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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2003.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period from ________ to
_____________.
Commission file number 0-22580
JPE, Inc.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation or organization)
38-2958730
(I.R.S. Employer Identification No.)
1030 Doris Road, Auburn Hills, Michigan 48326-2613
(Address of principal executive offices) (Zip Code)
(248) 232-1170
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and formal fiscal year, if changed, since
last report)
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 [ ]
As of January 30, 2004, there were 14,043,600 shares of the registrant's common
stock outstanding. This Quarterly Report on Form 10-Q contains 18 pages, of
which this is page 1.
JPE, INC.
INDEX
Page
----
PART I. Financial Information
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 14
ITEM 4. Controls and Procedures 14
PART II. Other Information 15
ITEM 6. Exhibits 16
Signature 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JPE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
($ amounts in thousands)
AT SEPTEMBER
AT 30,
DECEMBER 31, 2003
2002 UNAUDITED
---- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 415 $ 164
Inventory 1,406 309
Other current assets 790 3,566
Assets held for sale, discontinued operations, net 33,954 --
--------- ---------
Total current assets 36,565 4,039
Property, plant and equipment, net 43 --
Other assets, long term -- 104
Deferred income tax 306 59
--------- ---------
Total assets $ 36,914 $ 4,202
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 23,338 $ 3,000
Accounts payable 1,135 248
Accrued liabilities 781 160
Accrued liabilities, discontinued operations 11,945 --
--------- ---------
Total current liabilities 37,199 3,408
Long-term debt 19 --
--------- ---------
Total liabilities 37,218 3,408
--------- ---------
Shareholders' equity:
First Series Preferred Shares, no par value, 50 votes per
share, 3,000,000 authorized, 1,973,002 shares issued
and outstanding 206 206
Common stock, no par value, 15,000,000 authorized,
14,043,600 shares issued and outstanding 125 125
Accumulated other comprehensive income (expense) (460) (460)
Accumulated deficit (175) 923
--------- ---------
Total shareholders' equity (304) 794
--------- ---------
Total liabilities and shareholders' equity $ 36,914 $ 4,202
========= =========
The accompanying notes are an integral part
of the consolidated condensed financial statements
3
JPE, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Three Months Ended September 30, 2003
(Unaudited)
($ amounts in thousands, except per share data)
THREE MONTHS
ENDED
SEPTEMBER 30,
2003
-------------
Other income $ --
Selling, general and administrative expenses 70
--------
Income (loss) from continuing operations 70
Income (loss) from discontinued operations --
--------
Net income (loss) $ 70
========
Basic earnings (loss) per share:
Common Shares $ 0.00
First Series Preferred Shares $ 0.03
Earnings (loss) per share assuming dilution:
Common Shares $ 0.00
First Series Preferred Shares $ 0.03
The accompanying notes are an integral part
of the consolidated condensed financial statements.
4
JPE, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
For the Nine Months Ended September 30, 2003
(Unaudited)
($ amounts in thousands, except per share data)
NINE MONTHS
ENDED
SEPTEMBER 30,
2003
-------------
Other income $ 3,836
Selling, general and administrative expenses (2,642)
---------
Income (loss) from continuing operations 1,194
Income (loss) from discontinued operations (96)
---------
Net income (loss) $ 1,098
=========
Basic earnings (loss) per share:
Common Shares $ 0.01
First Series Preferred Shares $ 0.49
Earnings (loss) per share assuming dilution:
Common Shares $ 0.01
First Series Preferred Shares $ 0.49
The accompanying notes are an integral part
of the consolidated condensed financial statements.
5
JPE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 2003
(Unaudited)
($ amounts in thousands)
NET INCOME FOR
THE NINE
BALANCES AT MONTHS ENDED BALANCES AT
DECEMBER SEPTEMBER 30, SEPTEMBER
31, 2002 2003 30, 2003
------------ --------------- -----------
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 206 $ 206
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 125 $ 125
Accumulated Other Comprehensive Income
(Expense) $ (460) (460)
Accumulated (Deficit) $ (175) $ 1,098 $ 923
------------ ---------- -----------
Total Shareholders' Equity $ (304) $ 1,098 $ 794
============ ========== ===========
The accompanying notes are an integral part
of the consolidated condensed financial statements.
6
JPE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 2003
(Unaudited)
($ amounts in thousands)
NINE MONTHS
ENDED
SEPTEMBER
30,
2003
------------
Cash flows from operating activities:
Net income (loss) $ 1,098
Changes in operating assets and liabilities:
Inventory 1,097
Other current assets (2,776)
Accounts payable (887)
Accrued liabilities and income taxes (621)
Discontinued operations 22,009
Other 186
--------
Net cash provided by operating activities 20,106
--------
Cash flows from financing activities:
Net repayments of revolving credit facility (20,000)
Repayments of other debt (357)
--------
Net cash used for financing activities (20,357)
--------
Cash and cash equivalents:
Net decrease in cash (251)
Cash, beginning of period 415
--------
Cash, end of period $ 164
--------
The accompanying notes are an integral part
of the consolidated condensed financial statements
7
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
of JPE, Inc. (d/b/a ASCET INC and ASC Exterior Technologies (together
with its subsidiaries, the "Company")) have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles in
the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2003. These financial statements should be read in
conjunction with the Company's consolidated financial statements and
footnotes for the year ended December 31, 2002.
The balance sheet at December 31, 2002 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 2002.
In accordance with the terms of a purchase agreement dated May 7, 2002,
with ASC Holdings, LLC, QP Acquisition #2, Inc. (QP) acquired 9,441,420
Common Shares and 1,952,352 Preferred Shares of the Company, effective
May 31, 2002, for aggregate consideration of $200. The effect of this
transaction transferred 95% of the voting securities of the Company
from ASC Holdings to QP.
In accounting for these transactions, the Company has applied purchase
accounting as prescribed by the Financial Accounting Standards Board
Statement of Accounting Standards 141, Business Combinations and
Accounting Principles Board Opinion 16 and Securities and Exchange
Commission Staff Accounting Bulletin 54. Under this accounting method,
the purchase price has been pushed down into the accompanying financial
statements, with the difference between purchase price and the sum of
the fair value of the tangible assets acquired less liabilities assumed
resulting in negative goodwill, which, at June 1, 2002, reduced the
fair value of property, plant and equipment recorded at June 1, 2002,
by $1,735.
Based on an assessment of the potential sales value of the Company
conducted in the fourth quarter of 2002, the estimated sales proceeds
would be sufficient to completely repay the Comerica Credit Facility,
satisfy other liabilities of the Company and the estimated remaining
proceeds would repay approximately $3 million of the $15 million
subordinated demand note to ASC Incorporated. Consequently, a
subsequent reduction of the subordinated note of $12 million to a fair
value of $3 million, was recorded at June 1, 2002, which also reduced
the fair value of property, plant and equipment by $12 million.
The following summarizes the estimated fair values of the assets
acquired and liabilities assumed as of June 1, 2002 including the
subsequent adjustment of $12 million of fixed assets discussed above
(based on the 95% proportional change in ownership):
ASSETS
Current Assets $ 28,738
PPE 12,563
Non-Compete 503
---------
Total Assets Required $ 41,804
---------
LIABILITIES
Current Liabilities $ 15,673
Short-term debt 25,800
Predecessor Shareholder's basis 131
---------
Total Liabilities Assumed $ 41,604
---------
New Shareholder Basis $ 200
=========
8
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
As a result of the purchase accounting effective on May 31, 2002, the
basis of the assets and liabilities has changed, which necessitates the
presentation of Predecessor Company and Successor Company columns in
the Consolidated Statements of Operations and Cash Flows.
At the time QP acquired the shares of the Company from ASC Holdings, as
a part of the acquisition by QP and its affiliates of a significant
amount of business assets from the Estate of Heinz C. Prechter, the
Company was experiencing pre-tax losses and had incurred pre-tax losses
since fiscal year 2000. For the years ended December 31, 2000 and 2001,
the Company had pre-tax losses of $8,460,000 and $8,136,000,
respectively. The Company had pre-tax income of $1,200,000 for the
five-month period ended May 31, 2002, and a loss of $200,000 for the
seven-month period ended December 31, 2002
During July and August, 2002, the Board of Directors of the Company
determined that it would be in the best interests of the Company and
its creditors to consider a sale of the Company's operating
subsidiaries. In February, 2003, the Company sold the assets and
liabilities of its Dayton Parts subsidiary for $18,500,000, and used
the proceeds from the sale to reduce its then outstanding bank debt. In
June 2003, the Company sold the assets and liabilities of the Plastic
Trim subsidiary for $8,750,000, and used the proceeds to repay the
Comerica facility in full, extinguish other remaining liabilities, and
to partially repay the subordinated demand note of $15 million to the
extent possible. Management intends to dissolve the Company under the
terms and procedures required under the laws of Michigan. As such, both
Dayton Parts and Plastic Trim are shown as discontinued operations in
the attached financial statements.
9
JPE, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
B. DEBT:
Debt consisted of the following:
DECEMBER 31, 2002 SEPTEMBER 30, 2003
----------------- ------------------
Revolving Credit Facility-Comerica Bank $ 20,000 $ --
Notes Payable-MB purchase 338 --
Subordinated demand note 3,000 3,000
Other 19 --
----------- -----------
$ 23,357 $ 3,000
Less: Current portion 23,338 3,000
----------- -----------
$ 19 $ --
=========== ===========
The revolving credit facility with Comerica Bank provides for borrowing
options at a prime based rate or Eurodollar rate plus various interest
rate margins dependent upon the Company's financial performance
beginning January 1, 2002. Advances are subject to a borrowing base
restriction equal to 85% of eligible OEM trade receivables, 80% of all
other eligible trade receivables, 50% of eligible inventory (up to $9
million), plus an overformula amount of $10 million. The overformula
amount decreases semiannually. The initial reduction of $1 million
occurred on September 1, 2001. The second and third reductions of $1.25
million each occurred on March 1, 2002 and September 1, 2002. All
advances are fully secured by the Company's net assets.
On February 28, 2003 the Company's Comerica Facility was amended and
extended. The revolving credit commitment amount was decreased from $30
million to $9 million as the Company believed $9 million was adequate
for its liquidity requirements through June 1, 2003, the remaining term
of the loan. In consideration of the amendment, the Company paid
Comerica Bank a nonrefundable amendment fee of $200,000. In June 2003,
proceeds from the sale of the Plastic Trim subsidiary were used to
retire the Comerica Facility in its entirety.
The Company's $15 million subordinated demand note to ASC Incorporated
dated February 7, 2001 is subordinated as to creditor rights and
security to the Comerica Facility. Interest is payable monthly
commencing March 1, 2001 at ASC Incorporated's cost of borrowing.
Further, the Comerica Facility prohibits any payments to ASC
Incorporated at non-arm's length amounts without prior consent. The
April 16, 2002 amendment to the Comerica Facility prohibits the Company
from paying interest to ASC Incorporated on the $15 million note.
C. EARNINGS PER SHARE:
The issuance of the First Series Preferred Shares resulted in the
Company having a participating security. In accordance with Statement
of Financial Accounting Standards No. 128 - Earnings per Share, the
"two class" method is used for computing earnings per share. Under this
method, an earnings allocation formula is used to determine the amount
of earnings allocated to each class of stock. Based on the
participating rights of the First Series Preferred Shares approximately
87.5% of the earnings will be allocated to these shares and 12.5% of
earnings to the common stock. Shares outstanding for the computation of
basic earnings per share were 14,043,600 common shares as of June 30,
2002, and June 30, 2003. The First Series Preferred Shares outstanding
were 1,973,002 shares as of June 30, 2002 and June 30, 2003. Earnings
per share assuming dilution requires the Company to use the treasury
method for stock options and warrants. The common stock options
outstanding for the periods presented had exercise prices that were in
excess of the market price and therefore had no effect on the
computation assuming dilution.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto filed with the Company's Annual Report on
Form 10-K to assist in understanding the Company's results of operations, its
financial position, cash flows, capital structure and other relevant financial
information.
RECENT INFORMATION
GENERAL AND RECENT INFORMATION RELATED TO WINDDOWN OF OPERATIONS
JPE, Inc. (together with its subsidiaries, the "Company"), through its two
operating subsidiaries, Dayton Parts, Inc. (DPI) and Plastic Trim, Inc. (PTI)
manufactures and distributes automotive and truck components to original
equipment manufacturers ("OEMs") and to the aftermarket.
ACQUISITION OF THE COMPANY BY QP ACQUISITION #2, INC. As of December 31, 2001,
ASC Holdings, LLC ("ASC Holdings") a Michigan limited liability company,
directly and the Heinz C. Prechter estate, indirectly through ASC Holdings,
owned a total of 9,441,420 common shares and 1,952,352.19 First Series Preferred
Shares of the Company, constituting 95% of the outstanding voting securities of
the Company. On May 30, 2002, QP Acquisition #2, Inc. ("QP Acquisition")
acquired all of the Common Shares and Preferred Shares owned by ASC Holdings.
The Common Shares and Preferred Shares acquired by QP Acquisition represent
approximately 67.2% of the issued and outstanding Common Shares of the Company
and approximately 98.9% of the issued and outstanding Preferred Shares of the
Company. At the time QP Acquisition acquired the shares of the Company from ASC
Holdings, as part of the acquisition by QP Acquisition and its affiliates of a
significant amount of business assets from the Estate of Heinz C. Prechter, the
Company was experiencing pre-tax losses and had incurred pre-tax losses since
fiscal year 2000. For the years ended December 31, 2000, 2001, and 2002, the
Company had pre-tax losses of $8,460,000 and $8,136,000, and a pre-tax income of
$979,000 respectively. However, if the results of Dayton Parts are excluded, the
Company had pre-tax losses of $9,430,000, $9,680,000, and $2,103,000,
respectively, for such periods.
Under the United States generally accepted accounting principles applicable to
purchase accounting, negative goodwill of the Company was allocated to the fair
value of the Company's fixed assets as a result of QP Acquisition's purchase of
the Company. Also, approximately $15 million of subordinated Debt to an
affiliate of the Company was written down to its estimated realizable fair value
of $3 million as a result of the transaction.
DIVESTITURE OF DAYTON PARTS, INC. Throughout the Company's fiscal year ended
December 31, 2002, the Company wholly owned and operated two subsidiaries:
Dayton Parts and Plastic Trim.
On February 28, 2003, Dayton Parts disposed of substantially all of its assets,
pursuant to an Asset Purchase Agreement, dated as of February 7, 2003, by and
among Dayton Parts, LLC ("DPLLC"), an affiliate of Gen Cap America, Inc. ("Gen
Cap"), Dayton Parts, and the Company. On March 1, 2003, the Company transferred
to DPLLC all of the capital stock of Dayton Parts whose remaining significant
asset was the capital stock of Brake, Axle & Tandem Company Canada, Inc.
("BATCO"), Dayton Parts' wholly-owned subsidiary, pursuant to a Stock Purchase
Agreement dated as of February 7, 2003 by and among DPLLC, Dayton Parts and the
Company. The aggregate purchase price, which was determined by arms' length
negotiations between the Company and Gen Cap, was $18,500,000 in cash. Under the
terms of a related escrow agreement, $1,850,000 of the purchase price will be
held in escrow for potential indemnity claims until the one year anniversary of
the closing date. The purchase price is subject to a standard post-closing
adjustment to reflect changes in net working capital.
DISPOSITION OF PLASTIC TRIM, INC. AND PLAN OF DISSOLUTION. Plastic Trim, which
is the Company's sole remaining subsidiary following the sale of Dayton Parts'
assets discussed above, manufactures extruded and injection molded plastic
exterior trim products.
On April 7, 2003, the Company executed a letter of intent/term sheet regarding
the sale of substantially all of Plastic Trim's assets, and the Company's assets
used in the business of Plastic Trim, including substantially all of its
tangible property, such as equipment and furniture, to Plastic Trim Acquisition,
LLC, an Ohio limited liability company ("Buyer"). The principal owners of Buyer
are C. William Mercurio and John Keighley, former shareholders in, and executive
officers of Plastic Trim. From and after that date, Buyer and the Company
conducted
11
active negotiations culminating in the execution of an Asset Purchase Agreement
on April 28, 2003, which was subsequently amended and restated on May 14, 2003.
The Company completed the transactions contemplated by the Plastic Trim
Agreement in June 2003. Since the Company does not own any significant assets
other than the capital stock of Plastic Trim and the related assets being sold
in the transaction, the sale of Plastic Trim's assets and the related assets
constituted a sale of substantially all of the Company's assets under Michigan
law. A Plan of Dissolution (the "Plan of Dissolution") was adopted by the Board
of Directors of the Company on April 24, 2003 and approved by the shareholders
of the Company on April 29, 2003, effective on the 20th day following the day on
which the Information Statement on Schedule 14C regarding the sale of Plastic
Trim and the Plan of Dissolution (the "Information Statement") is mailed to the
Company's stockholders. The Plan of Dissolution sets forth the Company plan to
wind up its affairs and dissolve following liquidation of Plastic Trim's assets.
BACKGROUND OF RECENT DEVELOPMENTS
REASONS FOR THE SALE OF DAYTON PARTS AND PLASTIC TRIM AND PLAN OF DISSOLUTION.
Shortly after QP Acquisition acquired shares of the Company from ASC Holdings,
LLC, at the suggestion of QP Acquisition, the Company engaged the investment
banking firm of W.Y. Campbell & Company ("Campbell") to assist the Board of
Directors in considering strategic alternatives for the Company in light of its
history of an over-leveraged balance sheet and pre-tax losses. During July and
August 2002, the Board of Directors of the Company determined that it would be
in the best interests of the Company to consider a sale of the Company's
operating subsidiaries, Dayton Parts and Plastic Trim, as the Board believed it
would be extremely difficult to restore the Company to appropriate levels of
leverage given the Company's history of losses and the financial climate.
As the sale of Dayton Parts in February 2003 and Plastic Trim in June 2003 have
left the Company with substantially no assets with which to conduct any
operations other than the winding down of its affairs, and as the purchase price
of the sale of Plastic Trim's assets as well as the proceeds of the escrow
established in connection with the sale of Dayton Parts which is expected to be
distributed to the Company will be insufficient to satisfy all of the Company's
existing debt obligations, the Board of Directors determined in April 2003 that
it would be in the best interests of the Company to dissolve, provide for
satisfaction of those debts it will be able to repay, wind down it affairs and
cease operations as quickly as possible in order to prevent further losses.
The proceeds of the sale of Plastic Trim's and the Company's assets under the
Plastic Purchase Agreement (the "Sale of Assets") were used to pay transaction
expenses, to pay the secured debt to Comerica Bank and to pay the former owners
referred to above. Any proceeds remaining from the Sale of Assets, together with
any other proceeds received from the remaining Company assets, such as the
escrow from Dayton Parts, will be used to pay the obligations of the Company,
including a portion of the $15 million loan obligation of the Company to ASC
Incorporated. THERE ARE NOT EXPECTED TO BE ANY ASSETS TO DISTRIBUTE TO
SHAREHOLDERS OF THE COMPANY.
THE SALE PROCESS. In or about August 2002, Campbell began investigating a sale
of Dayton Parts and of Plastic Trim. Campbell conducted a sale process for
Dayton Parts that resulted in the sale of the assets and stock of Dayton Parts
in February 2003 for $18,500,000 in cash. As part of such sale process, Campbell
contacted 52 potential acquirers, of which 31 executed confidentiality
agreements and received offering materials describing Dayton Parts and its
business. After reviewing the offering materials, 9 entities indicated interest
and elected to conduct further due diligence, and two ultimately submitted
indications of interest. Dayton Parts was sold to the acquirer whose indication
of interest was higher than the other indication of interest. No Information
Statement was submitted to shareholders in connection with the sale of Dayton
Parts as no shareholder approval was required under Michigan law. Under Michigan
law, a sale of assets does not require shareholder approval if a corporation
retains a "significant continuing business activity." A "significant continuing
business activity" is defined, under Michigan law, as a business activity
representing at least 25% of total assets at the end of the most recently
completed fiscal year, and 25% of either income from continuing operations
before tax or revenues from continuing operations for that fiscal year, of the
corporation and its subsidiaries on a consolidated basis. Plastic Trim's assets
and revenues constituted, respectively, 60% of the assets and 54.5% of the
revenue of the Company and its consolidated subsidiaries as at and for the
fiscal year ending December 31, 2002.
12
In respect to the sale of Plastic Trim, commencing September 2002 Campbell
contacted 132 potential acquirers. Of these potential acquirers, 37 executed
confidentiality agreements and received offering materials describing Plastic
Trim and its business. After reviewing the offering materials, 8 entities
elected to conduct further due diligence (including attending management
presentations and reviewing documents). After completion of further due
diligence, two entities, including Buyer, remained interested in pursuing the
transaction. These two entities submitted letters of intent/term sheets during
the second half of March 2003. Over the ensuing weeks, each of the two entities
reduced their proposed purchase price as the Company results for the 2002 fiscal
year were lower than expected.
On April 3, 2003, both letters of intent/term sheets were discussed by the Board
of Directors of the Company who decided to pursue a transaction with Buyer.
While the cash price offered by the other prospective acquirer was higher by
$1,250,000, the Board of Directors of the Company chose to pursue the
transaction with Buyer for several reasons. First, Buyer was willing to assume
liabilities relating to the operation of the business of Plastic Trim and
purchase the assets with only limited representations surviving the closing. The
other prospective acquirer was not. The liabilities Buyer was willing to assume
included up to $700,000 of unfunded pension liability, thereby effectively
reducing the difference in the offer from $1,250,000 to $550,000 (as unfunded
pension liability is expected to be at least $700,000 at closing of the Sale of
Assets). The other prospective acquirer was also not willing to limit the
breadth or coverage of the representations and warranties, while Buyer was
willing to take the asset "as is, where is" with only limited representations
surviving the closing.
In addition, the other prospective acquirer was not willing to commit to hire
substantially all of Plastic Trim's employees, as Buyer was willing to do.
Further, the other prospective acquirer was a portfolio company of a financial
buyer. Based on the advice of Campbell, as a result of conversations Campbell
had with the other prospective acquirer, the Board of Directors believed that
the prospective acquirer would have difficulty getting support from its
financial sponsor to finance and complete the transaction. Further, even if the
transaction could be financed, the prospective acquirer wanted at least 60 days
before it would sign a definitive agreement.
By contrast, Buyer's principal owners, C. William Mercurio and John Keighley,
had formerly been shareholders in, and executive officers of Plastic Trim, and
the Company believed that Buyer would be able to move quickly to complete a
transaction and Buyer committed to do so. In fact, because of the time needed
for the Company to provide the Information Statement to its shareholders, Buyer
required that the Company enter a management agreement ( the "Management
Agreement") that would have allowed Buyer to operate the business pending the
Company satisfying the requirements of Rule 14c-2 promulgated under Section 14
of the Securities Exchange Act of 1934. Buyer indicated that as it believed
operational changes needed to be implemented as soon as possible, it would not
proceed with the transaction unless the Management Agreement arrangement was
agreed upon. Although, as described below, the requirement for a Management
Agreement was substantially deleted, this request was a factor in the Board of
Directors belief that a transition could be completed with Buyer in a timely
manner. Further, the Board of Directors of the Company was advised by Campbell
that Buyer had the financial resources to complete the transaction. The Buyer
has represented to Company in the Plastic Trim Purchase Agreement that it has on
hand or has access to the funds necessary to enable it to consummate the Sale of
Assets and has provided the Company with a copy of a commitment letter from its
lender for debt financing sufficient to complete the transaction.
Buyer is a recently formed Delaware limited liability company. Prior to closing
the Sale of Assets, it did not, to the Company's knowledge, conduct any
substantial business. To the Company's knowledge, C. William Mercurio owns a
majority of the outstanding limited liability company membership interests in
Buyer. Mr. Mercurio founded Plastic Trim in 1990 and served as its President
from 1990 through 1997.
On April 7, 2003, Buyer and the Company executed a letter of intent/term sheet.
From and after that date, Buyer and the Company conducted active negotiations
culminating in the execution of an Asset Purchase Agreement on April 28, 2003.
The parties subsequently amended the Asset Purchase Agreement as of April 30,
May 2, and May 6, 2003, each time to permit the Buyer more time to complete its
due diligence review of Plastic Trim and to permit Plastic Trim and the Company
more time to prepare the disclosure schedules required to be delivered to Buyer.
In addition, the Asset Purchase Agreement was amended and restated as of May 14,
2003 (and, in such form, is referred to in this Annual Report on Form 10-K as
the Plastic Trim Purchase Agreement) (i) to restructure the post-closing
mechanisms for adjusting the purchase price, and (ii) to delete provisions
relating to the Management
13
Agreement, which was no longer deemed necessary in light of the reduced time
expected to elapse between the completion of Buyer's due diligence and the
closing of the Sale of Assets. In June 2003, the sale of Plastic Trim was
completed.
The Company did not request or obtain a fairness opinion. The Board of Directors
believes that Campbell conducted an exhaustive bidding process for Plastic Trim,
that the resulting Sale of Assets represents the best transaction obtainable and
that it is not in the best interests of the Company to pay significant expense
involved in obtaining a fairness opinion.
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
As discussed in the "Recent Information" section, the Company sold its two
operating divisions in two separate transactions in March 2003 and June 2003 and
the Company is in the process of winding down its affairs in order to dissolve
the Company under the terms and procedures required under the laws of the State
of Michigan. As a result, all operations have been shown as discontinued in the
accompanying financial statements. All assets of the Company will be used to
satisfy the Company's liabilities. It is expected that not all liabilities of
the Company will be paid in full. Consequently, there are not expected to be
any assets to distribute to the shareholders of the Company. No additional
discussion regarding the Company's results of operations or liquidity is
considered necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in Item 2, the Company has no remaining operations. Therefore, no
discussion of market risk is considered necessary.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution readers that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Investors are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. The Company
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2003, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Operating Officer, of the effectiveness of the design and operations of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the Chief Operating Officer, concluded that the
Company's disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to September 30, 2003.
14
PART II. OTHER INFORMATION
JPE, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
31 Rule 13a-14(a)/15d-14(a) Certification of
the Company's President and Chief Operating
Officer.
32 Section 1350 Certification of the Company's
President and Chief Operating Officer.
b. REPORT ON FORM 8-K:
JPE, Inc. filed a Current Report on Form 8-K, dated
March 4, 2003, reporting the disposition of
substantially all of the assets of Dayton Parts,
Inc., a wholly owned subsidiary to Dayton Parts, LLC,
an affiliate of Gen Gap America, Inc., on February
28, 2003, pursuant to an Asset Purchase Agreement
dated as of February 28, 2003.
JPE, Inc. filed a Current Report on Form 8-K, dated
June 27, 2003, reporting the disposition of certain
of its assets to PTI Acquisition, LLC on June 13,
2003, pursuant to an Amended and Restated Asset
Purchase Agreement dated as of May 14, 2003. In
addition, on June 11, 2003, a Plan of Dissolution of
the Registrant adopted by the majority shareholder of
Registrant became effective.
JPE, Inc. filed a Current Report on Form 8-K, dated
October 17, 2003, reporting that on October 15, 2003,
Ernst & Young, LLP resigned as independent public
accountants to JPE, Inc.
15
EXHIBIT 31
CERTIFICATION
I, Scott K. Koepke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of JPE, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to me by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: January 30, 2004
/s/ Scott K. Koepke
- -----------------------------
Name: Scott K. Koepke
Title: President
and Chief Operating Officer
16
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF SARBANES-OXLEY ACT OF 2002
I, Scott K. Koepke, President and Chief Operating Officer of JPE, Inc.
(the "Company"), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (1) the Form
10-Q of the Company for the quarterly period ended September 30, 2003 (the "Form
10-Q"), fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the
information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: January 30, 2004
/s/ Scott K. Koepke
- ----------------------------------
Name: Scott K. Koepke
Title: President
and Chief Operating Officer
17
JPE, INC.
SIGNATURE
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.
JPE, Inc.
By: /s/ Scott K. Koepke
----------------------------------
Scott K. Koepke
President and Chief Operating Officer
Date: January 30, 2004
18