Company entered into a Preferred Stock
Purchase Agreement (the "Agreement") with RGP Holding, Inc.
("RGP"), an affiliate of Mr. Raymond G. Perelman, a director,
the Chairman of the Board of Directors and the beneficial owner
of 18.1% of the outstanding Common Shares of the Company,
pursuant to which Agreement RGP agreed, subject to the terms and
conditions of the agreement, to purchase 1,666,667 shares of
the Company's newly authorized Series A Redeemable Cumulative Convertible
Voting 9% Preferred Shares (the "Preferred Shares") at a purchase price of
$3.00 per share, or an aggregate purchase price of $5,000,001, subject to
the terms and conditions of the agreement.
On April 17, 1995 RGP notified the Company that it had
determined, not to consummate the purchase. RGP stated that the Company
failed to satisfy certain conditions for closing.
The Company's Current Report on Form 8-K filed March 23, 1995,
which form describes the proposed purchase, is incorporated
herein by reference.
Item 2. PROPERTIES
The Company's corporate headquarters are located at 2525 22nd
Street, Oak Brook, Illinois, a one-story building which has
approximately 91,500 square feet of space, and is leased under a
sublease which expires in 1996. The facility houses the
Company's corporate office functions, including administration,
accounting, data processing, marketing, and limited engineering
and product development. Approximately one-third of the
facility is used for office space and the remainder is used for
storage and a limited distribution facility.
The following table sets forth certain information with respect
to each of the Company's remanufacturing, warehousing and
service facilities other than the corporate headquarters:
Warehouse Remanufacturing
Area Area
Location (sq. ft.) (sq. ft.)
OWNED:
Fresno, California 50,000 110,000
Lock Haven, Pennsylvania --- 50,000
Beech Creek, Pennsylvania 40,000 160,000
HELD UNDER INDUSTRIAL
REVENUE FINANCING ARRANGEMENTS:
Lock Haven, Pennsylvania --- 55,000
Hope, Arkansas 55,000 221,000
LEASED:
Maple, Ontario,
Canada 30,000 16,000
Hope, Arkansas 35,000 ---
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.
In connection with the Company's plant consolidation plan
announced in March, 1994, the facilities in Lock Haven,
Pennsylvania are currently idle. It is the Company's present
intention to dispose of these properties.
Item 3. LEGAL PROCEEDINGS
Spectron/Galaxy Site
The Company was notified in 1989 by the United States
Environmental Protection Agency ("EPA") that it was a
"potentially responsible party" ("PRP") with respect to the
removal of hazardous substances from the Spectron, Inc. site in
Elkton, Maryland (the "Spectron Site"). The Company has
admitted to sending 93,868 gallons of liquid substances to the
Spectron Site.
A PRP Group known as the Spectron Steering Committee ("SSC")
was formed and in August, 1989, an Administrative Order by
Consent ("Phase I Order"), authorizing the SSC to conduct the
surface removal, and a Consent Agreement under which the PRPs
became obligated to reimburse the EPA for its past costs in
connection with the site, were entered into by the EPA and
approximately ten PRPs, including several major industrial
corporations.
The Company has been informed that the costs incurred to date
with respect to the removal phase of the Spectron Site are
approximately $8.0 to $8.5 million, but that although the
removal project has been completed, there has not yet been a
final accounting for that phase of the activity because the EPA
has not yet demanded payment of its past or oversight costs.
The Company entered into an agreement with the Company's waste
transporter, which selected the Spectron Site, pursuant to which
the transporter paid one-half of the cost attributed to surface
removal for the Company's waste sent to the Spectron Site. The
Company has paid approximately $17,000 for its portion of the
removal.
In 1990, the Company received notices that the EPA has
determined that ground water seepages from the Spectron Site
pose an imminent endangerment to nearby residents and the
environment. A number of additional PRPs who had not been
notified of potential liability for the surface removal were
contacted by the EPA in preparation for the second phase of
activity at the site ("Phase II"). Most of the newly noticed
parties had used the site during its earlier years of operation,
prior to 1979, when it was known as Galaxy Chemicals.
The Company has been informed by the waste transporter that the
Spectron Contributors reached agreement with the Galaxy
Contributors with respect to Phase II to the effect that the
Galaxy Contributors will contribute approximately $3.5 million
to Phase II, and that up to an additional approximate $4
million of clean-up costs will be allocated between the two
groups on a formula basis based on gallons contributed. The
Company is informed that the Galaxy Contributors have spent
approximately $1 million to date and are focusing efforts on a
plan to contain seepage from the site into an adjacent creek.
The Company's waste transporter has informed the Company that
preliminary estimates of the cost of the containment plan range
up to $15 million, of which the Galaxy Contributors would pay $2.5
million (the unpaid balance of the $3.5 million), with the
remainder of the cost expected to be shared by the Galaxy
Contributors and the Spectron Contributors on a formula based on
gallons contributed. Under such an arrangement the Company's
liability is estimated to be approximately $35,000.
The Company is informed that the Galaxy Contributors
contributed approximately 10,200,000 gallons and the Spectron
Contributors contributed approximately 19,200,000 gallons to the
site. The Company is not a Galaxy Contributor.
The Company cannot estimate at this time the cost of any
further cleanup activities for the site nor its portion of any
liability, if any. The Company is not an active participant in
the proceedings.
Fort Smith, Arkansas
Until 1984 the Company operated a leased facility in Fort
Smith, Arkansas. The lessor was a trust for the benefit of,
among others, members of the Gross family, including two present
directors of the Company. In 1989, the Company, along with the
owner of the property, retained a consultant to perform a
limited environmental investigation. The preliminary
investigation revealed the possibility of soil contamination,
consisting of petroleum hydrocarbons and heavy metals. The
results of this limited investigation warrant further
investigation. The Company may have liability for environmental
conditions at the property. Until a more extensive
investigation is conducted, the Company cannot evaluate the
extent of the contamination or the appropriate remedial
response, if any, or the ultimate cost of responding to the
contamination.
Double Eagle Site, Oklahoma City
In 1991, the Company received a 104(e) information request from
the EPA under CERCLA with respect to the Double Eagle site to
which it responded. Information available to the Company
indicates that the facility recycled used oil into finished
lubricating oil, and began operating as early as 1929. The
Double Eagle site has been identified as a wetland, and the EPA
has placed the site on the National Priorities List.
The Company has not yet received any general or special notice
letters indicating that the EPA views it as a potentially
responsible party at this site. In 1992 conversations with the
Assistant Regional Counsel of the EPA, it was indicated that the
EPA did not view the Company as a major contributor of waste to
the site and that most of the contamination at the site had
occurred prior to 1985. The Company's records indicate that it
began shipping waste mineral spirits and blend oil to Double
Eagle in 1985 and continued shipments until 1988.
At this time no formal proceedings have been initiated by the
EPA against the Company, and the Company has not paid, nor has
it been billed for, any amount. The Company cannot
estimate the liability, if any, which might result with respect
to the Double Eagle Site, and believes that it may qualify for
treatment as a de minimis party.
City of Industry, California
In June, 1992, the Company was notified that contamination was
discovered in soil at a site at 825 Lawson Street, City of
Industry, California at which the Company conducted operations
from about 1969 to 1981. Solvents of the type used by the
Company in its operations had impacted the soil and shallow
groundwater at the site. These same solvents are found in the
soil and groundwater at numerous other sites in the City of
Industry and surrounding Puente Valley. To date, the Company's
response to the matter has been one of cooperation with the
authorities and other potentially responsible parties.
The potentially responsible parties with respect to the 825
Lawson Street property are the Company, the current landowner,
another prior operator at the site, and a prior landowner. The
Company, the other prior operator and the prior landowner have
conducted a subsurface investigation of the site at the request
of the California Regional Water Quality Control Board (the
"Water Board"), a state agency to which the EPA has delegated
CERCLA enforcement authority for any soil contamination at this
site. The site assessment, completed in July, 1994, revealed
volatile organic compounds in the soil and shallow groundwater
beneath the Lawson Street property. The Site Assessment Report
has been submitted to the Water Board.
The Water Board has not yet responded to the Site Assessment
Report, but the Company believes that the Water Board will
require cleanup of the property. It is too early to predict the
cleanup methodology to be required by the Water Board, or the
cost of the cleanup. The Company has interviewed consultants
who have proposed cleanup approaches, however, which would cost
in the range of $500,000 to $750,000. Under the present Cost
Sharing Agreement with the other two parties who funded the Site
Assessment Report, the Company would be responsible for paying
one-third of the cost of the cleanup of the Lawson Street
property. The Company and the other parties to this Agreement
are also considering pursuit of the current property owner for
its share of these costs.
On a related matter, in April, 1993, the Company was named by
the EPA as one of 57 potentially responsible parties from whom
the EPA would solicit an offer to investigate and clean up
groundwater contamination in the Puente Valley operable unit of
the San Gabriel Valley, where the City of Industry is located.
The other three 825 Lawson parties referred to above also
received this "special notice" letter. The Company, the other
prior operator and the prior land owner have joined the Puente
Valley Steering Committee ("PVSC"), which includes approximately
43 of the special notice recipients. The group's members
include several large industrial corporations.
On September 30, 1993, this group of potentially responsible
parties entered into an administrative Consent Order (the
"Consent Decree") with EPA, pursuant to which the participants
would perform a remedial investigation and feasibility study
(RI/FS) for the Puente Valley operable unit. The current
estimates for the total cost of the RI/FS range from $2.8
million to $4.2 million. The participants also executed an
allocation agreement covering the payments required by the
Consent Decree, under which the 825 Lawson Street property was
assigned approximately 3.75 percent of the cost. The Company
has agreed to pay one-third of this amount. Assuming the cost
to be $2.8 million, the Company's liability would be
approximately $34,700. The Company has already paid
approximately $15,000 of this amount.
The cost of any remedial groundwater action, if any, in the
Puente Valley is unknown at this time, and the participants
have not begun to negotiate an allocation to pay for any such
cost. If such work was required, it would not begin until the
RI/FS is finished, and the remediation would likely take several
years to complete.
Beech Creek, Pennsylvania TCE Contamination
In May, 1991 the Pennsylvania Department of Environmental
Resources (PADER) notified the Company that there was evidence
of trichloroethylene and trichloroethane in the soil, and
possibly the groundwater under the Company's Beech Creek
facility. PADER requested 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 to
prepare a site investigation plan. In June of 1992, PADER
approved the investigation plan. The plan included extensive
soil testing and ground water monitoring. The consultant has
now completed the investigation and reported the findings to
PADER. Cleanup has now commenced at the Beech Creek plant.
Cleanup consists of the venting of volatile organic gases from
soil, and the pumping and treating of groundwater. While it is
too early to predict the total cost of the remediation, the
Company's consultant has predicted cleanup costs will be
approximately $90,000 during 1995, and approximately another
$6,000 per month of operation thereafter. While its prediction
is preliminary and tentative, the consultant anticipates that
the cleanup system will need to operate for approximately 18 to
24 months.
Insurance Coverage Litigation
The Company has filed a complaint in Illinois State Court, in
DuPage County, against its insurance carriers for a declaration
that the insurance carriers are liable for all the Company's
defense, investigation and cleanup costs at the Beech Creek and
City of Industry sites.
The Company has reached a cost sharing agreement with certain
carriers regarding payment of past defense costs through
January, 1995 and certain future defense costs through November,
1995 with respect to the Beech Creek and City of Industry sites.
The payment for past defense costs is expected to be
approximately $300,000. The Company has agreed to temporarily
stay future litigation against the insurers on indemnification
costs pending additional developments at the sites.
Summary
Although the ultimate outcome is not determinable, management
believes that the resolution of these matters will not have a
material impact on the Company's financial condition or
operating results.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
During the fourth quarter of the fiscal year ended January 1,
1995 the Company did not submit any matter to a vote of
shareholders, through the solicitation of proxies or otherwise.
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON SHARES AND RELATED
SHAREHOLDER MATTERS
The Company's Common Shares are traded on The NASDAQ Stock
Market under the symbol "CREB". As of April 11, 1995, there
were 830 holders of record of the Company's Common Shares. This
number does not include beneficial owners of Common Shares whose
shares are held in the name of banks, brokers, nominees or other
fiduciaries.
The information appearing in the following table on the range
of high and low trade prices for the Company's Common Shares was
obtained from NASDAQ quotations in the NASD's Monthly
Statistical Reports.
Fiscal Fiscal
Year Ended Year Ended
January 1, 1995 January 2, 1994
Low High Low High
Quarter Ended Price Price Price Price
March 31 3-3/4 4-5/8 2-7/8 3-7/8
June 30 2-7/8 4-1/2 3-1/4 6-5/8
September 30 4 5 4-7/8 7-1/4
December 31 3 4-5/8 4-1/8 6-5/8
Under the Company's amended and restated credit agreement, the
Company is not permitted to pay dividends.
Only for purposes of the calculation of aggregate market value
of the Common Shares held by non-affiliates of the Company as
set forth on the cover page of this report, the Common Shares
held by Echlin Inc., RGP Holding, Inc., the Company's Employee
Stock Ownership Plan and Profit Sharing and Thrift Plan, and
shares held by members of the families of the children of
Elizabeth Gross, the mother of two of the Company's directors,
were included in the shares held by affiliates. Certain of such
persons and entities may not be affiliates.
Item 6.
Selected Financial Data (Note 1)
(Reported in thousands, except per share data)
1994 1993 1992 1991 1990
NET SALES $95,337 $100,040 $96,743 $111,741 $122,288
COSTS AND EXPENSES:
Operating Costs (Note 2) 99,050 95,769 103,923 108,501 115,697
Interest - net 2,423 2,282 2,248 3,397 4,617
------- ------ ------- ------- -------
101,473 98,051 106,171 111,898 120,314
------- ------ ------- ------- -------
EARNINGS (LOSS) BEFORE INCOME
TAXES, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (6,136) 1,989 (9,428) (157) 1,974
INCOME TAXES (BENEFIT) (297) 176 (1,644) 77 849
------- ------ ------- ------- -------
EARNINGS (LOSS) BEFORE EXTRA-
ORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (5,839) 1,813 (7,784) (234) 1,125
EXTRAORDINARY ITEM (net of
income taxes) (Note 4) (419)
------- ------ ------- ------- -------
NET EARNINGS (LOSS) $ (5,839) $ 1,813 $(7,784) $ (653) $ 1,125
======= ====== ======= ======= =======
AVERAGE COMMON SHARES OUT-
STANDING AND COMMON SHARE
EQUIVALENTS 3,655 3,655 3,655 3,655 3,653
EARNINGS (LOSS) PER COMMON
SHARE:
Primary and fully diluted:
Earnings (loss) before
extraordinary item $ (1.60) $ .50 $ (2.13) $ ( .06) $ .31
Extraordinary item,
net of income taxes ( .12)
------- ------ ------ ------- -------
NET EARNINGS (LOSS) $ (1.60) $ .50 $ (2.13) $ ( .18) $ .31
======= ====== ====== ======= =======
AT YEAR-END
Total assets (Note 3) $ 53,312 $ 56,147 $59,895 $ 68,902 $ 72,649
Long-term obligations
(Note 3) $ 1,451 $ 19,281 $24,802 $ 29,332 $ 26,889
Note 1: Results for 1992 reflect the reclassification of a
foreign joint venture.
Note 2: Restructuring charges of $3,400,000 in 1994, $3,223,000
in 1992 and $1,034,000 in 1991, are included in operating costs.
Note 3: Total Assets and Long-Term Obligations in 1991 and 1990
have been restated. See Note 1 to the Company's Consolidated
Financial Statements. In 1994, long term obligations reflect
acceleration of amounts due on the bank credit agreement and
other maturities due to default of credit agreement. See Note 3
to the Company's Consolidated Financial Statements.
Note 4: In November, 1991, the Company redeemed $12,160,000 of
its subordinated debt resulting in an extra-ordinary charge,
net of income taxes, of $419,000 for unamortized discount and
bond issuance costs.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1994 Compared to 1993
Net sales for the year ended January 1, 1995 (referred to as
"1994") were $95.3 million or $4.7 million (4.7%) less than net
sales for the year ended January 2, 1994 (referred to as
"1993") of $100 million. In the fourth quarter of 1993, the
Company experienced a significant decrease in sales volume
compared with prior quarters. This lower volume continued
throughout 1994. The decreased sales resulted primarily from
lower sales to existing automotive and one heavy duty customers.
The Company's ability to maintain its current market position
is dependent upon meeting customer expectations and market
competition in product offering, price, quality and delivery.
The Company has initiated various programs in an effort to
improve its operating performance. There are no assurances the
Company's efforts will succeed.
The Company's carburetor sales volume in 1994 was higher than
that in 1993. Sales of the Company's automotive and heavy duty
electrical products (starters, alternators and generators) and
mechanical products (water pumps and clutches) were lower in
1994 than in 1993. The Company's sales of front wheel drive
constant velocity joints increased significantly during the
year, primarily as a result of volume from initial stocking
orders for new customers. However, in February 1995 one of the
Company's primary constant velocity joint customers informed the
Company that it would be switching to a competitor. The Company
is making efforts to replace this business with new customers.
The Company anticipates continued overall market volume growth
in the constant velocity joint product line as the number of
front wheel drive vehicles entering the prime repair age
increases. However, there can be no assurance the Company will
be able to replace the lost constant velocity joint business or
overall sales volume.
Product and core returns, reflected as reduction in net sales,
were 38% in 1994 and 40% in 1993.
Carburetors, which have a higher gross margin than the
Company's product line as a whole, continue to be a significant
part of the Company's sales and are expected to remain so for
several years. Since the mid-1980's, carburetors have been
installed in fewer new vehicles sold in the United States and
Canada due to the increased use of fuel injection systems.
However, the Company continues to sell replacement units for
older vehicles, many of which use carburetors. Net carburetor
sales were $23.9 million in 1994 versus $21.9 million in 1993.
Carburetor sales represented approximately 25% of net sales for
1994 compared to 22% in 1993. The increase in carburetor sales
in 1994 was due to the Company increasing its market share as
the number of competitors in the carburetor market decreased.
The Company expects that carburetor sales will decline in future
years. In addition, carburetor margins may be negatively
impacted in the future as customers seek to return product
during periods of declining demand. The Company has a customer
product return policy and has established inventory reserves to
help mitigate this effect.
Costs of products sold were 84.4% of net sales in 1994 compared
to 79.1% in 1993. 1994 results were significantly impacted by a
$2.2 million fourth quarter provision to revalue the Company's
inventory. Of this incremental provision, approximately $1
million related to an adjustment to the Company's constant
velocity joint inventory to reflect current estimated values.
Because of improved inventory management systems initiated in
the second half of the year, the Company was able to more
definitively evaluate this inventory in the fourth quarter. The
remainder of the inventory provision was recorded to reflect a
change in the Company's management of component and core
inventories which should result in carrying lower quantities
than it historically has.
Overall margins were negatively impacted during the year due to
the lower sales volume and related lower absorption of
manufacturing overhead costs. Management believes 1994 results
do not fully reflect the benefits from the Company's plant
consolidation plan which it expects to fully complete in 1995.
The Company believes that its total plant overhead spending,
which trended downward in the fourth quarter, will continue to
reflect the plant consolidation savings in future quarters.
Modestly favorable labor costs in the fourth quarter, attributed
to the efficiencies gained from the plant consolidation,
somewhat offset increases in material costs during the year
which resulted from procuring higher cost components to satisfy
demand for late model applications.
Also negatively impacting the Company's margins during the year
was a significant decrease in sales to a customer in the high
margin heavy duty product line. These losses were only
partially offset by an increase in carburetor and late model
sales.
Selling, distribution and administrative expenses decreased
$1.4 million (8.4%) to $15.2 million in 1994 from $16.6 million
in 1993. Lower distribution and selling costs resulting from
lower sales volume and reductions in discretionary spending were
the primary items affecting the decrease.
In the first quarter of 1994, the Company recorded a pretax
special charge of $3.4 million to reflect a plan to consolidate
manufacturing capacity. Of the total charge, $2.5 million
related to reserves for personnel and plant closure costs and
$0.9 million related to write-downs of property, plant and
equipment. The Company charged approximately $1.8 million to
reserves for actual personnel and plant closure related costs
during 1994. The Company expects to incur substantially all
remaining accrued costs in 1995.
Interest expense was $2.4 million in 1994 compared to $2.3
million in 1993. The increase reflected higher average
borrowings and increases in variable interest rates.
The Company's effective tax rate was a 5% benefit in 1994
versus a 9% provision in 1993. The Company was not able to
benefit from the 1994 losses due to limited tax carryback
availability. In 1993 the effective tax rate was lowered due to
utilization of net operating loss carryforwards and recognition
of deferred tax assets not previously recognized.
1993 Compared to 1992
Net sales for the year ended January 2, 1994 (referred to as
"1993") were $100 million or $3.3 million (3.4%) greater than
the year ended January 3, 1993 (referred to as "1992") net sales
of $96.7 million. The increase was due to higher sales volume
in the Company's higher priced carburetors and constant velocity
joint (CV) product lines and modest growth in automotive
electrical products (starters, alternators and generators).
These increases were partially offset by lower heavy duty sales
and continued competitive pricing pressures in the water pump
product line.
Product and core returns, reflected as reductions in net sales,
were 40% of sales in 1993 and 1992.
Net carburetor sales were $21.9 million in 1993 versus $19.5
million in 1992. Carburetor sales represented approximately 22%
of net sales for 1993, compared to 20% in 1992. The increase in
carburetor sales in 1993 was due to the Company increasing its
market share.
Costs of products sold were 79.1% of net sales in 1993 compared
to 84.8% in 1992. The decrease was due primarily to inventory
write downs in 1992, including provisions for excess and
obsolete inventory, and workers compensation expense, resulting
in $3.5 million of incremental cost over 1993. The Company has
improved procedures to set core values in 1993 as a means to
better control inventory value. The Company experienced a
modest increase in material costs in 1993 as a result of
procuring higher cost components for late model applications.
Selling, distribution and administrative expenses decreased
$2.1 million (11.2%) to $16.6 million in 1993 from $18.7 million
in 1992. The major factors contributing to the decrease were
lower payroll expense due to headcount reductions early in 1993,
lower variable selling and distribution expenses and a decrease
in administrative costs.
Interest expense was $2.3 million in 1993 and 1992. The
Company's effective tax rate was 9% in 1993 versus 17% in 1992.
The decrease was due to utilization of net operating loss
carryforwards and recognizing deferred tax assets not previously
recognized.
Factors Which May Affect Future Results
The Company expects the existing over-capacity in the
automotive aftermarket and consolidation within the distribution
channels to cause continued selling price pressure for the
foreseeable future. The present competitive environment is
causing change in traditional aftermarket distribution channels
resulting in retailers gaining additional market presence at the
expense of traditional wholesalers. In response, the Company
has diversified its customer base and currently serves all major
segments, including automotive warehouse distributors and
jobbers, original equipment manufacturers of automotive
equipment and large volume automotive retailers. The
anticipated decline in sales from the profitable carburetor
product line over the longer term and continued part number
proliferation, which requires shorter production runs, will
impact future results. The Company will seek to offset these
impacts through improvements in its manufacturing processes and cost
containment with a strong focus on capacity utilization.
The Company has three customers which accounted for an
aggregate of 48% of the Company's total sales in 1994. The
Company sells to various distribution locations within these
customers' groups and has recently been receiving increased
pressure to modify its pricing structure and provide additional
services. The loss of some or all of the sales to any one of
these three customers would have a material adverse impact on
the Company's results given the Company's current manufacturing
cost structure, recent operating results and financial
condition. In the first quarter of 1995, the Company continued
to experience soft sales primarily due to lower overall market
demand for automotive electrical products. In February 1995 one
of the Company's primary constant velocity joint customers
informed the Company that it would be changing suppliers. If
the Company cannot replace the lost sales volume, it could have
a material adverse impact on the Company.
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.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital at January 1, 1995, was $5.6 million, down from
$27.8 million at the end of 1993. This decrease was primarily
attributable to the Company classifying outstanding loans under
its bank credit agreement and a long term capitalized lease
obligation as current due to the Company's default of its Bank
Credit Agreement. (See the following section on Debt for
further discussion.) In addition, a decrease in inventory and
increase in accounts payable and accrued expenses, offset by an
increase in accounts receivable, contributed to the overall
decrease.
Accounts receivable at the end of 1994 were $10.8 million, up
$3.8 million, or 53%, from the previous year-end balance of $7.0
million. An increase in accounts receivable days outstanding to
more normal levels at the end of 1994 as compared to 1993 and
slightly higher sales in the current year fourth quarter
accounted for the increase.
Inventory at the end of 1994 decreased to $26.9 million, from
$31.5 million at the end of the prior year. Consolidation of
finished goods inventory due to the plant consolidation and an
increase in reserves against inventory caused the decrease.
Cores represented approximately 52% of total inventory value at
January 1, 1995.
Accounts payable and interest and other accrued expenses
increased $2.8 million as a result of the Company extending
terms with its suppliers and due to remaining reserves related
to the Company's first quarter decision to consolidate
manufacturing capacity.
Debt
In March 1994, the Company amended its bank credit agreement
to extend its maturity until April 1, 1995; removed one of the
participating banks; reduced the commitment level to $23
million; reset certain prospective financial covenants in
anticipation of a 1994 special charge for a proposed plan to
realign the Company's manufacturing capacity; and allowed the
Company additional borrowing capability against accounts
receivable and inventories.
At January 1, 1995, the Company had available $18.1 million
under the Company's credit agreement of which $17.9 million was
borrowed.
The Company was not in compliance with certain financial
covenants of its bank credit agreement during the fourth quarter
and in subsequent months. The Company's current credit
agreement expired April 1, 1995. It had negotiated with
its lenders waivers for the noncompliance and an extension of
the credit agreement to July 1, 1995 conditioned upon the $5
million sale of Preferred Stock to RGP by April 17, 1995. (See
Part 1, Item 1, "Recent Developments" for a description of the
equity infusion transaction.) On April 17, 1995 RGP notified
the Company pursuant to and in accordance with the Preferred
Stock Purchase Agreement, that it would not consummate the sale,
which caused the Company to be in default of the credit
agreement. Discussions are underway with the Company's lending
banks to reach agreement on a credit facility which would allow
for continued funding of operations. Two of the three banks
party to the credit agreement had indicated to the Company that
they did not intend to extend long term financing to the
Company. There can be no assurances that the banks will agree
to a new facility.
The Company is also in default of a $1.1 million standby
letter of credit and a $1.5 million capitalized lease obligation
under cross default provisions.
Discussions with other financial institutions, including one of
the Company's current banks, are also underway to secure a new
long term facility through 1995. The discussions contemplated
the Preferred Stock sale. The Company is unable to predict
whether these institutions would enter into a credit facility in
light of the failure to close the Preferred Stock sale.
As a result, the Company has reflected outstanding amounts
under the credit agreement and the capitalized lease obligation
as current in its financial statements.
Without an extension of the current credit agreement or a
replacement facility, the Company would not have sufficient
funds to pay its debts should the lenders demand payment. The
Company's financial statements have been prepared on a going
concern basis and do not contain adjustments which may be
necessary should the Company be forced to liquidate assets or
take other actions to satisfy debt payments.
In the first quarter of 1992, Echlin Inc. exercised its limited
market value protection right received under the Stock Purchase
Agreement entered into when Echlin purchased 600,000 common
shares of the Company in 1987. Under the terms of this
agreement, the Company delivered to Echlin a promissory note for
$2.4 million, payable in quarterly installments of $0.2 million.
The note carries an interest rate of 1% above the prime rate.
The Company reduced its paid-in capital by $2.4 million as a result
of this transaction. In March 1992, the Company amended its revolving
credit agreement to permit the execution of the note and the issuance
of a $1.2 million letter of credit to partially secure the note. At
year end, the Company had a remaining balance of $0.4 million on the
note and $0.2 million outstanding on the letter of credit. The Company
has not paid the final installment of $200,000 due April 8, 1995.
Echlin has notified the Company that it is in default on the note.
The Company has guaranteed a loan secured by an Employee Stock
Ownership Plan trust to acquire shares of the Company's stock.
The Company intends to provide the funds to the trust needed to
satisfy principal and interest payments. The final principal
payment of $514,000 was made in April, 1995.
The Company has a direct guarantee of Canadian $500,000 of the
bank debt of a joint venture and is joint and several guarantor
of Canadian $1,500,000 with its venture partner. As part of the
1992 restructuring charge, the Company provided a reserve for a
contingent liability to the venture's bank. The venture was not
in default of its debt facility at January 1, 1995.
Cash Flow
The Company increased its debt, net of cash, by $0.7 million
in 1994. The Company continued to make scheduled payments of
$1.2 million on long term debt obligations. These payments and
the cash required to fund operations resulted in an increase in
the Company's borrowings under its bank credit facility of $2.7
million in 1994. The following summarizes significant items
affecting the change in total debt (amounts in thousands).
January 1, January 2,
1995 1994
Net income (loss), changes
in working capital, other $ (4,878) $ 3,325
Special Charge 3,400 ---
Depreciation and Amortization 1,587 1,793
Capital Expenditures (831) (916)
-------- --------
(Increase) Decrease in total debt,
net of cash $ (722) $ 4,202
======== ========
The Company has generally financed major capital additions
through medium and long-term borrowing, including the use of
industrial revenue bond financing. Working capital requirements
have generally been financed by internally generated funds and
bank borrowings. The Company had an interest rate swap
agreement which fixed the effective interest rate on $12,000,000
of borrowings at 8.3%. This agreement expired in October 1994.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data called for by
this item are listed in the accompanying table of contents for
consolidated financial statements and financial statement
schedule and are filed herewith.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
Report on Form 8-K dated October 28, 1993, reporting a change
in Certifying Accountant is hereby incorporated by reference.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors and Executive Officers of Registrant
Persons elected as directors of the Company hold office until
the next annual meeting of shareholders at which directors are
elected.
The by-laws of the Company provide that officers shall be
elected by the board of directors at its first meeting after
each annual meeting of shareholders, to hold office until their
successors have been elected and have qualified.
Principal Occupation Served as a
and Positions with Director
Name (Age) the Company Since
Thomas W. Blashill (35) Director, Executive Vice President, 1993
Secretary and Treasurer of the Company
Calvin A. Campbell, Jr. (60) President and Chief Executive Officer, 1993
Goodman Equipment Corporation,
Bedford Park, Illinois
John R. Gross (63) Owner, Chaney Auto Parts, Inc., 1966
Crest Hill, Illinois
Raymond F. Gross (56) Vice President, Erecta Shelters, Inc., 1968
Ft. Smith, Arkansas; consultant to
the Company
Gary S. Hopmayer (55) Director, Original American Scones, Inc., 1987
Chicago, Illinois
Barry L. Katz (43) President and General Counsel, 1993
RGP Holding, Inc.
Edward R. Kipling (63) Retired 1987
Raymond G. Perelman (77) Chairman of the Board of the Company; 1988
Chairman of the Board and Chief Executive
Officer, RGP Holding, Inc., Philadelphia,
Pennsylvania and General Refractories
Company, Bala Cynwyd, Pennsylvania
Donald G. Santucci (58) President and Chief Executive Officer of 1975
the Company
Roger L. Wilson (48) Vice President, Sales and Marketing
Mr. Blashill joined the Company in August, 1992 as Director of
Financial Operations. He has held the position of Executive
Vice President, Secretary and Treasurer since March 1993. He
was Vice President and Treasurer of Washington Steel Corporation
from 1991 to 1992. He was Director of Finance of Washington
Steel Corporation from 1988 to 1991.
Mr. Campbell has been President and Chief Executive Officer of
Goodman Equipment Corporation, a designer and manufacturer of
underground mining equipment, since 1971 and a designer and
manufacturer of blow molding machinery since 1979. He has been
Chairman of The Dratt-Campbell Company, a consulting firm, since
its founding in 1991. From 1985 to 1994 Mr. Campbell also
served as a director of Cyprus Amax Minerals Company, Inc.
("Cyprus"), a publicly held mineral resource company listed on
the New York Stock Exchange. Mr. Campbell was Chairman of
Cyprus from May 1991 until May 1992, and President and Chief
Executive Officer of Cyprus from February 1992 until May 1992.
Mr. Campbell is also a director of Eastman Chemical Company, a
publicly held company listed on the New York Stock Exchange, and
Mine Safety Appliances Company, Inc. listed on NASDAQ. Mr.
Campbell has informed the Company that he will not be a nominee
for reelection as a director at the 1995 Annual Meeting of
Shareholders.
Mr. John R. Gross is currently the owner of Chaney Auto Parts,
Inc., a retailer of auto parts. John R. Gross is the brother of
Raymond F. Gross.
Mr. Raymond F. Gross has been the Vice President of Erecta
Shelters Inc., a manufacturer and distributor of metal
buildings, since 1985. He has also been a consultant to the
Company since June, 1984. Prior to June, 1984 he was a Vice
President of the Company. Raymond F. Gross is the brother of
John R. Gross.
Mr. Hopmayer was President of Original American Scones, Inc., a
privately owned specialty baker, from 1987 to 1993. He is
currently a Director of Original American Scones, Inc. Prior to
that time he was President of Mega International, Inc. a
manufacturer and distributor of automotive electrical parts.
Mega International, Inc., founded by Mr. Hopmayer, was sold to
Echlin Inc. in October, 1986.
Mr. Katz has served as a director of the Company since December
1993. From December 16, 1992 to January 19, 1993 he held the
position of Senior Vice President of the Company. Since 1993
Mr. Katz has been President and General Counsel for RGP Holding,
Inc., and its operating subsidiaries, 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.
Mr. Kipling was Vice President and General Manager of the Rayloc
Division of Genuine Parts Company, a remanufacturer of
automotive parts, for more than five years prior to January,
1987, and has since been retired.
Mr. Perelman has served as Chairman of the Board since December
16, 1992 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
with subsidiaries operating in manufacturing businesses, since
May 1992. Since 1985, he was the Chairman of the Board and
Chief Executive Officer of General Refractories Company.
Mr. Donald G. Santucci was elected as the Company's President
and Chief Executive Officer in March 1993. He has been a
director of the Company since 1975. He has served as President
and CEO of DEK, Inc., a closely held manufacturer of engineered
plastic products that was founded by Mr. Santucci. Mr. Santucci
has also served as a consultant to American Hospital Supply, was
a member of the board of directors of Marmion Military Academy,
and recently completed a three-year directorship with the Fox
Valley Industrial Association.
Mr. Wilson joined the Company in September, 1993 as Vice
President of Sales and Marketing. Prior to joining the Company
he served as Vice President of Sales of Maremont Exhaust (owned
by Arvin Industries, Inc.) in 1992. He was Vice President of
Field Sales for Arvin Aftermarket in 1991. From 1987 to 1990 he
served in various management positions for Maremont Corporation
which was acquired by Arvin Industries, Inc. in 1987.
(b) Arrangements Concerning the Board of Directors
Except for directors who are officers of the Company, and except
as indicated below, each director received a fee of $10,000 for
service as a director during the Company's fiscal year ended
January 1, 1995. 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.
The Company and Raymond F. Gross, a director of the Company, are
parties to an agreement providing for his engagement as a
consultant to the Company for a period ending December 31, 1995.
The agreement provides for annual compensation of $10,000
through December 31, 1995 plus certain insurance and other
benefits. Mr. Gross received $5,000 in directors' fees in 1994.
Messrs. Hopmayer and Kipling serve as directors pursuant to a
Stock Purchase Agreement dated March 18, 1987 between the
Company and Echlin Inc. Under that Agreement, the Company
agreed to nominate not fewer than two persons designated by
Echlin Inc. for director, provided that if Echlin Inc. disposes
of Common Shares of the Company, the Company and Echlin Inc.
shall modify the number of persons designated by Echlin Inc. to
be nominated by the Company. See "Ownership of Voting
Securities" below for additional information concerning Echlin
Inc. and transactions between the Company and Echlin Inc.
Messrs. Calvin A. Campbell, Jr., John Gross, Raymond Gross, Gary
Hopmayer and Edward Kipling serve on a Special Committee of the
Board which was formed in January 1995 to, among other things,
evaluate an offer by Mr. Perelman to infuse equity into the
Company. For their services, they received $500 compensation
for each meeting of the Special Committee. There were eight
meetings held through April 17, 1995. In addition, Mr. Campbell
received $5,000 to serve as Chairman of the Committee.
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
cash compensation paid to the Company's chief executive officer
at the end of the Company's 1994 fiscal year, and the two other
executive officers of the Company, whose annual compensation in
the Company's 1994 fiscal year exceeded $100,000 for services
rendered in all capacities to the Company, during the fiscal
years indicated.
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Position Year Salary Bonus Other Annual
Compensation (1)
# ($) ($) ($)
Donald G. Santucci 1994 $133,300 0 ---
President and Chief
Executive Officer (3) 1993 $115,000 $70,000 ---
1992 NA NA NA
Thomas W. Blashill 1994 $128,173 0 ---
Executive Vice President,
Secretary and Treasurer (4) 1993 $108,321 $50,000 ---
1992 NA NA NA
Roger L. Wilson 1994 $105,000 $10,500 ---
Vice President Sales
and Marketing (5) 1993 $ 22,430 0 ---
1992 NA NA NA
----- Long Term Compensation -----
-------- Awards -------- Payouts
(a) (b) (f) (g) (h) (i)
Restricted Securities All Other
Stock Underlying LTIP Compensa-
Name and Principal Position Year Award(s) Options/SAR's Payouts tion (2)
# ($) (#) ($) ($)
Donald G. Santucci 1994 0 0 0 $ 300
President and Chief
Executive Officer (3) 1993 0 0 0 0
1992 NA NA NA NA
Thomas W. Blashill 1994 0 0 0 $ 3,000
Executive Vice President,
Secretary and Treasurer (4) 1993 0 0 0 0
1992 NA NA NA NA
Roger L. Wilson 1994 0 0 0 0
Vice President Sales and
Marketing (5) 1993 0 0 0 0
1992 NA NA NA NA
(1) The amounts for Messrs. Santucci, Blashill and
Wilson are below threshold reporting requirements.
(2) The amounts reported are allocations under its Employee
Stock Ownership Plan.
(3) Mr. Santucci was elected President of the Company in March 1993.
(4) Mr. Blashill was elected Executive Vice President in March 1993.
(5) Mr. Wilson joined the Company in September 1993 as Vice
President, Sales & Marketing.
Messrs. Santucci, Blashill and Wilson have severance
compensation agreements with the Company that provide for
severance pay equal to six months salary following their
termination from the Company under certain circumstances
following a change in control of the Company.
The by-laws of the Company provide that officers shall be
elected annually by the board of directors at its first meeting
after each annual meeting of shareholders, to hold office until
their successors have been elected and have qualified.
The Company also has an indemnification agreement with each
officer of the Company that provides that the Company shall
indemnify the officer against certain claims which may be
asserted against him by reason of serving as a officer of the
Company.
Options Outstanding
As of January 1, 1995, the Company had options to purchase 4,500
Common Shares outstanding under its qualified and non-qualified
option plans. None of the Company's executive officers hold
options.
During the fiscal year ended January 1, 1995, the Company did
not grant any stock options.
Compensation Committee Interlocks and Insider Participation
On December 9, 1993 the Board elected Messrs. Perelman, Kipling
and Campbell 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
1994, except for Mr. Perelman, who served as President and CEO
of the Company from December 16, 1992 to January 19, 1993 and is
presently Chairman of the Board and who entered into a Preferred
Stock Purchase Agreement with the Company (See Part I, Item 1,
"Recent Developments" for a description of the transaction.).
(b) Director Compensation Arrangements
Information regarding director compensation is set forth under
Item 10(b) above.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following tabulation shows, as of April 17, 1995, (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 (3) the Common Share ownership for all directors and
executive officers as a group.
Number of Common
Shares Beneficially Percent of Common
Beneficial Owner Owned (1) Shares Outstanding
RGP Holding, Inc.
225 City Line Avenue
Bala Cynwyd, Pennsylvania 19004 661,600 (2) 18.1% (2)
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405 600,000 (3) 16.4% (3)
Champion Parts, Inc.
Employee Stock Ownership Plan
c/o Champion Parts, Inc.
2525 22nd Street
Oak Brook, Illinois 60521 246,965 (4) 6.8% (4)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401 197,700 (5) 5.4% (5)
Calvin A. Campbell, Jr.,
Director 1,000 *
John R. Gross,
Director (8) 110,212 3.0%
Raymond F. Gross,
Director (8) 29,164 *
Gary S. Hopmayer,
Director (3) ---- ----
Barry L. Katz,
Director (2) 5,000 *
Edward R. Kipling,
Director (3) 2,000 *
Raymond G. Perelman,
Director, Chairman of the Board 661,600 (2) 18.1% (2)
Donald G. Santucci,
Director, President and
Chief Executive Officer 5,747 (6) *
Thomas W. Blashill,
Director, Executive Vice President,
Secretary and Treasurer (7) 4,014 (6) *
Roger L. Wilson
Vice President, Sales & Marketing ---- *
All directors and executive officers
as a group (10 persons) (7) 821,237 22.5%
* Not greater than 1%.
___________
(1) Information with respect to beneficial ownership is based on
information furnished to the Company or contained in filings
made with the Securities and Exchange Commission.
(2) RGP Holding, Inc. is indirectly controlled by Mr. Perelman.
Pursuant to an agreement between the Company, Mr. Raymond G.
Perelman and RGP Holding, Inc. dated September 20, 1993 Mr.
Perelman and RGP granted to the proxy holders appointed by the
Board of Directors of the Company the proxy to vote all shares
beneficially owned by them, including shares held by any
affiliates (the "Perelman Shares"), for the election of certain
nominees. Mr. Perelman and RGP have also agreed, among other
things, not to solicit proxies in opposition to such nominees.
The Company and the Board have agreed that if shareholders of
the Company vote shares in person or by proxy for nominees other
than such nominees, the proxy holders appointed by the Company
will cumulate their votes in such manner as to attempt to elect
Mr. Katz prior to the election of Mr. Campbell, and Mr. Campbell
prior to the election of Mr. Blashill.
(3) All shares owned by Echlin Inc. ("Echlin") are subject to a
Stock Purchase Agreement dated March 18, 1987 between the
Company and Echlin. Under the Stock Purchase Agreement, Echlin
may vote its shares in its discretion. At the time the Company
entered into the Stock Purchase Agreement, the Company entered
into a Supply Agreement with Echlin whereby the Company agreed
to purchase certain automotive parts manufactured by Echlin as
required by the Company, provided that Echlin is able to meet
the Company's delivery requirements and competitive prices.
During the fiscal year ended January 1, 1995, the Company
purchased approximately $2.6 million of components used in the
remanufacture of automotive parts from Echlin. On March 9,
1992, Echlin notified the Company that it was exercising its
limited market protection rights under the Stock Purchase
Agreement. Accordingly, the Company issued a $2,400,000
promissory note to Echlin which has been and is to continue to
be paid to Echlin in quarterly installments of $200,000. The
note carries an interest rate of 1% above prime and one-half the
current outstanding balance is secured by a letter of credit.
See Part II, Item 7 for a discussion of the Company's default of
this note.
Messrs. Hopmayer and Kipling serve as directors pursuant to the
Stock Purchase Agreement.
(4) Shares held by this plan are voted by Messrs. Santucci,
Blashill and Mark Smetana, Director of Finance and Corporate
Controller, as trustees. Employees participating in the Stock
Ownership Plan are entitled to direct the trustees as to the
voting of shares allocated to their accounts. The other Stock
Ownership Plan shares will be voted in the same manner,
proportionately, as the allocated Stock Ownership Plan shares
for which voting instructions are received from employees. For
more information concerning the ownership and voting of shares
held by the Stock Ownership Plan and the trustees, see note (7)
below.
(5) According to a Schedule 13G filed with the Securities and
Exchange Commission on January 30, 1995, which reported
ownership of (1) 197,700 shares as to which the reporting entity
has sole power to dispose of or direct the disposition of and
(b) 92,600 shares as to which the reporting entity has sole
power to vote or direct the vote.
(6) Includes 122 and 1,014 shares allocated to Messrs.
Santucci's and Blashill's accounts, respectively, under the
Employee Stock Ownership Plan.
(7) Includes a total of 1,136 shares allocated to the accounts
of executive officers under the Employee Stock Ownership Plan
(the "Stock Ownership Plan"). Does not include 245,951 shares
allocated to the accounts of employees other than executive
officers. Each of the participants in the Stock Ownership Plan
(approximately 160 employees) is entitled to direct the trustees
as to the voting of shares allocated to his or her account.
(8) As of March 31, 1995 Elizabeth Gross, her children and
members of their immediate families beneficially owned 199,794
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 I, Item 1, "Recent Developments" and Part III, Item
12, Notes (2) and (3).
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:
The Company filed a Report on Form 8-K on January 17, 1995.
The Form 8-K reported a proposal by Mr. Raymond G. Perelman to
infuse equity into the Company.
The Company filed a Report on Form 8-K on February 21, 1995.
The Form 8-K reported a Letter of Intent signed between the
Company and Raymond G. Perelman.
The Company filed a Report on Form 8-K on March 23, 1995. The
Form 8-K reported a Preferred Stock Purchase Agreement between
the Company and RGP Holdings, Inc.
The Company filed a Report on Form 8-K on April 18, 1995. The
Form 8-K reported RGP Holdings, Inc.'s decision not to
consummate the Preferred Stock Purchase Agreement; the Company's
default of its bank credit agreement; and notification of its
auditors' going concern qualification on its 1994 financial
statements.
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: April 21, 1995 By: /s/ Donald G. Santucci
Donald G. Santucci
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on March 31, 1995.
By: /s/ Donald G. Santucci By: /s/ Gary S. Hopmayer
Donald G. Santucci, Gary S. Hopmayer,
President and Director Director
By: /s/ Thomas W. Blashill By: /s/ Edward R. Kipling
Thomas W. Blashill, Edward R. Kipling
Executive Vice President, Director
Secretary and Treasurer
(Principal Financial and
Accounting Officer) and Director
By: /s/ Calvin A. Campbell, Jr. By: /s/ Raymond F. Gross
Calvin A. Campbell, Jr., Raymond F. Gross,
Director Director
By: /s/ Raymond G. Perelman By: /s/ John R. Gross
Raymond G. Perelman, Director John R. Gross, Director
By: /s/ Barry L. Katz
Barry L. Katz, Director
CHAMPION PARTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement
Schedule comprising Item 8 and Items 14(a)(1) and (2) for the Years Ended
January 1, 1995, January 2, 1994, and January 3, 1993, and Reports of
Independent Public Accountants.
CHAMPION PARTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Public Accountants 32
Independent Auditors' Report 33
Consolidated Financial Statements (Item 14(a)(1)):
The following consolidated financial statements of
Champion Parts, Inc. and subsidiaries are included in
Part II, Item 8:
Consolidated balance sheets - January 1, 1995 and
January 2, 1994 34-35
Consolidated statements of operations - years ended
January 1, 1995, January 2, 1994 and January 3, 1993 36
Consolidated statements of stockholders' equity - years
ended January 1, 1995, January 2, 1994 and January 3, 1993 37
Consolidated statements of cash flows - years ended
January 1, 1995, January 2, 1994 and January 3, 1993 38
Notes to consolidated financial statements 39-53
Consolidated Financial Statement Schedule (Item 14(a)(2)):
Schedule VIII - Valuation and qualifying accounts 54
All other schedules are omitted because they are not applicable,
not required, or because the required information is included in
the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
Champion Parts, Inc.
We have audited the accompanying consolidated balance sheets of
Champion Parts, Inc. (an Illinois corporation) and subsidiaries
as of January 1, 1995, and January 2, 1994, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for the two years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our 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 are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of Champion Parts, Inc. and
subsidiaries as of January 1, 1995 and January 2, 1994, and the
results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule
listed in the Table of Contents of the consolidated financial
statements is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the Company is
in violation of certain covenants of its loan agreements that
give the lenders the right to accelerate the due date of their
loans, which raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 3. The
financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might
result should the Company be unable to continue as a going
concern.
/s/ Arthur Andersen LLP
February 21, 1995 (Except for Notes 3 and 16 which are dated
April 17, 1995.)
Chicago, Illinois
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Champion Parts, Inc.
Oak Brook, Illinois
We have audited the accompanying consolidated statements of
operations, stockholders' equity and cash flows of Champion
Parts, Inc. and subsidiaries (the "Company") for the year ended
January 3, 1993. Our audit also included the financial
statement schedule for the year ended January 3, 1993 listed in
the Index at Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of operations
and cash flows of Champion Parts, Inc. and subsidiaries for the
year ended January 3, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set
forth therein.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 26, 1993
(November 23, 1993 as to the
second paragraph of Note 5)
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 1, January 2,
1995 1994
ASSETS
CURRENT ASSETS:
Cash $ 346,000 $ 78,000
Accounts receivable, less
allowance for uncollectible
accounts of $465,000 and
$406,000 in 1994 and 1993,
respectively 10,864,000 6,993,000
Inventories 26,866,000 31,536,000
Prepaid expenses and other assets 740,000 1,070,000
Deferred income tax asset 1,907,000 2,270,000
---------- ----------
Total current assets 40,723,000 41,947,000
PROPERTY, PLANT AND EQUIPMENT:
Land 475,000 475,000
Buildings 13,067,000 13,015,000
Machinery and equipment 17,265,000 16,707,000
Leasehold improvements 746,000 760,000
---------- ----------
31,553,000 30,957,000
Less: Accumulated depreciation 20,059,000 18,190,000
---------- ----------
11,494,000 12,767,000
OTHER ASSETS 1,095,000 1,433,000
$ 53,312,000 $ 56,147,000
========== ==========
The accompanying notes are an integral part of these statements.
_______________________________________________________________________________
January 1, January 2,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,167,000 $ 3,652,000
Accrued expenses:
Salaries, wages and employee benefits 1,871,000 2,167,000
Interest and other expenses 6,808,000 6,551,000
Taxes other than income 232,000 62,000
Income taxes payable 0 481,000
Current maturities on long-term debt 20,026,000 1,206,000
---------- ----------
Total current liabilities 35,104,000 14,119,000
DEFERRED INCOME TAXES 1,393,000 1,550,000
LONG-TERM DEBT - Less current maturities 1,451,000 19,281,000
STOCKHOLDERS' EQUITY:
Preferred stock - No par value;
authorized, 10,000,000 shares:
issued and outstanding, none --- ---
Common stock - $.10 par value;
authorized, 50,000,000 shares:
issued and outstanding, 3,655,266 366,000 366,000
Additional paid-in capital 15,578,000 15,578,000
Retained earnings 579,000 6,418,000
Cumulative translation adjustment (645,000) (136,000)
Guarantee of Employee Stock
Ownership Plan borrowings (514,000) (1,029,000)
---------- ----------
15,364,000 21,197,000
---------- ----------
$ 53,312,000 $ 56,147,000
========== ==========
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
_______________________________________________________________________________
January 1, January 2, January 3,
1995 1994 1993
NET SALES $ 95,337,000 $100,040,000 $ 96,743,000
COST AND EXPENSES:
Cost of products sold 80,424,000 79,133,000 82,022,000
Selling, distribution and
administration 15,226,000 16,636,000 18,678,000
Special charge 3,400,000 --- 3,223,000
----------- ----------- -----------
$ 99,050,000 $ 95,769,000 $103,923,000
----------- ----------- -----------
EARNINGS (LOSS) BEFORE INTEREST,
AND INCOME TAXES (3,713,000) 4,271,000 (7,180,000)
INTEREST EXPENSE - Net 2,423,000 2,282,000 2,248,000
----------- ----------- -----------
EARNINGS (LOSS) BEFORE
INCOME TAXES (6,136,000) 1,989,000 (9,428,000)
INCOME TAXES (BENEFIT) (297,000) 176,000 (1,644,000)
----------- ----------- -----------
NET EARNINGS (LOSS) $ (5,839,000) $ 1,813,000 $ (7,784,000)
============ =========== ============
AVERAGE COMMON SHARES OUTSTANDING
AND COMMON STOCK EQUIVALENTS 3,655,266 3,655,266 3,655,266
=========== =========== ===========
EARNINGS (LOSS) PER SHARE
OF COMMON STOCK $ (1.60) $ .50 $ (2.13)
=========== =========== ===========
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994, AND JANUARY 3, 1993
_______________________________________________________________________________
Additional Cumulative Guarantee
Common Paid-in Retained Translation of ESOP
Reported in Thousands Stock Capital Earnings Adjustment Borrowings
BALANCE, DECEMBER 29, 1991 366 17,978 12,389 176 (2,007)
----- ------ ------ ----- -----
Net loss (7,784)
Exercise of market price
protection (2,400)
Exchange rate changes (113)
Contribution to ESOP
to fund ESOP debt 464
----- ------ ----- ----- -----
BALANCE, JANUARY 3, 1993 366 15,578 4,605 63 (1,543)
----- ------ ----- ----- -----
Net earnings 1,813
Exchange rate changes (199)
Contribution to ESOP
to fund ESOP debt 514
----- ------ ----- ----- -----
BALANCE, JANUARY 2, 1994 366 15,578 6,418 (136) (1,029)
----- ------ ----- ----- -----
Net loss (5,839)
Exchange rate changes (509)
Contribution to ESOP
to fund ESOP debt 515
BALANCE, JANUARY 1, 1995 366 15,578 579 (645) (514)
===== ====== ===== ===== =====
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
_______________________________________________________________________________
January 1, January 2, January 3,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(5,839,000) $ 1,813,000 $(7,784,000)
Adjustments to reconcile net earnings
loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 1,587,000 1,793,000 1,734,000
Provision for losses on accounts
receivable 80,000 3,000 622,000
Restructuring charge 3,400,000 3,223,000
Deferred income taxes (448,000) (195,000) (972,000)
Changes in assets and liabilities:
Accounts receivable (3,975,000) 4,450,000 4,190,000
Inventories 4,307,000 (2,352,000) 3,254,000
Accounts payable 2,176,000 658,000 462,000
Accrued expenses and other 1,863,000 (1,676,000) 1,400,000
Net cash used by operating --------- --------- ---------
activities (575,000) 4,494,000 6,129,000
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (831,000) (916,000) (790,000)
Proceeds from sale of property,
plant and equipment 184,000 116,000 ---
Net cash used by investing --------- --------- ---------
activities (647,000) (800,000) (790,000)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line
of credit agreement 2,700,000 (3,800,000) (4,800,000)
Principal payments on long-term debt
obligations (1,195,000) (1,222,000) (975,000)
Proceeds from issuance of long-term
debt --- --- 187,000
Net cash provided (used) by --------- --------- ---------
financing activities 1,505,000 (5,022,000) (5,588,000)
--------- --------- ---------
EFFECTS OF EXCHANGE RATE CHANGES
ON CASH (15,000) (6,000) (21,000)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 268,000 (1,334,000) (270,000)
CASH AND CASH EQUIVALENTS - Beginning
of year 78,000 1,412,000 1,682,000
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of
year $ 346,000 $ 78,000 $ 1,412,000
========= ========= =========
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 1995, JANUARY 2, 1994 AND
JANUARY 3, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy - The consolidated financial statements
include the accounts of Champion Parts, Inc. and its
subsidiaries (the "Company"). In the fourth quarter of 1992,
the Company decided to exit from its joint venture in a
previously consolidated engine remanufacturing business (Note
6). Accordingly, the Company's investment in the venture is
included in the accompanying consolidated balance sheets using
the equity method of accounting. The consolidated statements of
operations for 1992 have been reclassified to show the results
of this operation by the equity method. 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 January 1, 1995 customers in a net
credit balance position totaled approximately $2,000,000.
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 lease or their
useful lives, whichever is shorter.
When properties are retired or otherwise disposed of, their cost
and accumulated depreciation are removed from the accounts and
any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged to operations; major
expenditures for renewals and betterments are capitalized and
depreciated over their estimated useful lives.
Excess of Purchase Price Over Net Assets Acquired - The Company
is amortizing the excess of purchase price over net assets
acquired over a 25-year period. The unamortized amount of
goodwill was $152,000 and $174,000 in 1994 and 1993,
respectively. The accumulated amortization was $300,000 in 1994
and $278,000 in 1993.
Deferred Charges - Expenses on long-term debt are deferred and
amortized over the terms of the related issues.
Line of Business - The Company rebuilds parts principally for
the automotive aftermarket industry, which is considered to be a
single line of business.
Revenue Recognition - The Company recognizes sales when products
are shipped. Net sales reflect deductions for cores returned
for credit and other customary returns and allowances. Such
deductions and returns and allowances are recorded currently
based upon continuing customer relationships and other criteria.
The Company's customers are encouraged to trade-in rebuildable
cores for products which are included in the Company's current
product line.
Credits for cores are allowed only against purchases of similar
remanufactured products. Total available credits are further
limited by the dollar volume of purchases. Product and core
returns, reflected as reductions in net sales, were $61,234,000
(1994), $67,209,000 (1993) and $67,499,000 (1992).
2. INVENTORIES
Inventories consist of the following:
January 1, January 2,
1995 1994
Raw materials $ 10,870,000 $ 11,634,000
Work in process 5,028,000 4,641,000
Finished goods 10,968,000 15,261,000
---------- ----------
$ 26,866,000 $ 31,536,000
========== ==========
Included in inventory were cores of $14,139,000 (1994) and
$14,584,000 (1993).
The Company recorded $2,200,000 of provisions in the fourth
quarter of 1994 to revalue the Company's inventory.
Approximately $1,000,000 of the amount related to write-downs of
the Company's constant velocity joint inventory to reflect
current values. The remaining amount was recorded to reflect
changes in the Company's inventory policies.
3. DEBT
The Company entered into a Credit Agreement on August 8, 1990
with four banks. In March 1994, the Company amended its bank
credit agreement to extend its maturity until April 1, 1995;
removed one of the participating banks; reduced the commitment
level to $23 million; reset certain prospective financial
covenants, and allowed the Company additional borrowing
capability against accounts receivable and inventories. The
Company gave a security interest to the participating banks in
its accounts receivable, inventories and other assets. The
Company agreed to pay interest on outstanding borrowings at the
Prime Rate plus 1-1/2% and an annual commitment fee of 1/2% of
the facility.
At January 1, 1995, the Company had available $18.1 million
under the Company's credit agreement of which $17.9 million was
borrowed.
The terms of the Company's credit agreement require maintenance
of minimum working capital and tangible net worth levels and
prohibits the payment of dividends. The Company was not in
compliance with certain financial covenants of its bank credit
agreement throughout the fourth quarter and in subsequent
months. It had negotiated with its lenders waivers for the
noncompliance and an extension of the credit agreement to July
1, 1995, conditioned upon the sale of Preferred Stock by April
17, 1995 (See Note 16). On April 17, 1995 RGP notified the
Company that it would not consummate the sale which caused the
Company to be in default of the credit agreement. Discussions
are underway with the Company's lending banks to reach agreement
on a credit facility which would allow for continued funding of
operations. Two of the three banks party to the credit
agreement had indicated to the Company that they did not intend
to extend long term financing to the Company. There can be no
assurances that the banks will agree to a new facility.
The Company is also in default of a $1,100,000 standby letter of
credit and a $1,500,000 capitalized lease obligation under
cross default provisions.
Discussions with other financial institutions, including one of
the Company's current banks, are also underway to secure a new
long term facility through 1995. The discussions contemplated
the Preferred Stock sale. The Company is unable to predict
whether these institutions would enter into a credit facility in
light of the failure to close the Preferred Stock sale.
As a result, the Company has reflected outstanding amounts under
the credit agreement and $1,500,000 capitalized lease obligation
as current in its financial statements. Without an extension of
the current credit agreement or a replacement facility, the
Company would not have sufficient funds to pay its debts should
the lenders demand payment.
Through the first quarter of 1995, the Company continued to
experience soft sales primarily due to lower market demand for
automotive electrical products. In addition, the Company was
notified by one of its customers that it would be switching part
of its business to another supplier in the first quarter of
1995. This business accounted for approximately 3% of the
Company's 1994 net sales.
The Company's financial statements have been prepared on a going
concern basis and do not contain adjustments which may be
necessary should the Company be forced to liquidate assets or
take other actions to satisfy debt payments.
The Company did not make the final installment of $200,000 on a
scheduled payment to Echlin Inc. due April 8, 1995 pursuant to a
promissory note agreement. Echlin Inc. has notified the Company
that it is in default on the note.
The Company had an interest rate swap agreement, which fixed the
effective interest rate at 8.3% on $12,000,000 of its bank
borrowings through October 15, 1994.
The Company had an interest rate protection agreement on
$10,000,000 with a bank. Under this agreement, the Company was
protected against the average LIBOR rate exceeding the
agreement cap rate of 8-1/2% for any consecutive three month
period through August, 1993.
Long-term debt consists of the following:
January 1, January 2,
1995 1994
Bank loan, revolving credit
agreement at prime plus 1-1/2%
due July 1 , 1995 secured by
receivables, inventory and
certain other assets $ 17,900,000 $ 15,200,000
Note payable, due in quarterly
installments of $200,000. Interest
at prime plus 1%. (See Note 11) 400,000 1,200,000
ESOP loan guarantee, 8-1/2%
due in varying semiannual
installments to 1995 514,000 1,029,000
Mortgage, 12%, due in monthly
installments of $21,803 (including
interest) to 2001 (secured by property
having a book value of $2,497,578 at
January 1, 1995) 851,000 1,001,000
Capitalized lease obligations under
Industrial Revenue Bonds, at
approximately 60% of prime rate, due
in 2001, varying annual sinking fund
payments commencing in 1998 1,500,000 1,500,000
Capitalized building lease obligations
under Industrial Revenue Bonds, 7%,
due in 1995 7,000 194,000
Other 305,000 363,000
---------- ----------
21,477,000 20,487,000
---------- ----------
Less portion due within one year 20,026,000 1,206,000
---------- ----------
$ 1,451,000 $ 19,281,000
========== ==========
Long-term debt maturities (including obligations under capital
leases) are $233,000 (1996), $258,000 (1997), $288,000 (1998),
and $77,000 (1999).
In February 1988, the Employee Stock Ownership Plan ("ESOP"),
established by the Company in 1986 (Note 8), borrowed $3,600,000
from a bank and used a contribution of $100,000 from the Company
to purchase 400,000 shares of the Company's common stock at the
market price of $9.25 per share. The Company has guaranteed the
repayment of the 8-1/2% bank loan. The loan was paid in April
1995.
4. INCOME TAXES
As of the first quarter of fiscal year 1992, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". SFAS 109 uses an asset and
liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns.
The income tax provision (benefit) consists of the following:
CURRENT 1994 1993 1992
Federal $ (181,000) $ 660,000 $ (715,000)
Foreign (27,000) (75,000) 37,000
State and local (33,000) 171,000 6,000
--------- --------- ---------
$ (241,000) $ 756,000 $ (672,000)
--------- --------- ---------
DEFERRED
Federal $ (67,000) $ (640,000) $ (559,500)
Foreign 11,000 75,000 (310,000)
State and local --- (15,000) (102,500)
--------- --------- ---------
(56,000) (580,000) (972,000)
--------- --------- ---------
$ (297,000) $ 176,000 $ (1,644,000)
========= ========= =========
The Company has provided a valuation reserve to write-down
deferred tax assets due to limited ability to carryback tax
losses.
At January 1, 1995, the Company had approximately $623,000 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:
1994 1993 1992
Income tax (benefit)
at statutory rate $ (2,086,000) $ 676,000 $ (3,205,000)
Utilization of net operating
loss (NOL) carryforward --- (566,000) ---
Federal valuation
allowance, other than NOL 1,884,000 (45,000) 1,723,000
State income taxes
net of federal income tax (22,000) 25,000 (96,500)
Effect of foreign
operations (55,000) 66,000 (129,500)
Other (18,000) 20,000 64,000
--------- --------- ---------
$ (297,000) $ 176,000 $ 1,644,000
========= ========= =========
No provisions have been made for possible international and
U.S. income taxes payable on the distribution of approximately
$210,000 of undistributed earnings of its foreign subsidiary and
affiliate which have been or will be reinvested abroad or, in
the opinion of management, are expected to be returned to the
United States with no material United States income tax effect.
It is not practicable to determine the hypothetical U.S. federal
income tax liability if all such earnings were remitted.
Deferred tax assets and liabilities are comprised of the
following at January 1, 1995 and January 2, 1994.
--------- 1994 -------- --------- 1993 --------
Assets Liabilities Assets Liabilities
Inventory Reserves $ 1,470,000 $ --- $ --- $ ---
Accrued vacation 427,000 --- 466,000 ---
Fringe benefits 1,093,000 --- 1,248,000 ---
Depreciation $ 1,350,000 --- $ 1,510,000
Bad debts 531,000 --- 646,000 ---
Write-off foreign
subsidiary 215,000 --- 248,000 ---
Restructuring Reserves 565,000 --- --- ---
Net operating loss
carryforward --- --- 18,000 ---
Tax credit
carryforward 623,000 --- 232,000 ---
Valuation allowance (3,180,000) --- (1,353,000) ---
Other 163,000 43,000 765,000 40,000
--------- --------- --------- ---------
$ 1,907,000 $ 1,393,000 $ 2,270,000 $ 1,550,000
========= ========= ========= =========
5. DEFERRED COMPENSATION
In 1984, the Company entered into a deferred compensation
agreement with a former officer which is to be funded with the
benefits from whole-life insurance policies. Under the
agreement, the Company's obligation for future payments could be
reduced if the Company did not receive benefits expected from
the policies.
In November 1993 the Company and the former officer entered into
a Settlement Agreement which, in part, provided for the
guaranteed payment of one-half of the deferred compensation
benefit irrespective of the proceeds from the life insurance
policies. The remaining deferred compensation benefit is
payable subject to available policy proceeds. The Company
agreed to keep two of the policies in force to fund the
obligation and is entitled to reimbursement for annual policy
payments and its annual guaranteed deferred compensation payment
from policy proceeds if they are sufficient. The Company
provided $250,000 in 1994 and $195,000 in 1993 to record the
present value of the Company's anticipated obligation to this
former officer.
The Company holds ten life insurance policies on one current
employee and two former officers. Two of the policies are held
to fund the deferred compensation benefits described above. In
1991, the insurance company which issued the policies was placed
into conservatorship. In September 1993 a
rehabilitation/liquidation plan became effective. The Company's
policies were restructured, permanently adjusting the account values.
As of January 1, 1995, the Company has recorded an investment of
estimated net cash surrender values in such policies of $805,000 and has
unrealized death benefits of approximately $3.4 million.
6. SPECIAL CHARGES
In the first quarter of 1994 the Company provided a one-time
pretax special charge of $3.4 million to reflect a plan to
reduce excess manufacturing capacity in an effort to increase
operating efficiencies and reduce costs. Of the total
provision, $2.5 million related to accruals for personnel and
plant closure costs. The remaining $0.9 million was recorded to
reflect write-downs of fixed assets affected by the plan to net
realizable value.
At January 1, 1995, approximately $1.4 million of reserves
remain to cover remaining personnel and plant closure costs
($0.7 million) and asset write-downs ($0.7 million). The
Company expects to fully complete the plan in 1995.
In the fourth quarter of 1992, the Company provided a pre-tax
restructuring charge of $3,223,000 for the exit from a joint
venture in an engine remanufacturer, the additional write-down
of inventory for products no longer remanufactured and severance
pay for a reduction in its salaried workforce.
7. EMPLOYEE STOCK OPTION AND AWARD PLANS
1994 Stock Option Plan - The Company's Board of Directors
adopted a 1994 Stock Option Plan. This plan is subject to
shareholder ratification. Participants in the plan shall be
those employees selected by the Compensation Committee of the
Board of Directors.
Options shall be granted at the greater of (a) the fair market
value of the Company's Common Stock at the date of grant or (b)
$5 per share. 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.
1982 Incentive Stock Option Plan - During 1982, the stockholders
approved the 1982 Incentive Stock Option Plan. The plan
provides that options to purchase 93,750 shares at prices
equivalent to the fair market value at the date of grant may be
granted to officers and other key employees.
Options became exercisable, in whole or part, one year from the
date of the grant.
The options are considered not to involve compensation. As
options are exercised, the par value of the shares issued is
credited to the common stock account and the excess of the
option price over such par value is credited to additional
paid-in capital.
Information with respect to stock options outstanding is as
follows:
Average
Number Option
of Price
Shares Per Share
Changes in shares:
Balance, December 29, 1991 42,750 $6.314
Canceled (24,000) $6.865
Expired (250) $4.500
-------
Balance, January 3, 1993 18,500 $5.625
Canceled (11,000) $5.625
-------
Balance, January 2, 1994 7,500 $5.625
Canceled (3,000) $5.625
-------
Balance, January 1, 1995 4,500
=======
Exercise
Price
Options exercisable:
January 1, 1995 4,500 $5.625
No further options may be granted under the 1982 I.S.O. Plan and
all outstanding options must be exercised by November 1997.
1984 Stock Bonus Plan - In 1984, the Company adopted a stock
bonus plan under which officers and other key employees are
eligible for stock and cash awards. Unless otherwise determined
at the time of award, a stock award becomes 20% vested at the
time it is made and vests at the rate of an additional 20% on
each anniversary of the award date. The Company reserved
125,000 shares of common stock for issuance under this plan.
No awards have been outstanding since 1990. As of January 1,
1995, 1,402 Common Shares were reserved for future issuance
under this plan.
The vested shares issued are recorded as compensation and the
par value of the shares issued is credited to the common stock
account, and the excess of the market value at date of issuance
over such par value is credited to additional paid-in capital.
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
Salaried employees with one or more years of service are
eligible to participate in an Employee Stock Ownership Plan
("ESOP"), which was established in 1986. The plan provides for
graduated vesting of participants' interests with full vesting
upon completion of the fifth year of service. The aggregate
expense of the ESOP charged to operations was $573,000,
$622,000 and $561,000 for 1994, 1993 and 1992, respectively.
Salaried employees with one year of service are eligible to
participate in a 401(k) plan ("Thrift Program"). Under this
program, contributions are 100% vested. Expense of the 401(k)
plan charged to operations was $20,000 in 1992.
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 of the employee. The
Company's contribution consists of an amount to annually fund
current service costs and to fund past service costs over 30
years. The Company's funding policy for these plans is to meet,
at a minimum, the annual contributions required by applicable
regulations.
In connection with the Company's 1994 plan to consolidate plant
manufacturing capacity (See Note 6), a curtailment loss of
$220,000 was provided for in the special charge.
The following table sets forth the plans' funded status and
amounts recognized in the Company's balance sheets for its
pension plans:
-----January 1, 1995----- ----January 2, 1994----
Assets Assets
Exceed Accumulated Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $1,819,000 $3,013,000 $ --- $5,325,000
Nonvested benefit obligation 41,000 25,000 --- 100,000
--------- --------- ---------
Accumulated benefit obligation $1,860,000 $3,038,000 $ --- $5,425,000
Plan assets at fair value,
primarily equity funds 1,995,000 2,483,000 --- 4,398,000
--------- --------- ---------
Projected benefit obligation in
excess of plan assets 135,000 (555,000) --- (1,027,000)
Unrecognized net (gain) from
past experience different from that
assumed and effects of changes in
assumptions (433,000) (255,000) --- (8,000)
Unrecognized prior service cost 82,000 61,000 --- 200,000
Unrecognized net obligation at
January 1, 1988 being recognized
over 18 to 26 years (61,000) 60,000 --- 149,000
Adjustment to recognized minimum
liability 0 (59,000) --- (411,000)
--------- --------- ---------
Accrued pension cost included in
accrued expenses $ (277,000) $ (748,000) $ --- $(1,097,000)
========= ========= =========
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation at
January 1, 1995, and January 2, 1994, were 8-3/4% and 7-1/2% respectively.
The expected rate of return on assets was 8%. No projected wage increases are
included in the calculation of the projected benefit obligation
as the pension plan benefits are not based upon wage levels.
Pension cost for 1994, 1993 and 1992 consists of the following:
1994 1993 1992
Service cost - benefits
earned during the period $ 236,000 $ 253,000 $ 226,000
Interest cost on projected
benefit obligation 401,000 359,000 331,000
Actual return on plan assets (19,000) (524,000) (230,000)
Net amortization and deferral (331,000) 262,000 (85,000)
--------- --------- ---------
$ 287,000 $ 350,000 $ 242,000
========= ========= =========
9. LEASES
The Company leases certain plants and offices, trucks and
trailers, automobiles and computer equipment. Certain of the
real estate leases, constituting non-financing leases, have
provisions for renewal. These lease renewals are primarily for
five years. Obligations under capital leases are included as a
part of long-term debt.
Total rental expense charged to operations was as follows:
1994 1993 1992
Plants and offices $ 250,000 $ 263,000 $ 292,000
Trucks and trailers 1,147,000 1,300,000 1,422,000
Data processing equipment 273,000 480,000 630,000
Other 257,000 264,000 442,000
--------- --------- ---------
$1,927,000 $2,307,000 $2,786,000
========= ========= =========
The lease cost for trucks and trailers is comprised of a fixed
amount plus a usage charge based on mileage. Operating costs
including licenses, use taxes, maintenance and fuel are
primarily borne by the lessor. Minimum commitments under all
noncancelable operating leases at January 1, 1995, are as
follows:
DATA
PLANTS & TRUCKS & PROCESSING
TOTAL OFFICES TRAILERS AND OTHER
1995 $ 721,000 $ 147,000 $ 479,000 $ 95,000
1996 559,000 24,000 441,000 94,000
1997 480,000 --- 401,000 79,000
1998 417,000 --- 362,000 55,000
1999 322,000 --- 322,000 ---
2000 & AFTER -0- --- --- ---
10. SALES TO MAJOR CUSTOMERS
In 1994, sales to the Company's three largest customers were
approximately 20%, 15% and 13% of net sales. In 1993 sales to
the Company's three largest customers were approximately 23%,
13% and 12% of net sales. In 1992 sales to the three largest
customers were approximately 20%, 12% and 10%, respectively.
11. RELATED PARTY TRANSACTIONS
In March, 1987, the Company sold 600,000 common shares and a
noncallable warrant to purchase 300,000 common shares, at $9.20
per share, to one of its suppliers, Echlin Inc. ("Echlin"). The
warrant expired on February 28, 1992.
The total purchase price was $5,400,000. The stock purchase
agreement restricted future stock purchases and limited sales by
Echlin until March 1, 1994, and provided Echlin limited
protection against declines in market value. Echlin has not
indicated any intention to acquire additional shares or sell
held shares. On March 9, 1992, Echlin exercised its market
value rights under the stock purchase agreement. The Company
reduced its Additional Paid-In Capital by $2,400,000 and
recorded a note payable of the same amount which is being paid
to Echlin in quarterly installments of $200,000. The note
carries an interest rate of 1% above prime. See Note 3
regarding a discussion of the status of the Echlin note payments.
Total purchases from Echlin approximated $2,606,000, $3,686,000
and $3,783,000 in 1994, 1993 and 1992, respectively, of which
$450,000, $308,000 and $304,000 were unpaid at year end 1994,
1993 and 1992, 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. Three of the sites are currently active, and the
others have been settled or are dormant. The Company also 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 provided for anticipated net future costs of
pending environmental matters at January 1, 1995. Such costs
include the Company's estimated allocated share of remedial
investigation/feasibility studies and clean-up and disposal
costs. No recoveries from insurance policy coverage has been
recorded. The Company's ultimate costs are subject to further
development of existing studies and possible readjustment of the
Company's pro rata share of total costs.
Although the ultimate outcome is not determinable, management
believes that the resolution of these matters will not have a
material impact on the Company's financial condition or
operating results.
13. INVESTMENTS
The Company has a 50% equity investment in a foreign joint
venture. Prior to 1992 the venture was consolidated into the
Company's results (Note 1). The Company has a direct guarantee
of Canadian $500,000 of the venture's bank debt and is joint and
several guarantor on Canadian $1,500,000 with its venture
partner. In 1992, the Company wrote off its investment in the
venture and provided a reserve for a contingent liability to
exit this venture. The Company accounts for this venture using
the equity method. Given the venture's current financial
situation and the pending guarantees from the Company, the
Company continued to record its investment at a zero estimated
net realizable value and maintain a reserve for additional
contingent financial exposure.
Approximately $400,000 in charges were recorded against the
reserve in 1994 to reflect the costs to exit the Company's
distribution operation which was exclusively supplied by the
joint venture.
14. ACCRUED INTEREST AND OTHER EXPENSES.
Accrued interest and other expenses consists of the following:
January 1, January 2,
1995 1994
Interest $ 224,000 $ 182,000
Workers' compensation 1,278,000 1,565,000
Accrued pension fund (See Note 8) 1,025,000 1,097,000
Medical insurance reserve 536,000 880,000
Deferred Compensation 444,000 193,000
Accrued Rebate Expense 785,000 246,000
EPA Reserve 434,000 487,000
Special Charge Reserve 667,000 0
Joint Venture Reserve 802,000 1,225,000
Other items 613,000 676,000
--------- ---------
$ 6,808,000 $ 6,551,000
========= =========
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and income taxes was as
follows:
1994 1993 1992
Interest $2,363,000 $2,377,000 $2,150,000
Income taxes 330,000 294,000 465,000
Supplemental schedule of non-cash investing and financing
activities:
In March 1992 the Company reduced its Additional Paid-In Capital
by $2,400,000 and recorded a note payable in the same amount
(See Note 11).
16. SUBSEQUENT EVENT
On March 23, 1995, the Company entered into a Preferred Stock
Purchase Agreement (the "Agreement") with RGP Holdings, Inc.
("RGP"), an affiliate of Mr. Raymond G. Perelman, a director,
the Chairman of the Board of Directors and the beneficial owner
of 18.1% of the outstanding Common Shares of the Company,
pursuant to which Agreement RGP agreed to purchase 1,666,667
shares of the Company's newly authorized Series A Redeemable
Cumulative Convertible Voting 9% Preferred Shares (the
"Preferred Shares") at a price of $3.00 per share, or an
aggregate purchase price of $5 million.
On April 17, 1995 RGP notified the Company that, pursuant to and
in accordance with the terms of the Agreement, it had determined
not to consummate the sale. RGP stated that the Company failed
to satisfy certain conditions for closing.
17. SELECTED QUARTER FINANCIAL DATA (UNAUDITED)
(Reported in thousands, except per share data)
Net
Net earnings
Net Gross earnings (loss)
sales margin (loss) per share
- ------------------------------------------------------------------------
1994 $ 95,337 $ 14,913 $ (5,839) $(1.60)
- ------------------------------------------------------------------------
Quarters:
Fourth (2) 22,165 1,220 (3,434) ( .94)
Third 24,917 3,981 62 .02
Second 24,131 5,274 377 .10
First (1) 24,124 4,438 (2,844) ( .78)
- -------------------------------------------------------------------------
1993 $ 100,040 $ 20,907 $ 1,813 $ .50
- -------------------------------------------------------------------------
Quarters:
Fourth 21,611 3,603 (434) ( .12)
Third 27,472 6,105 975 .27
Second 25,036 5,402 618 .17
First 25,921 5,797 654 .18
(1) The first quarter reflects a special, one-time pretax charge of
$3,400,000 related to the consolidation of production facilities.
(2) The fourth quarter includes a $2,200,000 write-down of inventory
(See Note 2).
CHAMPION PARTS, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged Deductions Balance
Beginning to From at End
of Period Operations Reserves of Period
ALLOWANCE FOR
UNCOLLECTIBLE
ACCOUNTS:
Year Ended
January 3, 1993 $ 426,000 $ 622,000 $ 594,000 $ 454,000
======== ======== ======== ========
Year Ended
January 2, 1994 $ 454,000 $ 3,000 $ 51,000 $ 406,000
======== ======== ======== ========
Year Ended
January 1, 1995 $ 406,000 $ 80,000 $ 21,000 $ 465,000
======== ======== ======== ========
CHAMPION PARTS, INC.
EXHIBIT INDEX
__________
(Pursuant to Item 601 of Regulation S-K)
Total
Pages
NO. DESCRIPTION AND PAGE OR INCORPORATION REFERENCE
Articles of Incorporation and By-Laws
(3)(a) Articles of Incorporation (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1988)
(3)(b) By-Laws (incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended January 2, 1994).
Instruments Defining the Rights of Security
Holders, Including Indentures
(4)(a) Stock Purchase Agreement dated March 18, 1987 between the
Registrant and Echlin Inc. (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986)
(4)(b) Agreed Final Judgment Order dated January 5, 1988 entered
by the United States District Court for the Northern
District of Illinois, Case No. 86 C 8906 (incorporated by
reference to Registrant's Current Report on Form 8-K dated
December 29, 1987)
(4)(c) Agreement dated December 29, 1987 by and among the Company,
Nicole M. Cormier, Claude A. Cormier and Daniel O. Cormier
(incorporated by reference to Registrant's Current Report on
Form 8-K dated December 29, 1987)
(4)(d) Agreement dated April 28, 1987 between the Registrant and
Scott Hodes (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987)
(4)(e) Specimen of Common Share Certificate (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988)
(4)(f) Articles of Incorporation (see Exhibit (3)(a) above)
(4)(g) By-Laws (see Exhibit (3)(b) above).
(With respect to long-term debt instruments, see
"Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K".)
(4)(h) Term of Series A Redeemable Cumulative Convertible
Voting 9% Preferred Shares (Incorporated by reference
to Registrant's Form 8-K filing dated March 23, 1995.)
Material Contracts
(10)(a) Continuing Unconditional Guaranty dated February 12, 1988
by the Company of indebtedness of Charles P. Schwartz, Jr.
and Leonard D. O'Brien (now Kevin J. O'Connor), as trustees
of the Champion Parts, Inc. Employee Stock Ownership Trust,
to the Exchange National Bank of Chicago (now LaSalle
National Bank) (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987)
(10)(b) Amended and Restated Indemnification Agreement dated as of
August 17, 1989 between the Registrant and Charles P.
Schwartz, Jr. (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989) (1)
(10)(c) Agreement dated as of December 28, 1983 between Registrant
and Raymond F. Gross (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1983) (1)
(10)(d) 1984 Stock Bonus Plan, amended as of October 20, 1988
(incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988) (1)
(10)(e) 1982 Incentive Stock Option Plan, as amended November 19,
1987 (incorporated by reference to Registrant's Current
Report on Form 8-K dated November 19, 1987) (1)
(10)(f) Form of Incentive Stock Option Agreement and Schedule of
Incentive Stock Option Agreements executed by executive
officers of the Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988) (1)
(10)(g) Amended and Restated Employment and Deferred Compensation
Agreement dated as of June 7, 1989, between Registrant and
Charles P. Schwartz, Jr. (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1991) (1)
(10)(h) Agreement dated as of June 7, 1989 between the Registrant
and Robert C. Mikolashek (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1991) (1)
(10)(i) Agreement dated December 16, 1992 between the Registrant
and Charles P. Schwartz, Jr. (incorporated by reference to
Registrant's Current Report on Form 8-K dated December 16,
1992) (1)
(10)(j) Amended and Restated Credit Agreement dated as of March 31,
1993 among the Registrant, LaSalle National Bank (the successor
to Exchange National Bank of Chicago), NBD Bank, N.A., American
National Bank and Trust Company of Chicago, and Harris Trust
and Savings Bank (assignee of The Northern Trust Company)
(Incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 3, 1993.)
(10)(k) Security Agreement dated as of March 31, 1993 by and between
the Registrant and LaSalle National Bank acting as collateral
agent for NBD Bank, N.A., American National Bank and Trust
Company of Chicago, and Harris Trust and Savings Bank
(Incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 3, 1993.)
(10)(l) Settlement Agreement dated November 23, 1993 between Registrant
and Charles P. Schwartz, Jr. (Incorporated by reference to
Registrant's current report on Form 8-K dated November 23,
1993). (1)
(10)(m) Form of Letter from Registrant to LaSalle National Bank (the
successor of Exchange National Bank of Chicago), NBD Bank,
N.A., and Harris Trust and Savings Bank (assignee of The
Northern Trust Company) dated March 14, 1994 (incorporated
by reference to Registrant's Annual Report on Form 10-K for
the year ended January 2, 1994).
(10)(n) First Amendment to Amended and Restated Credit Agreement
dated March 30, 1994 among Registrant, LaSalle National Bank
(the successor of Exchange National Bank of Chicago), NBD
Bank, N.A., and Harris Trust and Savings Bank (assignee of
The Northern Trust Company). (Incorporated by reference
to Registrant's Annual Report on Form 10-K for the year
ended January 2, 1994).
(10)(o) Indemnification Agreement dated as of March 8, 1994 between
the Registrant and Donald G. Santucci and Schedule of
Indemnification Agreements executed by directors and executive
officers of the Registrant. (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
January 2, 1994).
(10)(p) Agreement, as amended, between Registrant and Raymond G.
Perelman dated September 20, 1993 (incorporated by reference
to Registrant's current Report on Form 8-K dated March 7,
1994.)
(10)(q) Supply Agreement dated March 18, 1987 between the Registrant
and Echlin Inc. (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1988)
(10)(s) Settlement Agreement between Registrant and Charles P.
Schwartz, Jr. (Incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 23, 1993.)
(10)(t) Agreement between Registrant and Raymond G. Perelman
dated September 20, 1993. (Incorporated by reference to the
Registrant's Current Report on Form 8-K dated March 7, 1994.)
(10)(u) 1994 Stock Option Plan as of September 22, 1994. (Included
herein on page 62.) 8
(10)(v) Second Amendment to Amended and Restated Credit Agreement
dated March 31, 1995 among Registrant, LaSalle National
Bank (the successor of Exchange National Bank of Chicago),
NBD Bank, N.A., and Harris Trust and Savings Bank (assignee
of The Northern Trust Company). (Included herein on
page 70.) 11
(10)(w) Letter Agreement between the Registrant and Mr. Raymond G.
Perelman dated February 21, 1995 (incorporated by reference
to the Registrant's Current Report on Form 8-K filed February
21, 1995).
(10)(x) Preferred Stock Purchase Agreement between the Registrant
and Mr. Raymond G. Perelman dated March 23, 1995 (incorporated
by reference to the Registrant's Current Report on Form 8-K
dated March 23, 1995).
Subsidiaries
(21) List of Subsidiaries of Registrant (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1991)
Consents of Experts and Counsel
(23)(a) Consent of Arthur Andersen LLP (included herein on page
81) 1
(23)(b) Consent of DELOITTE & TOUCHE LLP (included herein on
page 82) 1
Additional Exhibits
(27) Financial Data Schedules
Note:
(1) Denotes management contract or compensatory plan or
arrangement required to be filed as an Exhibit to this
report pursuant to item 601 of Regulation S-K.
________
Champion Parts, Inc. will furnish any of the above exhibits
for which total number of pages is indicated above, to requesting security
holders upon payment of a photocopying charge of $.10 per page, and a postage
charge of $.32 for the first seven pages or fewer and $.23 for each additional
seven pages or fewer, subject to adjustment for changes in postal rates.
"EXHIBIT (23)(A)"
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in the Registration Statement No.
33-16020 of Champion Parts, Inc. and subsidiaries on Form S-8 of
our report dated February 21, 1995 (except for Notes 3 and 16
which are dated April 17, 1995) in Champion Parts, Inc. and
subsidiaries' Form 10-K for the year ended January 1, 1995.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 17, 1995
Page 81
"EXHIBIT 23(B)"
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-16020 of Champion Parts, Inc. and Subsidiaries
on Form S-8 of our report dated February 26, 1993 appearing in
this annual Report on Form 10-K of Champion Parts, Inc. and
Subsidiaries for the year ended January 1, 1995.
DELOITTE & TOUCHE LLP
Chicago, Illinois
April 17, 1995
Page 82
"EXHIBIT 10(u)"
CHAMPION PARTS, INC.
1994 LONG-TERM STOCK INCENTIVE PLAN
SECTION 1
OBJECTIVE
The objective of the Champion Parts, Inc. 1994 Long-Term Stock
Incentive Plan (the "Plan") is to attract and retain the best
available directors, executive personnel and key employees to be
responsible for the management, growth and success of the
business, and to provide an incentive for such individuals to
exert their best efforts on behalf of the Company and its
shareholders.
SECTION 2
DEFINITIONS
2.1 General Definitions. The following words and phrases,
when used herein, shall have the following meanings:
(a) "Agreement" - The written document which evidences the
grant of any Award under the Plan and which sets forth the
terms, conditions, and limitations relating to such Award. No
Award shall be valid until so evidenced.
(b) "Award" - The grant of any Option, Stock Appreciation
Right, share of Restricted Stock, share of Phantom Stock, Other
Stock Based Award, or any combination thereof.
(c) "Board" - The Board of Directors of Champion Parts, Inc.
(d) "Code" - The Internal Revenue Code of 1986, as amended,
and including the regulations promulgated pursuant thereto.
(e) "Committee" - The ___________ Committee of the Board of
Directors of the Company, which shall consist solely of two or
more "outside directors" within the meaning of Code section
162(m)(4)(C)(i).
(f) "Common Stock" - The present Common Shares of the Company,
and any shares into which such shares are converted, changed or
reclassified.
(g) "Company" - Champion Parts, Inc., a Illinois corporation,
and its groups, divisions, and subsidiaries.
(h) "Employee" - Any person employed by the Company as an
employee or any director of the Company, regardless of whether
the director is an employee of the Company.
(i) "Fair Market Value" - The fair market value of Common
Stock on a particular day shall be the closing price of the
Common Stock on the NASDAQ National Market System or any
national stock exchange on which the Common Stock is traded, on
the last preceding trading day on which such Common Stock was
traded.
(j) "Option" - A right granted under Section 6 hereof to
purchase Common Stock of the Company at a stated price for a
specified period of time.
(k) "Other Stock Based Award" - An award granted under Section
9 hereof that is valued in whole or in part by reference to, or
is otherwise based on, the Company's Common Stock.
(l) "Participant" - Any Employee designated by the Committee
to participate in the Plan.
(m) "Phantom Stock" - A right granted under Section 8 hereof
to receive payment from the Company in cash, stock, or in
combination thereof, in an amount determined by the Fair Market
Value.
(n) "Period of Restriction" - The period during which Shares
of Restricted Stock or Phantom Stock rights are subject to
forfeiture or restrictions on transfer pursuant to Section 8 of
the Plan.
(o) "Restricted Stock" - Shares granted to a Participant which
are subject to restrictions on transferability pursuant to
Section 8 of the Plan.
(p) "Shares" - Shares of Common Stock.
(q) "Stock Appreciation Right" or "SAR" - The right granted
under Section 7 hereof to receive a payment from the Company in
cash, Common Stock, or in combination thereof, equal to the
excess of the Fair Market Value of a share of Common Stock on
the date of exercise over a specified price fixed by the
Committee, but subject to such maximum amounts as the Committee
may impose.
2.2 Other Definitions. In addition to the above definitions,
certain words and phrases used in the Plan and any Agreement may
be defined elsewhere in the Plan or in such Agreement.
SECTION 3
COMMON STOCK
3.1 Number of Shares. Subject to the provisions of Section
3.3, the number of Shares which may be issued or sold or for
which Options or Stock Appreciation Rights may be granted under
the Plan may not exceed ________________ Shares.
3.2 Re-usage. If an Option or SAR expires or is terminated,
surrendered, or canceled without having been fully exercised, if
Restricted Stock is forfeited, or if any other grant results in
any Shares not being issued, the Shares covered by such Option,
SAR, grant of Restricted Stock or other grant, as the case may
be, shall again be immediately available for Awards under the
Plan.
3.3 Adjustments. In the event of any change in the
outstanding Common Stock by reason of a stock split, stock
dividend, combination, reclassification or exchange of Shares,
recapitalization, merger, consolidation or other similar event,
the number of SARs and the number of Shares available for
Options, grants of Restricted Stock, and Other Stock Based
Awards and the number of Shares subject to outstanding Options,
SARs, grants of Restricted Stock, and Other Stock Based Awards,
and the price thereof, and the Fair Market Value, as applicable,
shall be appropriately adjusted by the Committee in its sole
discretion and any such adjustment shall be binding and
conclusive on all parties. Any fractional Shares resulting from
any such adjustment shall be disregarded.
SECTION 4
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those individuals selected by
the Committee to participate in the Plan who hold positions of
responsibility and whose participation in the Plan the Committee
determines to be in the best interests of the Company. No
Participant may be granted in any calendar year Awards with
respect to which more than ____ Shares may be issued or sold or
for which Options or Stock Appreciation Rights may be granted.
No Participant may be granted during the Participant's lifetime
Awards with respect to which more than ____ Shares may be
issued or sold or for which Options or Stock Appreciation Rights
may be granted.
SECTION 5
ADMINISTRATION
5.1 Committee. The Plan shall be administered by the
___________ Committee of the Company, which shall consist solely
of two or more "outside directors" within the meaning of Code
section 162(m)(4)(C)(i). The members of the Committee shall be
appointed by and shall serve at the pleasure of the Board, which
may from time to time change the Committee's membership.
5.2 Authority. The Committee shall have the sole and complete
authority to:
(a) determine the individuals to whom awards are granted, the
type and amounts of awards to be granted and the time of all
such grants;
(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Award granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations relating
to the Plan;
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Awards under the Plan,
including whether any conditions relating to an Award have been
met;
(g) maintain accounts, records and ledgers relating to Awards;
(h) maintain records concerning its decisions and proceedings;
(i) employ agents, attorneys, accountants or other persons for
such purposes as the Committee considers necessary or desirable;
and
(j) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to carry out
the objectives of the Plan.
5.3 Determinations. All determinations, interpretations, or
other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final, binding, and conclusive
for all purposes and upon all persons.
5.4 Delegation. The Committee may delegate to appropriate
senior officers of the Company its duties under the Plan
pursuant to such conditions and limitations as the Committee may
establish.
SECTION 6
STOCK OPTIONS
6.1 Type of Option. Each Option granted under this Plan shall
be of one of two types: (i) an "incentive stock option" within
the meaning of section 422 of the Code (or any successor
provision), or (ii) a non-qualified stock option.
6.2 Grant of Option. An Option may be granted to Participants
at such time or times as shall be determined by the Committee.
Each Option shall be evidenced by a written Agreement that shall
specify the exercise price, the duration of the Option, the
number of Shares to which the Option applies, and such other
terms and conditions not inconsistent with the Plan as the
Committee shall determine. No incentive stock options may be
awarded after the tenth anniversary of the date this Plan is
adopted by the Board.
6.3 Option Price. The per share option price shall be not
less than 100 percent of the Fair Market Value at the time the
Option is granted (110 percent in the case of an incentive stock
option granted to a Participant who at the time the Option is
granted owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or
of its parent).
6.4. Exercise of Options. Options awarded under the Plan
shall be exercisable at such times and shall be subject to such
restrictions and conditions, including the performance of a
minimum period of service after the grant, as the Committee may
impose, which need not be uniform for all participants;
provided, however, that no Option shall be exercisable for more
than 10 years after the date on which it is granted (5 years in
the case of an incentive stock option granted to a Participant
who at the time the Option is granted owns stock possessing more
than 10 percent of the total combined voting power of all
classes of stock of the Company or of its parent). No Option
may be exercised until the Committee certifies that all
conditions on the exercise of the Option have been met.
6.5 Payment. The Committee shall determine the procedures
governing the exercise of Options, and shall require that the
per share option price be paid in full at the time of exercise.
The Committee may, in its discretion, permit a Participant to
make payment in cash, or in Shares already owned by the
Participant, valued at the Fair Market Value thereof, as partial
or full payment of the exercise price. As soon as practical
after full payment of the exercise price, the Company shall
deliver to the Participant a certificate or certificates
representing the acquired Shares.
6.6 Rights as a Shareholder. Until the exercise of an Option
and the issuance of the Shares in respect thereof, a Participant
shall have no rights as a Shareholder with respect to the Shares
covered by such Option.
SECTION 7
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. Stock Appreciation
Rights may be granted to Participants at such time or times as
shall be determined by the Committee and shall be subject to
such terms and conditions as the Committee may decide. A grant
of an SAR shall be made pursuant to a written Agreement
containing such provisions not inconsistent with the Plan as the
Committee shall approve.
7.2 Exercise of SARs. SARs may be exercised at such times and
subject to such conditions, including the performance of a
minimum period of service, as the Committee shall impose. Any
SAR related to a non-qualified stock option may be granted at
the same time such Option is granted or at any time thereafter
before exercise or expiration of such Option. Any SAR related
to an incentive stock option shall be granted at the same time
such Option is granted. SARs which are granted in tandem with
an Option may only be exercised upon the surrender of the right
to exercise an equivalent number of Shares under the related
Option and may be exercised only with respect to the Shares for
which the related Option is then exercisable. Notwithstanding
any other provision of the Plan, the Committee may impose
conditions on the exercise of an SAR, including, without
limitation, the right of the Committee to limit the time of
exercise to specified periods, as may be required to satisfy the
applicable provisions of Rule 16b-3 as promulgated under The
Securities Exchange Act of 1934, as amended, or any successor
rule. No SAR may be exercised until the Committee certifies
that all conditions on the exercise of the SAR have been met.
7.3 Payment of SAR Amount. Upon exercise of an SAR, the
Participant shall be entitled to receive payment of an amount
determined by multiplying:
(a) any increase in the Fair Market Value of a Share at the
date of exercise over the Fair Market Value of a Share at the
date of grant, by
(b) the number of Shares with respect to which the SAR is
exercised; provided, however, that at the time of grant, the
Committee may establish, in its sole discretion, a maximum
amount per Share which will be payable upon exercise of an SAR.
7.4 Method of Payment. Subject to the discretion of the
Committee, which may be exercised at the time of grant, the time
of payment, or any other time, payment of an SAR may be made in
cash, Shares or any combination thereof.
SECTION 8
RESTRICTED STOCK OR PHANTOM STOCK
8.1 Grant of Restricted Stock or Phantom Stock. The Committee
may grant Shares of Restricted Stock or Phantom Stock rights to
such Participants at such times and in such amounts, and subject
to such other terms and conditions not inconsistent with the
Plan as it shall determine. Each grant of Restricted Stock or
Phantom Stock rights shall be evidenced by a written Agreement
setting forth the terms of such Award.
8.2 Restrictions on Transferability and Exercise. Restricted
Stock or Phantom Stock rights may not be sold, transferred,
pledged, assigned, or otherwise alienated until the Committee
certifies that any conditions imposed upon the Restricted Stock
or Phantom Stock, (including without limitation, the
satisfaction of performance goals or the occurrence of such
events as shall be determined by the Committee), have been met.
Upon such certification, any Restricted Stock will be
transferred to the Participant free of all restrictions and any
Phantom Stock may be transferred to the Company in exchange for
cash, Shares or a combination of cash and Shares.
8.3 Rights as a Shareholder. Unless otherwise determined by
the Committee at the time of grant, Participants holding
Restricted Stock granted hereunder may exercise full voting
rights and other rights as a Shareholder with respect to those
Shares during the period of restriction. Holders of Phantom
Stock rights shall not be deemed Shareholders and, except to the
extent provided in accordance with the Plan, shall have no
rights related to any Shares.
8.4 Dividends and Other Distributions. Unless otherwise
determined by the Committee at the time of grant, Participants
holding Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to those
Shares, provided that if any such dividends or distributions are
paid in shares of stock, such shares shall be subject to the
same forfeiture restrictions and restrictions on transferability
as apply to the Restricted Stock with respect to which they were
paid. Unless otherwise determined by the Committee at the time
of grant, Participants holding Phantom Stock rights shall not be
entitled to receive cash payments equal to any cash dividends
and other distributions paid with respect to a corresponding
number of Shares.
8.5 Payment of Phantom Stock Rights. The Committee may, at
the time of grant, provide for payment in respect of Phantom
Stock rights in cash, Shares, partially in cash and partially in
Shares, or in any other manner not inconsistent with this Plan.
SECTION 9
OTHER STOCK BASED AWARDS AND OTHER BENEFITS
9.1 Other Stock Based Awards. The Committee shall have the
right to grant Other Stock Based Awards which may include,
without limitation, the grant of Shares based on certain
conditions, the payment of cash based on the performance of the
Common Stock, and the payment of Shares in lieu of cash under
other Company incentive bonus programs. A grant of an Other
Stock Based Award shall be made pursuant to a written Agreement
containing such provisions not inconsistent with the Plan as the
Committee shall approve. Payment under or settlement of any
such Awards shall be made in such manner and at such times as
the Committee may determine.
9.2 Other Benefits. The Committee shall have the right to
provide types of Awards under the Plan in addition to those
specifically listed utilizing shares of stock or cash, or a
combination thereof, if the Committee believes that such Awards
would further the purposes for which the Plan was established.
Payment under or settlement of any such Awards shall be made in
such manner and at such times as the Committee may determine;
provided, that no such Other Stock Based Award may be exercised
until the Committee certifies that all conditions on the
exercise of the Other Stock Based Award have been met.
SECTION 10
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board of Directors at any time may terminate or suspend the
Plan, and from time to time may amend or modify the Plan. No
amendment, modification, or termination of the Plan shall in any
manner adversely affect any Award theretofore granted under the
Plan without the consent of the Participant.
SECTION 11
TERMINATION OF EMPLOYMENT
11.1 Termination of Employment Due to Retirement. Unless
otherwise determined by the Committee at the time of grant, in
the event a Participant's employment with the Company terminates
by reason of retirement after age 65, any Option or SAR granted
to such Participant which is then outstanding may be exercised
at any time prior to the expiration of the term of the Option or
SAR or within three (3) years following the Participant's
termination of employment, whichever period is shorter, and any
Restricted Stock, Phantom Stock rights, or other Award then
outstanding for which any restriction has not lapsed prior to
the effective date of retirement shall be forfeited.
11.2 Termination of Employment Due to Death or Disability.
Unless otherwise determined by the Committee at the time of
grant, in the event a Participant's employment with the Company
is terminated by reason of death or disability, any Option or
SAR granted to such Participant which is then outstanding may be
exercised by the Participant or the Participant's legal
representative at any time prior to the expiration date of the
term of the Option or SAR or within three (3) years following
the Participant's termination of employment, whichever period is
shorter, and any Restricted Stock, Phantom Stock rights, or
other Award then outstanding shall become nonforfeitable and
shall become transferable or payable, as the case may be, as
though any restriction had expired.
11.3 Termination of Employment for Any Other Reason. Unless
otherwise determined by the Committee at the time of grant, in
the event the employment of the Participant with the Company
shall terminate for any reason other than misconduct or one
described in Section 11.1 or 11.2, any Option or SAR granted to
such Participant which is then outstanding may be exercised by
the Participant at any time prior to the expiration date of the
term of the Option or SAR or within three (3) months following
the Participant's termination of employment, whichever period is
shorter; any Restricted Stock, Phantom Stock rights, or other
Award then outstanding for which any restriction has not lapsed
prior to the date of termination of employment shall be
forfeited upon termination of employment. If the employment of
a Participant is terminated by the Company by reason of the
Participant's misconduct, any outstanding Option or SAR shall
cease to be exercisable on the date of the Participant's
termination of employment; any Restricted Stock, Phantom Stock
rights, or other Award then outstanding for which any
restriction has not lapsed prior to the date of termination of
employment shall be forfeited upon termination of employment.
As used herein, "misconduct" means (i) one or more demonstrable
and material acts of dishonesty, disloyalty, insubordination or
willful misconduct or (ii) the continued failure, in the
judgment of the Chief Executive Officer of the Company or the
Board by the Participant to substantially perform his duties
(other than any such failure resulting from his death or
disability). The Committee shall determine whether a
Participant's employment is terminated by reason of misconduct.
11.4 Accrual of Right at Date of Termination. The Participant
shall have the right to exercise an Option or SAR as indicated
in Sections 11.1, 11.2, and 11.3 only to the extent the
Participant's right to exercise such Option or SAR had accrued
at the date of termination of employment pursuant to the terms
of the applicable Agreement and had not previously been
exercised.
SECTION 12
MISCELLANEOUS PROVISIONS
12.1 Non-transferability of Awards. Unless otherwise
determined by the Committee at the time of grant, and except as
provided in Section 11, no Awards granted under the Plan shall
be assignable, transferable, or payable to or exercisable by
anyone other than the Participant to whom it was granted.
12.2 No Guarantee of Employment or Participation. Nothing in
the Plan shall interfere with or limit in any way the right of
the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in
the employment of the Company. No employee shall have a right
to be selected as a Participant, or, having been so selected, to
receive any future awards.
12.3 Tax Withholding. The Company shall have the authority to
withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local
withholding tax requirements on any Award under the Plan, and
the Company may defer payment of cash or issuance of Shares
until such requirements are satisfied. The Committee may, in
its discretion, permit a Participant to elect, subject to such
conditions as the Committee shall require, to have Shares
otherwise issuable under the Plan withheld by the Company and
having a Fair Market Value sufficient to satisfy all or part of
the Participant's estimated total federal, state, and local tax
obligation associated with the transaction.
12.4 Governing Law. The Plan and all determinations made and
actions taken pursuant hereto, to the extent not otherwise
governed by the Code or Act, shall be governed by the law of the
State of Delaware and construed in accordance therewith.
12.5 Effective Date. The Plan shall be effective immediately
upon such approval by the Shareholders of the Company, provided,
however, that no Award requiring the issuance of Shares shall be
exercised or paid out unless at the time of such exercise or
payout (i) such Shares are covered by a currently effective
registration statement filed under The Securities Act of 1933,
as amended, if one is then required, or in the sole opinion of
the Company and its counsel such
issuance of Shares is otherwise exempt from
the registration requirements of such act, and (ii) such Shares are listed on
any securities exchange upon which the Common Stock of the Company
is listed.
12.7 Unfunded Plan. Insofar as the Plan provides for Awards
of cash, Shares, rights or a combination thereof, the Plan shall
be unfunded. The Company may maintain bookkeeping accounts with
respect to Participants who are entitled to Awards under the
Plan, but such accounts shall be used merely for bookkeeping
convenience. The Company shall not be required to segregate any
assets that may at any time be represented by interests in
Awards nor shall the Plan be construed as providing for any such
segregation. None of the Committee, the Company or its Board of
Directors shall be deemed to be a trustee of any cash, Shares or
rights to Awards granted under the Plan. Any liability of the
Company to any Participant with respect to an Award or any
rights thereunder shall be based solely upon any contractual
obligations that may be created by the Plan and any Agreement,
and no obligation of the Company under the Plan shall be deemed
to be secured by any pledge or other encumbrance on any property
of the Company.
12.8. Provisions Relating to Section 16 Persons.
Notwithstanding any other provision herein, any Option or
similar right (including an SAR) granted hereunder to a
Participant who is then subject to Section 16 of The Securities
Exchange Act of 1934 shall not be transferable other than by
will or the laws of descent and distribution and shall be
exercisable during the Participant's lifetime only by him.
EXHIBIT 10(v)
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amendment to Amended and Restated Credit Agreement
(this "Second Amendment") is made and entered into as of March
__, 1995, by and among Champion Parts, Inc., an Illinois
corporation (the "Company"), LaSalle National Bank, a national
banking association ("LaSalle"), as successor to both Exchange
National Bank of Chicago and American National Bank and Trust
Company of Chicago, NBD Bank ("NBD"), and Harris Trust and
Savings Bank, an Illinois banking corporation ("Harris")
[LaSalle, NBD and Harris are each a "Bank" and collectively,
together with their respective successors and permitted assigns,
the "Banks"], and LaSalle in its capacity as both Agent and
Collateral Agent for the Banks.
W I T N E S S E T H:
WHEREAS, the Banks have provided certain extensions of credit,
loans and other financial accommodations to the Company pursuant
to that certain Amended and Restated Credit Agreement dated as
of March 31, 1993, as amended by that certain First Amendment to
Amended and Restated Credit Agreement dated as of March 30, 1994
(the "First Amendment")[collectively the "Credit Agreement"],
and the other agreements, documents and instruments referenced
therein or executed and delivered pursuant thereto;
WHEREAS, the Company has requested, among other things, that
the Banks, the Agent and the Collateral Agent waive certain
defaults pursuant to the Credit Agreement, extend the maturity
date from April 1, 1995, to July 1, 1995 thereunder, and amend
certain other provisions contained in the Credit Agreement; and
WHEREAS, the Banks, the Agent and the Collateral Agent are
willing to waive certain defaults pursuant to the Credit
Agreement, extend the maturity date from April 1, 1995, to July
1, 1995 thereunder, and amend certain other provisions contained
in the Credit Agreement, but solely on the terms and subject to
the conditions set forth in this Second Amendment.
NOW, THEREFORE, in consideration of the foregoing, the mutual
promises and understandings of the parties hereto set forth
herein, and other good and valuable consideration, the receipt
and sufficiency of which consideration is hereby acknowledged,
the parties hereto hereby agree as set forth in this Second
Amendment.
1. Terms. All terms which have an initial capital letter in
this Second Amendment where not required by the rules of
grammar, and are not defined herein, are defined in the Credit
Agreement.
2. Termination Date. The definition of "Termination Date" in
Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "Termination Date" in its entirety
and substituting therefor the following:
""Termination Date" shall mean July 1, 1995, provided that the
"Initial Equity Infusion" (hereinafter defined), has been
completed on or before April 17, 1995. If the Commitment is
terminated prior to such date in accordance with Sections 3.5 or
9.2 hereof, then the Termination Date shall be such earlier date
on which the Commitment terminates."
3. Tangible Net Worth. Section 6.13 of the Credit Agreement is
hereby amended by deleting the Applicable Minimum TNW for the
Time Period commencing upon the earlier to occur of (A) the
Initial Equity Infusion, or (B) April 17, 1995, and at all times
thereafter, and substituting therefor the following:
"Time Period Applicable Minimum TNW
Upon the earlier to occur of (i) 95% of the actual Tangible Net Worth of
the Initial Equity Infusion, or the Company and its subsidiaries as of
(ii) April 17, 1995, and at all times March 31, 1995, plus (i) the aggregate
thereafter amount of the Equity Infusion, from time
to time, excluding the reasonable costs
and expenses incurred in connection
therewith, and (ii) 90% of the aggregate
net income, to the extent that it is a
positive number, for all fiscal months
thereafter"
4. Current Ratio. Section 6.15 of the Credit Agreement is
hereby amended by deleting Section 6.15 in its entirety and
substituting therefor the following:
"6.15 Current Ratio. Not permit the ratio of current assets
(less deferred taxes) to current liabilities, including income
taxes currently payable (less deferred taxes) to be less than
(a) at any time from March 30, 1994, through and including
December 31, 1994, 1.15:1, (b) from January 1, 1995, through and
including the earlier to occur of (i) the date immediately
preceding the Initial Equity Infusion, or (ii) April 16, 1995,
1.10:1, and (c) from the earlier to occur of (i) the date of the
Initial Equity Infusion, or (ii) April 17, 1995, through the
Termination Date, 1:25:1."
5. Inventory Cap. Section 6.27(a)(x)(A) of the Credit
Agreement is hereby amended by deleting the phrase in Section
6.27(a)(x)(A) "shall in no event exceed $13,000,000.00" in its
entirety and substituting therefor "shall not at any time on and
after the earlier to occur of (i) the Initial Equity Infusion,
or (ii) April 17, 1995, exceed $9,000,000.00".
6. Applicable Eligible Inventory Percentage. Section 6.27(b)
of the Credit Agreement is hereby amended by deleting Section
(z) from the definition of "Applicable Eligible Inventory
Percentage" in Section 6.27(b) of the Credit Agreement and
substituting therefor the following:
"(z) from and after January 1, 1995, through and including
the earlier to occur of (i) the date immediately preceding the
Initial Equity Infusion, or (ii) April 16, 1995, thirty-five
percent (35%), and (aa) from the earlier to occur of (i) the
date of the Initial Equity Infusion, or (ii) April 17, 1995,
through the Termination Date, twenty-five percent (25%)."
7. Eligible Accounts. The definition of "Eligible Accounts" in
Section 6.27(b) of the Credit Agreement is hereby amended by
deleting the reference in Section (f)(ii) to "360" in its
entirety from the definition of "Eligible Accounts" and
substituting therefor "120".
8. Applicable Leverage Percentage. Section 6.29 of the Credit
Agreement is hereby amended by deleting the Applicable Leverage
Percentage for the Time Period commencing upon the earlier to
occur of (A) the Initial Equity Infusion, or (B) April 17, 1995,
and at all times thereafter, and substituting therefor the
following:
"Time Period Applicable Leverage Percentage
Upon the earlier to occur of (i) 190%"
the Initial Equity Infusion, or
(ii) April 17, 1995, and at all times
thereafter
9. Event of Default. Section 9.1 of the Credit Agreement is
hereby amended by adding a Section 9.1(n) as follows:
"(n) the Initial Equity Infusion has not been completed on or
before April 17, 1995."
10. Default.
A. The Company has informed the Banks, the Agent and the
Collateral Agent that (1) for the fiscal year ending January 1,
1995, the Company was in default of the financial covenants set
forth in Sections 6.13, 6.14 and 6.29 of the Credit Agreement,
and for the period January 29, 1995, through and including April
1, 1995, the Company is and will continue to be in default of
the financial covenants set forth in Sections 6.13, 6.14, 6.15
and 6.29 of the Credit Agreement (collectively the "Financial
Covenant Defaults"), and (2) pursuant to that certain Preferred
Stock Purchase Agreement dated as of March 23, 1995, by and
between the Company and RGP Holdings, Inc. ("RGP")[the "Stock
Agreement"], RGP desires to contribute to the capital of the
Company on or before April 17, 1995, the amount of Five Million
One and no/100 Dollars ($5,000,001.00), in exchange for the
issuance of 9% Redeemable Cumulative Convertible Voting
Preferred Stock of the Company ("Initial Equity Infusion"), and
the Company may also offer to issue additional common shares to
its existing shareholders for cash pursuant to Section 6.5 of
the Stock Agreement (the "Additional Equity Infusion"; the
Initial Equity Infusion, together with the Additional Equity
Infusion is collectively the "Equity Infusion").
B. The Company desires the Banks, the Agent and the
Collateral Agent to, and the Banks, the Agent and the Collateral
Agent hereby waive the Company's Financial Covenant Defaults.
The Company further desires the Banks, the Agent and the
Collateral Agent to, and the Banks, the Agent and the Collateral
Agent hereby consent to the Equity Infusion pursuant to the
terms of the Stock Agreement. The Company represents and
warrants to the Banks, the Agent and the Collateral Agent that,
upon the occurrence of the Equity Infusion, the Company will
also be in default of Section 9.1(i) of the Credit Agreement
("Change of Control Default"). Accordingly, the Company desires
the Banks, the Agent and the Collateral Agent to, and the Banks,
the Agent and the Collateral Agent hereby waive the Change in
Control Default resulting pursuant to the terms of the Stock
Agreement. The Banks, the Agent and the Collateral Agent
consent to the execution by the Company of the Stock Agreement
and performance of its obligations thereunder; provided,
however, nothing contained herein shall be deemed a waiver by
the Banks, the Agent or the Collateral Agent of any of their
rights or remedies pursuant to the Credit Agreement or the other
agreements, documents and instruments referenced therein or
executed and delivered pursuant thereto or a consent to the
redemption of any common or preferred stock of the Company
pursuant to the Stock Agreement or any of the agreements or
documents contemplated thereby, except as provided in Section
6.5(b) of the Stock Agreement.
C. The waiver set forth in Section 10B of this Second
Amendment shall not be or be deemed (i) an amendment or
modification of any terms or conditions of the Credit Agreement
or any of the agreements, instruments or documents referenced in
the Credit Agreement or executed and delivered pursuant thereto,
(ii) a waiver by the Banks, the Agent or the Collateral Agent of
any "Event of Default" or "Unmatured Event of Default" as
defined in the Credit Agreement, other than the Financial
Covenant Defaults and the Change of Control Default as described
in Section 10B of this Second Amendment, (iii) a waiver of any
continuation or reoccurrence of the Company's Financial Covenant
Defaults or the Change of Control Default described in Section
10B of this Second Amendment, or (iv) except for the waiver set
forth in Section 10B, to affect or waive any of the Banks', the
Agent's or the Collateral Agent's rights or remedies pursuant to
the Credit Agreement, any of the agreements, instruments or
documents referenced in the Credit Agreement or executed and
delivered pursuant thereto, at law, in equity or otherwise.
D. The Company represents, warrants and covenants unto the
Banks, the Agent and the Collateral Agent that (1) none of the
Company's common stock or the preferred stock whether issued to
RGP or any other person or entity pursuant to the Stock
Agreement or otherwise will be redeemed by the Company for cash,
except as provided in Section 6.5(b) of the Stock Agreement, and
(2) the Company will not declare or make any cash distributions,
dividends or other payments in connection with the Company's
common or preferred stock, whether issued pursuant to the Stock
Agreement or otherwise, or set aside any funds for such purpose.
11. Authority. The Company represents and warrants to the
Banks, the Agent and the Collateral Agent that (a) it has
obtained all necessary consents to enter into, execute, deliver
and perform this Second Amendment, including, but not limited
to, resolutions of the Executive Committee of the Board of
Directors' of the Company, (b) the Company has the right, power
and capacity and is duly authorized and empowered to enter into,
execute, deliver and perform this Second Amendment, and (c) the
execution and delivery of this Second Amendment shall not breach
any agreement, instrument or document to which the Company is a
party or by which it is bound.
12. Fees. Contemporaneously with the execution and delivery of
this Second Amendment, the Company shall:
(a) in addition to any other costs, fees and expenses which
may be due and owing to the Banks pursuant to the Credit
Agreement, pay to LaSalle an extension fee in the amount of Ten
Thousand and no/100 Dollars ($10,000.00) [the "Extension Fee"].
LaSalle shall remit the Extension Fee to each Bank in accordance
with each Bank's Percentage Share;
(b) in addition to any other costs, fees and expenses which
may be due and owing to the Agent and the Collateral Agent
pursuant to the Credit Agreement, pay to LaSalle, in its
capacity as Agent and Collateral Agent, a fee in the amount of
Six Thousand Two Hundred Fifty and no/100 Dollars ($6,250.00)
for LaSalle to retain; and
(c) execute and deliver a Secretary's Certificate as to
Officers and Directors and Directors' Resolutions in the form
attached hereto as Exhibit "A" authorizing the execution and
delivery by the Company of this Second Amendment and the
transactions evidenced herein, together with a certified copy of
the resolution establishing the Executive Committee and setting
forth its powers and certifying that such resolution has not
been modified, amended or rescinded in any way and is in full
force and effect.
13. Exhibit. The Exhibit described in this Second Amendment is
attached hereto, made a part hereof and incorporated herein by
this reference thereto.
14. Commitment. The amount of each Bank's Commitment and
Percentage Share appearing on page 8 of the Credit Agreement, as
amended by the First Amendment, are hereby amended by deleting
such amounts and percentages in their entirety and substituting
therefor the amounts and percentages set forth next to the
signature lines appearing on this Second Amendment.
15. Conflict of Terms. If, and to the extent, the terms and
provisions of this Second Amendment contradict or conflict with
the terms and provisions of the Credit Agreement, the terms and
provisions of this Second Amendment will govern and control;
provided, however, to the extent that the terms and provisions
of this Second Amendment do not contradict or conflict with the
terms and provisions of the Credit Agreement, the Credit
Agreement, as amended by this Second Amendment, shall remain in
and have its intended full force and effect, and the parties
hereto hereby affirm, confirm and ratify the same.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
CHAMPION PARTS, INC., an
Illinois corporation
By: _________________
Title: _________________
Amount of Percentage LA SALLE NATIONAL BANK,
Commitment Share individually, as Agent
and as Collateral Agent
$11,870,967.69, 51.612903% By: _________________
less an amount equal Title: _________________
to the product of
(i) the aggregate
amount of the Equity
Infusion from time
to time, multiplied by
(ii) each Bank's
Percentage Share of the
amount of the Equity
Infusion
Amount of Percentage NBD BANK
Commitment Share
$6,677,419.34, 29.032258% By: _________________
less an amount equal Title: _________________
to the product of
(i) the aggregate
amount of the Equity
Infusion from time
to time, multiplied by
(ii) each Bank's
Percentage Share of the
amount of the Equity
Infusion
Amount of Percentage HARRIS TRUST AND
Commitment Share SAVINGS BANK, an
Illinois corporation
$4,451,612.97, 19.354839% By: _________________
less an amount equal Title: _________________
to the product of
(i) the aggregate
amount of the Equity
Infusion from time
to time, multiplied by
(ii) each Bank's
Percentage Share of the
amount of the Equity
Infusion
Total
Commitments
$23,000,000.00,
less an amount equal
to the product of
(i) the aggregate
amount of the Equity
Infusion from time
to time, multiplied by
(ii) each Bank's
Percentage Share of the
amount of the Equity
Infusion
EXHIBIT "A"
SECRETARY'S CERTIFICATE AS TO OFFICERS AND
DIRECTORS AND DIRECTORS' RESOLUTIONS
I, Thomas W. Blashill, do hereby certify that:
1. I am the duly elected, qualified and acting Secretary of
Champion Parts, Inc., a corporation duly organized, existing and
in good standing under the laws of the State of Illinois (the
"Company").
2. I am the keeper of the corporate records of the Company.
3. The following named persons are present officers and
directors of the Company, each duly elected, qualified and
acting as such:
Donald G. Santucci President
Thomas W. Blashill Executive Vice President
Roger Wilson Vice President
Thomas W. Blashill Secretary
Thomas W. Blashill Treasurer
Donald G. Santucci Director*
Thomas W. Blashill Director
Calvin A. Campbell, Jr. Director
John R. Gross Director
Raymond F. Gross Director*
Gary S. Hopmayer Director
Barry L. Katz Director
Edward R. Kipling Director*
Raymond G. Perelman Director*
* Member of Executive Committee
4. The following is a full, true and correct copy of
resolutions, unanimously adopted pursuant to the written consent
of the Executive Committee of the Board of Directors, executed
in accordance with the Company's Articles of Incorporation,
By-Laws and all other applicable laws, and which resolutions
have not in any way been modified, amended or rescinded, but are
in full force and effect as of the date hereof:
RESOLVED, that the President or the Executive Vice President,
or any other person from time to time designated by either of
them in writing (collectively the "Designated Persons") are
hereby authorized, directed and empowered now and from time to
time hereafter to make, execute and deliver for, by, on behalf
of and in the name of the Company to LaSalle National Bank, a
national banking association ("LaSalle"), as successor to both
Exchange National Bank of Chicago ("Exchange") and American
National Bank and Trust Company of Chicago ("ANB"), NBD Bank
("NBD"), and Harris Trust and Savings Bank, an Illinois banking
corporation ("Harris")[LaSalle, NBD and Harris are each a "Bank"
and collectively, together with their respective successors and
permitted assigns, the "Banks"], and LaSalle, in its capacity as
both Collateral Agent and Agent, such documents, instruments and
agreements, including, but not limited to, that certain Second
Amendment to Amended and Restated Secured Credit Agreement and
any other documents, instruments and agreements executed and
delivered pursuant thereto, including any amendments, renewals,
substitutions, extensions or modifications thereto (collectively
the "Loan Documents"), as they may in their sole discretion deem
advisable, necessary, expedient, convenient or proper, providing
for and evidencing various loans, extensions of credit and other
financial accommodations by the Banks to the Company.
RESOLVED, that the Loan Documents may contain such provisions,
terms, conditions, covenants, representations and warranties as
such Designated Persons may, in their sole discretion, deem
advisable, necessary, expedient, convenient or proper.
RESOLVED, that the Designated Persons are authorized, in the
name and on behalf of the Company, to do all other acts and
execute and deliver such other agreements as the Designated
Persons, in their sole discretion, determine to be necessary or
required in order to consummate fully, carry out and perform the
transactions contemplated under the Loan Documents, these
resolutions and any other document, instrument or agreement
executed and delivered pursuant thereto or in connection with
the Loan Documents.
RESOLVED, that the Designated Persons, in their sole
discretion, are authorized, directed and empowered to make,
execute and deliver, in the name and on behalf of the Company,
from time to time, amendments, renewals, substitutions,
extensions or modifications of any or all documents delivered to
the Banks and LaSalle, in its capacity as both Collateral Agent
and Agent.
RESOLVED, that the acts of any person or Designated Persons on
behalf of the Company, with respect to the Loan Documents, these
resolutions and all documents, instruments and agreements,
written or oral, of any and every kind, nature or description
whatsoever, heretofore executed and delivered by the Company to
the Banks and LaSalle, in its capacity as both Collateral Agent
and Agent, are hereby fully ratified, approved, adopted,
confirmed and declared to be and represent binding obligations
of the Company in accordance with the respective terms and
provisions thereof.
RESOLVED, that the authorizations herein set forth shall
remain in full force and effect until written notice of their
modification or discontinuance shall be given by certified mail,
return receipt requested, and received by the Banks and LaSalle,
in its capacity as both Collateral Agent and Agent, at 120 South
LaSalle Street, Chicago, Illinois 60604, Attention: Mr. Thomas
J. Bieke, but no such modification or discontinuance shall
affect the validity of the acts of any Designated Persons or any
other person authorized to so act by these resolutions which
have been performed prior to the receipt of such notice by the
Banks.
RESOLVED, that the Secretary of the Company is hereby
authorized to furnish the Banks and LaSalle, in its capacity as
both Collateral Agent and Agent, a copy of these resolutions and
to certify their authenticity.
I further certify that there is no provision in the Articles of
Incorporation or By-Laws of the Company limiting the power of
the Executive Committee to pass the foregoing resolutions, that
the same are in conformity with the provisions of said Articles
of Incorporation and By-Laws, and that no shareholder consent is
required to permit the actions taken in such resolutions.
IN WITNESS WHEREOF, I have hereunto subscribed my name as the
Secretary of the Company as of March __, 1995.
(CORPORATE SEAL) _____________________________
Thomas W. Blashill, Secretary