SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 21, 1995
CHAMPION PARTS, INC.
(Exact name of Registrant as specified in its Charter)
Illinois 1-7807 36-2088911
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2525 22nd Street, Oak Brook, Illinois 60521
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 573-6600
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
On February 21, 1995, the Registrant entered into a letter of
intent with Raymond G. Perelman which provides, among other
things, for Mr. Perelman, or a company controlled by him, to
purchase $5.0 million of 9% Redeemable Cumulative Convertible
Voting Preferred Stock of the Registrant. The Preferred Stock
would be convertible into common stock at a per share conversion
price of $3.00. The letter of intent also provides that the
Registrant would have the right for 30 days after the sale to
elect to either (i) convert all of the Preferred Stock into
common stock at the conversion price or (ii) conduct a rights
offering to all shareholders permitting them to acquire up to
2.5 million shares of common stock at the conversion price. If
the Registrant elects to conduct the rights offering, Mr.
Perelman would subscribe to his pro rata portion of the shares
and, if the rights offering is under-subscribed, Mr. Perelman
would convert enough Preferred Stock to cover the shortfall, but
would not acquire more than an aggregate of 1,666,667 shares,
including the shares subscribed for by him in the rights
offering and shares acquired upon conversion. Following the
rights offering, the Registrant would redeem any remaining
shares of Preferred Stock not converted in connection with the
rights offering.
Upon consummation of the Preferred Stock acquisition, Mr.
Perelman would be entitled to designate a majority of the Board
of Directors of the Registrant. Consummation of the
transactions contemplated by the letter of intent is subject to
the execution of definitive agreements and the receipt of all
required approvals and consents.
A copy of the letter of intent is attached hereto as Exhibit
10(a) and is hereby incorporated by this reference.
Item 7. Financial Statements and Exhibits.
Exhibits:
10(a) Letter of Intent dated February 21, 1995 between the
Registrant and Raymond G. Perelman.
SIGNATURES
Pursuant to the requirements 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: February 23, 1995 By: /s/ Thomas W. Blashill
Thomas W. Blashill, Executive Vice-
President, Secretary and Treasurer
EXHIBIT INDEX
Exhibit No. Description of ExhibitPage
10(a) Letter of Intent dated February 21, 1995 between
the Registrant and Raymond G. Perelman
Exhibit 10(a)
Raymond G. Perelman
1820 Rittenhouse Square
Philadelphia. Pennsylvania 19103
(215) 732-2500
February 21, 1995
Special Committee of
the Board of Directors
Champion Parts, Inc.
2525 22nd Street
Oak Brook, IL 60521
Dear Sirs:
This letter sets forth the principal terms and conditions upon
which Raymond G. Perelman and/or an entity affiliated with
Raymond G. Perelman (collectively, "Perelman') will enter into
an agreement (the "Stock Purchase Agreement") between Perelman
and Champion Parts, Inc., an Illinois corporation ("Champion"),
pursuant to which Perelman will, upon consummation of the
transactions contemplated thereby, purchase (the "Acquisition')
an aggregate: of $5 million of 9% Redeemable Cumulative
Convertible Voting Preferred Stock of the Company.
1. Purchase of Preferred Stock. At the Closing (as defined
herein), the Company with issue and sell to Perelman an
aggregate of $5 million of 9% Redeemable Cumulative Convertible
Voting Preferred Stock of the Company (the "Preferred Stock").
The liquidation preference of the Preferred Stock will, in the
aggregate, be equal to the purchase price thereof. As described
in paragraph 2 hereof, the Preferred Stock shall be converted
into shares of Common Stock of the Company at a per share
conversion price equal to $3.00 (the "Conversion Price") or
redeemed at a per share redemption price equal to the
liquidation price plus accrued and unpaid dividends to the date
of redemption. The Preferred Stock will accrue dividends at the
rate of 9% per annum. Accrued dividends will be payable
quarterly in arrears and shall be paid by issuing to the holder
of the Preferred Stock shares of Common Stock of the Company at
a per share price equal to the Conversion Price.
2. Conversion of Preferred Stock/Rights Offering.
A. The Special Committee of the Board of Directors of the
Company (the "Special Committee') will, within 30 days of the
Closing, elect to either (x) cause all, but not less than all,
of the Preferred Stock to be converted into Common Stock at the
Special Committee of
the Board of Directors
February 21. 1995
Page 2
Conversion Price or (y) cause the Company to conduct an offering
of Common Stock purchase rights as described below (the "Rights
Offering").
B. If the Company elects to conduct the Rights Offering, then as
soon as practicable after such election, the Company shall offer
all of the shareholders of the Company (including Perelman) the
non-transferable right (the "Rights") to subscribe for shares of
Common Stock of the Company at a subscription price equal to the
Conversion Price; provided, however, that the Company will not
accept subscriptions for more than 2,500,000 shares of Common
Stock (representing an aggregate subscription price of $7.5
million).
Each Shareholder of the Company will receive one Right for each
share of Common Stock held by him. Perelman will commit to
subscribe for his pro rata portion of the shares offered
pursuant to the Rights issued to him based on the number of
shares of Common Stock owned by him at the time of the Rights
Offering. If the shareholders of the Company (including
Perelman) subscribe for less than 2,500,000 shares of Common
Stock (representing an aggregate subscription price of $7.5
million) (such number of shares less than 2,500,000 being
referred to herein as the "Share Deficiency"), then Perelman
will convert that number of shares of Preferred Stock, which
upon conversion at the Conversion Price will result in the
issuance to Perelman of that number of shares of Common Stock as
is equal to the Share Deficiency, but in no event more than that
number of shares equal to (i) 1,666,667 less (ii) the number of
shares subscribed for by Perelman in the Rights Offering.
Immediately upon the completion of the Rights Offering, the
Company will redeem all the Preferred Stock not required to be
converted to satisfy any Share Deficiency at a per share
redemption price equal to the liquidation preference of the
Preferred Stock plus accrued and unpaid dividends to the date of
redemption.
Special Committee of
the Board of Directors
February 21, 1995
Page 3
3. Corporate Governance
A. At the Closing, Raymond G. Perelman will be appointed the
Chief Executive Officer of the Company. To the extent permitted
by law, at the Closing, and for a period of three years
thereafter, Perelman will have the right to designate a majority
of the members of the Board of Directors of the Company,
including the right to designate a majority of the Company's
nominees for election to the Board of Directors of the Company.
In furtherance of the foregoing, appropriate provisions will be
made for the cumulation of votes with respect to the nominees
designated by Perelman. The Company will use its best efforts to
take any steps that may be necessary to effect paragraph 3A.
B. At the Closing, the Company will enact, and for a period of
three years thereafter will maintain, the corporate governance
provisions set forth in Article III of the "Principal Elements
of Proposal by Raymond G. Perelman to Strengthen the Financial
Condition of Champion Parts, Inc." which previously was
submitted to the special Committee.
4. Customary Provisions. The Stock Purchase Agreement will
contain appropriate representations and warranties about the
assets and financial conditions of the business of the Company
and appropriate covenants and appropriate provisions with
respect to indemnification and other appropriate protections
with respect to such representations and warranties.
5. Due Diligence
From the date of execution of this letter until a period of
fourteen (14) days thereafter, Perelman and his representatives
shall have the right to conduct an initial due diligence review
of the business, properties and assets of the Company and shall
be granted full and complete access to its officers, employees,
premises, books and records for such purpose (the "Initial Due
Diligence"). Within five days after such 14 day period Perelman
shall advise the Company if he no longer desires to proceed with
the Acquisition.
6. Conduct of Business.
From the date hereof until the consummation of the Acquisition
or the termination in accordance with its terms of either this
letter or the Stock Purchase
Special Committee of
the Board of Directors
February 21, 1995
Page 4
Agreement, the Company shall not, without the prior written
consent of Perelman, which consent shall not be unreasonably
withheld:
a. Declare or pay any dividend or other distribution with
respect to its shares of Common Stock;
b. Amend its Certificate of Incorporation or Bylaws;
c. Issue or sell or agree to issue or sell any of its securities
or options, warrants or other rights to purchase any such
securities except for shares issued upon exercise of options and
warrants currently outstanding;
d. Except for the six month severance arrangements with Donald
Santucci and Thomas BlashilI heretofore approved by the Board,
increase the compensation of any of its directors, officers or
employees or enter into any employment, consulting or other
service agreements, except m the ordinary course of business
consistent with prior practice;
e. Subject to Paragraph 9 hereof, enter into any agreement
(written or oral) or transaction (i) not in the ordinary course
of business; (ii) involving consideration in excess of $50,000
(other than inventory acquisitions and dispositions in the
ordinary course); or (iii) for the sale or acquisition or lease
of any material assets.
7. Conditions. The closing of the Acquisition (the "Closing")
shall be subject to such conditions as may be agreed upon by the
parties including, but not limited to, the truth in all material
respects of the representations and warranties of the Company
and Perelman set forth in the Stock Purchase Agreement, the
absence of any material adverse change in the financial
condition of the Company, the receipt of the approval of the
Board of Directors of the Company, and the receipt of all
consents and approvals necessary to the consummation of the
Acquisition. The Company shall use its best efforts to take all
steps necessary to obtain such consents and approvals.
8. Public Announcements. Neither of the parties shall issue any
press release or other public statement or make any comment with
respect to the Acquisition without the prior written consent of
the other party. Notwithstanding the foregoing, either party
shall have the right, after consulting with the other party, to
issue any press release or other public statement or make any
filing with a governmental authority if required by law.
Special Committee of
the Board of Directors
February 21, 1995
Page 5
9. No-Solicitation. Neither the Company nor any of its
subsidiaries or affiliates shall (and the Company shall use its
best efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to,
investment bankers, attorneys and accountants, not to), directly
or indirectly, encourage, solicit, or initiate any inquiries or
the making of any proposal or offer by any corporation,
partnership, person or other entity or group (other than
Perelman or any of his affiliates or representatives) concerning
any merger, tender offer, exchange offer, sale of assets, sale
of shares of capital stock or debt securities or similar
transactions involving the Company or any subsidiary, division
or operation or principal business unit of the Company (an
"Acquisition Proposal") or, except to the extent required (in
the opinion of counsel) for the discharge by the Board of
Directors and/or the Special Committee of its fiduciary duties,
engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussion
with, any person relating to an Acquisition Proposal
Notwithstanding the foregoing, through the date of the execution
of the Stock Purchase Agreement, the Company may continue to
explore the four possible Acquisition Proposals described today
to the Board of Directors. The Company further agrees that it
will immediately cease any other existing activities,
discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, subject to,
with respect to the recommencement of any such activities in the
future, in the opinion of its counsel, the discharge by the
Board of Directors and/or the Special Committee of its fiduciary
duties. Nothing contained in this paragraph 9 shall prohibit the
Company or its Board of Directors and/or the Special Committee
from taking and disclosing to the Company's shareholders a
position with respect to a tender offer by a third party
pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Securities Exchange Act of 1934, as amended, or from making such
disclosure to the Company's shareholders which, in the judgment
of the Board of Directors and/or the Special Committee with the
advice of outside counsel, may be required under applicable law.
Notwithstanding the foregoing, the Company may continue to
solicit Acquisition Proposals if a Stock Purchase Agreement has
not been executed by March 12, 1995. The Company will
immediately notify Perelman of any such proposal, or if an
inquiry is made, and will keep Perelman fully apprised of all
developments with respect to any such Acquisition Proposal.
10. Fees and Expenses. Each party will bear its own expenses,
including but not limited to accounting and legal expenses,
incurred in connection with the transactions contemplated
hereby. Notwithstanding the foregoing, the Company shall be
responsible for and shall promptly reimburse Perelman for his
reasonable out-of-pocket costs and expenses incurred in
connection with the preparation of this letter and hereafter
incurred in connection with the transactions contemplated
hereby, whether or not the Acquisition is consummated,
Special Committee of
the Board of Directors
February 21, 1995
Page 6
upon the submission of invoices therefor; provided, however that
such costs and expenses shall not exceed the Company's costs and
expenses.
11. Termination. This letter, when executed by the parties
hereto, will form the basis upon which we will mutually endeavor
promptly and in good faith to take the steps necessary to
consummate the Acquisition in accordance with the terms hereof;
provided that except for the obligations set forth in paragraphs
5, 6, 8, 9 and 10, this letter is not intended to create any
binding commitment by, or right in favor of, either party with
respect to the Acquisition. This letter shall terminate if
Perelman elects not to proceed with the transactions
contemplated hereby following the conclusion of the due
diligence period contemplated by paragraphs or a Stock Purchase
Agreement shall not have been executed by March 12, 1995. The
obligations of the parties under paragraphs 8 and 10 shall
survive any such termination. Upon execution of the Stock
Purchase Agreement, this letter will be superseded in its
entirety.
Our willingness to proceed on the foregoing terms and,
accordingly, the proposal set forth herein, will expire on
February 21, 1995 unless this letter has been countersigned by
the Company on or prior to such date. If the terms and
conditions of this letter are satisfactory to you please sign
this letter in the appropriate place and return a copy to the
undersigned.
Very truly yours,
__________________
Raymond G. Perelman
Agreed as of the date
first above written
Champion Parts, Inc.
By: ______________________