UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-22580
JPE, INC.
INCORPORATED IN MICHIGAN IRS EMPLOYER IDENTIFICATION NUMBER 38-2958730
1030 DORIS ROAD, AUBURN HILLS, MI 48326-2613
(248) 232-1191
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS EXCHANGE ON WHICH REGISTERED
- -------------- ----------------------------
COMMON STOCK NONE
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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2
Yes [ ] No [X]
Based on the closing price on June 30, 2002, the aggregate market value of the
Registrant's Common Stock held by non-affiliates of the Registrant was
approximately $92,000.
The number of shares of the Registrant's Common Stock outstanding at March 31,
2003 was 14,043,600.
TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Business 3
2. Properties 16
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Security Holders 16
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 17
6. Selected Financial Data 18
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
7A. Quantitative and Qualitative Disclosures About Market Risk 26
8. Financial Statements and Supplementary Data 27
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50
PART III
10. Directors and Executive Officers of the Registrant 51
11. Executive Compensation 53
12. Security Ownership of Certain Beneficial Owners and Management 61
13. Certain Relationships and Related Transactions 63
PART IV
14. Controls and Procedures 65
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 66
16. Principal Accountant, Fees and Services 67
Signatures 68
Exhibit Index 73
2
PART I
ITEM 1. BUSINESS
FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K 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 investors 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.
The Company wishes to ensure that any forward-looking statements are accompanied
by meaningful cautionary statements in order to comply with the terms of the
safe harbor provided by the Reform Act. Accordingly, the Company has set forth a
list of important factors that could cause the Company's actual results to
differ materially from those expressed in forward-looking statements or
predictions made herein and from time to time by the Company. Specifically, the
Company's business, financial condition and results of operations could be
materially different from such forward-looking statements and predictions as a
result, among other things, of (i) customer pressures that could impact sales
levels and product mix, including customer sourcing decisions, customer
evaluation of market pricing on products produced by the Company and customer
cost-cutting programs; (ii) operational difficulties encountered during the
launch of major new Original Equipment Manufacturers ("OEM") programs; (iii)
cyclical consumer demand for new vehicles; (iv) competition in pricing and new
product development from larger companies with substantial resources; (v) the
concentration of a substantial percentage of the Company's sales with a few
major OEM customers; and (vi) labor relations at the Company and its customers
and suppliers.
RECENT INFORMATION AND DEVELOPMENTS
BUSINESS CONDUCTED
The Company, through its operating subsidiaries, has been engaged for over ten
years in the automotive industry as a supplier to the truck and trailer
aftermarket and as a supplier to automotive Original Equipment Manufacturers and
their direct suppliers. Until it was sold in February 2003, Dayton Parts, Inc.
("Dayton Parts") conducted the Company's aftermarket operation. Dayton Parts
manufactured and distributed springs and spring-related products as well as a
variety of other undercarriage replacement parts for trucks and trailers,
consisting of suspension, brake, wheel-end and steering products. For a more
detailed summary of the business conducted by Dayton Parts while it was a
subsidiary of the Company, see " - General Information - Historical Information
Concerning Dayton Parts, Inc." of this Item 1 below.
The Company's original equipment manufacturing group originally consisted of
four operating subsidiaries: JPE Canada Inc. ("JPEC"), Industrial & Automotive
Fasteners, Inc. ("IAF"), Starboard Industries, Inc. ("Starboard") and Plastic
Trim, Inc. ("Plastic Trim"). JPEC and IAF were sold in 1999, and Starboard and
its wholly-owned subsidiary, SAC Corporation, were merged with and into Plastic
Trim in October 2002.
Plastic Trim manufactures extruded and injection molded plastic exterior trim
products. The extruded products are manufactured primarily from polyvinyl
chloride, or PVC, plastic that is extruded at high temperatures into parts of
varying dimensions. The injection-molded parts are produced utilizing a thermo
plastic olefin, or TPO, or PVC plastic compound that is injected into a product
mold at high temperatures. These parts are assembled before being shipped to the
customer. The parts are used primarily for decorative and styling purposes in
the production of passenger cars, light trucks, minivans, and sport-utility
vehicles. Plastic Trim primarily manufactures four products: (1) body side
moldings, which serve aesthetic and functional purposes and are affixed to the
side of a vehicle; (2) reveal moldings, which surround a vehicle's windshield
and backlight glass and cover the gap between the edge of the glass and the car
body; (3) fascia moldings which are bright or colored decorative inserts
attached to plastic
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bumpers or claddings and are primarily aesthetic in nature; and (4) roof ditch
moldings, which cover the welded roof joint, and are primarily aesthetic.
Starboard, which is now a division of Plastic Trim, manufactures decorative and
functional exterior components. Starboard's primary manufacturing processes
include roll forming, bending, pierce and end forming and co-extrusion of steel
and PVC. Decorative and functional parts produced by Starboard are often plated,
painted or heat-treated by third parties before final shipment to the customer.
Starboard's decorative products are utilized as fascias, body side moldings,
window trim, pillar appliques and wheel well trim. Functional parts are used as
weather strip retainers and roof rack components and air dams.
For a more detailed summary of Plastic Trim's business, see "General
Information" below.
RECENT DEVELOPMENTS
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 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.
This Annual Report of the Company on Form 10-K includes certain historical
financial information about Dayton Parts (see Item 8 - Financial Statements and
Supplementary Data) and historical narrative information about Dayton Parts'
business when it was a wholly owned subsidiary of the Company (see Item 1 -
Historical Information Concerning Dayton Parts, Inc.).
Intended 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
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injection molded plastic exterior trim products. These operations constitute
substantially all of the Company's business activities as of the date of filing
of this Annual Report on Form 10-K.
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 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 and is attached to this Annual Report on Form 10-K as Exhibit 2.11 (the
"Plastic Trim Purchase Agreement").
The Company expects that the transactions contemplated by the Plastic Trim
Purchase Agreement will be completed during the first half of 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 will also constitute 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's plan to wind up
its affairs and dissolve following the 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 the Estate of
Heinz C. Prechter, 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 financing
climate.
As the sale of Dayton Parts in February 2003 and the anticipated sale of Plastic
Trim described in this Annual Report on Form 10-K will leave 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 its affairs and cease operations as quickly as
possible in order to prevent further losses.
As of the date of filing of this Annual Report on Form 10-K, the Company has
approximately $5,437,000 in secured debt obligations to Comerica Bank and
$487,500 in debt obligations to former owners of a business acquired in July
2000 by the Company, as well as a $15 million secured debt obligation to ASC,
Incorporated ("ASC Incorporated"), an affiliate of QP Acquisition that was
acquired by an affiliate of QP Acquisition on May 24, 2002 from the Estate of
Heinz C. Prechter. The proceeds of the sale of Plastic Trim's and the Company's
assets under the Plastic Trim Purchase Agreement (the "Sale of Assets") will be
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 the sale of 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 WILL NOT 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
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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.
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 few 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 assets "as is, where is" with only limited representations
surviving the closing (as described below under "Material Terms of Plastic
Trim's Sale of Assets" and set forth more fully in the Plastic Trim Purchase
Agreement).
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 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 into 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 subsequently deleted, this request was a factor in the Board of
Directors belief that a transaction 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
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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 will 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 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.
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 of interests of the Company to pay the significant
expense involved in obtaining a fairness opinion.
MATERIAL TERMS OF PLASTIC TRIM'S SALE OF ASSETS
The following is a summary of the material terms of the sale of Plastic Trim's
assets and the related assets to the Buyer. This summary is qualified in its
entirety by reference to the Plastic Trim Purchase Agreement.
Sale of Assets; Excluded Assets; Purchase Price. At the closing under the
Plastic Trim Purchase Agreement, the Company and Plastic Trim will sell,
transfer and convey substantially all of their assets to Buyer, except for the
following excluded assets: (a) all cash, investment securities, bank accounts,
safe deposit boxes, prepaid insurance and the capital stock of Plastic Trim; (b)
all claims for income tax refunds to the extent such refunds relate to periods
ending on or prior to the closing of the Sale of Assets; (c) all corporate
seals, articles of incorporation, minute books, stock books, tax returns and
other records having to do with the corporate organization and capitalization of
the Company, Plastic Trim and any predecessor organizations; (d) all rights that
accrue or will accrue to the Company and Plastic Trim under the Plastic Trim
Purchase Agreement; (e) any receivable of Plastic Trim from the Company or ASC
Incorporated or the Company from Plastic Trim or ASC Incorporated; (f) any
assets of the Company that do not relate to Plastic Trim or its business,
including, without limitation, any rights or interests of the Company in
connection with the sale of assets and stock of Dayton Parts, the capital stock
of JPE Finishing, Inc. (an inactive subsidiary) and any assets used by the
Company in running the holding company and not used in the business of Plastic
Trim; (g) any agreements between the Company and employees on the Company's
payroll and any agreements between the Company and any employee on Plastic
Trim's payroll; (h) the tradename, trademarks and related intellectual property
rights in respect to the names "JPE," "ASCET," and "ASC Exterior Technologies;"
and (i) certain other assets specifically identified in the Plastic Trim
Purchase Agreement.
In consideration of the sale of substantially all of the assets of the Company
and Plastic Trim, Buyer will pay to Plastic Trim a purchase price equal to $8.75
million. Buyer made a $1 million earnest money deposit to Plastic Trim upon
signing the Plastic Trim Purchase Agreement that will be applied toward the
purchase price upon closing. This deposit is nonrefundable unless the Plastic
Trim Purchase Agreement is terminated under certain circumstances as summarized
in "Rights to Terminate Purchase Agreement" below and specified in the Plastic
Trim Purchase Agreement. Upon closing, the deposit will be retained in an escrow
account (the "Purchase Price Adjustment Escrow") to be applied toward the amount
of the post-closing adjustment, if any, to be paid to Buyer.
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Post-Closing Purchase Price Adjustment. Following the closing of the Sale of
Assets, the purchase price will be adjusted based on the level of Plastic Trim's
working capital as of the closing of the Sale of Assets, which takes into
account the amount by which the unfunded pension liability under Plastic Trim's
Hourly Employees Pension Plan exceeded $700,000 at April 30, 2003. At December
31, 2002, the unfunded pension liability was approximately $1,056,000 and is
expected to have been approximately $1,050,000 at April 30, 2003. The net
working capital amount at February 28, 2003 as computed for purposes of the
Plastic Trim Purchase Agreement was $6,180,000. If the net working capital as of
the closing date is less than $6,180,000 then Plastic Trim must pay the
difference to Buyer. Such payment, if any, will be funded, first, out of the
Purchase Price Adjustment Escrow and, second, out of the Company's and Plastic
Trim's remaining funds. If the net working capital as of the closing date is
greater than $6,180,000, then Buyer will pay to Plastic Trim an additional
amount equal to the amount by which such net working capital exceeds $6,180,000.
Assumption of Liabilities. Buyer will assume all of the Company's and Plastic
Trim's liabilities relating to the operation of the business of Plastic Trim
except for: (i) liabilities for taxes; (ii) indebtedness for borrowed money;
(iii) any obligations to 16 salaried employees of Plastic Trim to whom Buyer has
indicated it does not plan to offer employment (so long as Buyer does not hire
such employees within 6 months of closing); (iv) liabilities of the Company that
are unrelated to Plastic Trim's business, including any liabilities of the
Company to the shareholders of the Company; (v) liabilities of Plastic Trim to
the Company or ASC Incorporated, or of the Company to Plastic Trim or ASC
Incorporated; (vi) obligations for customer mandated containment as described
below in respect to the Company's indemnification obligations; and (vii) other
excluded liabilities set forth in the Plastic Trim Purchase Agreement.
Covenant Not to Compete. For a period of one year following the closing of the
Sale of Assets, Company and Plastic Trim cannot engage in the business of
manufacturing or distributing plastic trim side moldings in the United States or
Canada to original equipment manufacturers of motor vehicles.
Employment Offers to Plastic Trim Employees. Buyer must offer employment to all
of Plastic Trim's employees except that Buyer may refuse to offer employment to
up to 16 salaried employees of Plastic Trim whom Buyer has specified to Plastic
Trim in writing. It is anticipated that the employees to whom Buyer does not
offer employment will be terminated.
Exclusive Negotiation Period. The Company must refrain from negotiations with
any other potential buyer of the stock or assets of Plastic Trim until Buyer
and/or the Company terminates the Plastic Trim Purchase Agreement in accordance
with its terms. This restriction is subject to the right of the Company to
consider an unsolicited offer under certain circumstances as specified below in
"Rights to Terminate Plastic Trim Purchase Agreement."
Conditions Precedent to Closing. The parties' obligations to close the Sale of
Assets are subject to the satisfaction of certain conditions specified in the
Plastic Trim Purchase Agreement. The conditions precedent to Buyer's obligation
to close the Sale of Assets are as follows: (i) release on or prior to the
closing of the Sale of Assets of all liens on Plastic Trim's assets securing
indebtedness for borrowed money; (ii) the accuracy in all material respects of
the Company's and Plastic Trim's representations and warranties in the Plastic
Trim Purchase Agreement; (iii) the performance by the Company and Plastic Trim
of covenants required to be performed by them under the Plastic Trim Purchase
Agreement the failure to comply with which would reasonably be likely to cause
Buyer damages in excess of $250,000; (iv) no order to restrain or prohibit the
transactions under the Plastic Trim Purchase Agreement having been entered; (v)
the receipt of certain material approvals, consents and permits by the parties;
and (vi) Company and Plastic Trim delivering to the Buyer all deliveries
necessary to effect the closing of the Sale of Assets. The conditions precedent
to the Company's and Plastic Trim's obligations to close the Sale of Assets are
as follows: (i) the accuracy in all material respects of Buyer's representations
and warranties in the Plastic Trim Purchase Agreement; (ii) the performance by
Buyer of all covenants required to be performed by it under the Plastic Trim
Purchase Agreement the failure to comply with which would reasonably be likely
to cause the Company and Plastic Trim damages in excess of $250,000; (iii) no
order to restrain or prohibit the transactions under the Plastic Trim Purchase
Agreement having been entered; (iv) the receipt of certain material approvals,
consents and permits by the parties; and (v) Buyer delivering to the Company and
Plastic Trim all deliveries necessary to effectuate the closing of the Sale of
Assets, including the purchase price.
8
Representations and Warranties of the Company and Plastic Trim. The Company and
Plastic Trim make certain representations and warranties in the Plastic Trim
Purchase Agreement to Buyer concerning the Company's and Plastic Trim's business
and assets, including, among other things, representations regarding contracts,
financial statements, accounts receivable, inventory, title to real property and
personal property, trademarks and other intellectual property, insurance
policies, environmental matters, employee benefits, tax matters, labor
relations, agreements or arrangements with affiliates, manufacturing defects,
product warranties provided to customers, compliance with laws, rules and
regulations, lawsuits involving Plastic Trim and the Company, and the conduct of
Plastic Trim's business in the ordinary course since February 28, 2003.
Specifically from the period starting March 1, 2003 through the closing of the
Sale of Assets, Plastic Trim and the Company represent that there has been no
material increase in compensation, no adoption or change to an employee benefit
plan and no change in accounting methods, principles or practices. Except for
the representations and warranties regarding taxes, environmental matters,
ownership of assets and payment of brokers, none of the representations survive
the closing of the Sale of Assets.
Indemnification Obligations of the Company and Plastic Trim. Subject to the
limitations described below, the Company and Plastic Trim will jointly and
severally indemnify and hold Buyer harmless against any liabilities,
obligations, losses, damages, costs, charges or other expenses (collectively,
"Damages") arising after the closing of the Sale of Assets and actually incurred
by Buyer arising out of or as a result of:
(1) the inaccuracy of the Company's or Plastic Trim's representations or
warranties relating to the ownership of Plastic Trim's real property, the
ownership of the assets being transferred, taxes, environmental matters and
broker's fees incurred by the Company or Plastic Trim in connection with the
Sale of Assets (collectively, the "Surviving Representations");
(2) the breach or nonperformance of any covenant or agreement of the Company or
Plastic Trim under the Plastic Trim Purchase Agreement or any other related
agreement, such as the Company's and Plastic Trim's covenant not to compete and
obligation to pay liabilities that are not assumed by Buyer;
(3) liability for income taxes of the Company or Plastic Trim for any period or
periods ending on or before the closing of the Sale of Assets;
(4) liabilities and obligations of the Company or Plastic Trim under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") as a
result of the Company or Plastic Trim being an ERISA affiliate of other persons;
or
(5) customer mandated containment (which means Plastic Trim being required by a
customer to hire and pay a third party contractor to inspect and repack parts)
due to problems with parts produced by Plastic Trim prior to the closing of the
Sale of Assets.
Limitations on Indemnification Obligations. The Company and Plastic Trim are not
obligated to indemnify or hold harmless Buyer with respect to any Damages
incurred by Buyer under clauses (2) or (5) above unless, until and then only to
the extent that the aggregate amount of all Damages incurred by Buyer under
clauses (2) and (5) above exceeds $500,000.
Furthermore, the aggregate amount for which the Company and Plastic Trim would
be liable to Buyer under clauses (1), (2) and (5) above will not exceed
$4,000,000. In addition, the Company and Plastic Trim will not be liable under
clause (5) above for containment costs for a period of more than six (6) months
after containment costs are mandated.
The Company and Plastic Trim will not be liable for indemnification obligations
under the Plastic Trim Purchase Agreement if C. William Mercurio, who is the
majority owner of Buyer, or certain other management executives of Buyer had
actual knowledge on or prior to the closing of the Sale of Assets of the
misrepresentation, breach of warranty or nonperformance or breach of covenant
giving rise to the Damages.
9
Buyer may not make a claim relating to indemnification under clauses (1) through
(4) above after the expiration of the statute of limitations that would be
applicable to an action brought by the appropriate person with respect to the
matters forming the basis for such claim. Buyer cannot make any claim under
clause (5) above at any time following 190 days after the closing of the Sale of
Assets.
Rights to Terminate Plastic Trim Purchase Agreement. The parties have the right
to terminate the Plastic Trim Purchase Agreement under the following
circumstances:
(1) Buyer or the Company may terminate the Plastic Trim Purchase Agreement if
the closing of the transactions contemplated by the Plastic Trim Purchase
Agreement has not occurred on or before June 16, 2003;
(2) Prior to the closing of the Sale of Assets, Buyer may terminate the Plastic
Trim Purchase Agreement if any representation or warranty of the Company or
Plastic Trim made in the Plastic Trim Purchase Agreement is untrue or incorrect
in any material respect or if the Company or Plastic Trim materially breaches
its covenants or the other terms under the Plastic Trim Purchase Agreement;
(3) Prior to the closing of the Sale of Assets, the Company or Plastic Trim may
terminate the Plastic Trim Purchase Agreement if any representation or warranty
of Buyer made in the Plastic Trim Purchase Agreement is untrue or incorrect in
any material respect or Buyer materially breaches its covenants or the other
terms under the Plastic Trim Purchase Agreement; and
(4) The Company may terminate the Plastic Trim Purchase Agreement if: (a) the
Board of Directors of the Company decides in the exercise of its fiduciary
duties to accept an unsolicited offer that has been made by a third party to
purchase all or substantially all of the assets or stock of the Company or
Plastic Trim; (b) Buyer does not, within 96 hours after receiving written notice
from the Company of such competing offer, make a written offer for the purchase
of the Company or Plastic Trim, as applicable, that is at least as favorable to
the shareholders of the Company from a financial point of view, as determined in
good faith by the Board of Directors of the Company; and (c) the Company pays to
Buyer a breakup fee equal to $437,500 plus actual documented out of pocket
expenses of up to $150,000.
As of the date of the filing of this Annual Report on Form 10-K, Buyer has not
terminated the Plastic Trim Purchase Agreement.
The $1,000,000 earnest money deposit would be returned to Buyer if the Plastic
Trim Purchase Agreement is terminated under paragraphs (1), (2), or (4) above.
The Company retains the deposit if Company terminates the Plastic Trim Purchase
Agreement under paragraph (3) above.
Investment Banking Fees. The Company is required to pay Campbell a fee of
$350,000 upon completion of the Sale of Assets and has agreed to indemnify Buyer
against such liability.
PLAN OF DISSOLUTION
The Plan of Dissolution was adopted by the Board of Directors of the Company on
April 24, 2003 and by the shareholders of the Company on April 29, 2003
(effective on the 20th day after the Information Statement is mailed to the
Company's shareholders) by QP Acquisition executing a majority written consent
of the Company's stockholders (the "Written Consent"). The material components
of the Plan of Dissolution are summarized below. A copy of the Plan of
Dissolution is attached to this Annual Report on Form 10-K as Exhibit 2.12.
Approval of the Board of Directors and Reasons for Adopting the Plan. The Board
of Directors believes that it is in the best interests of the Company, its
creditors and shareholders to implement the Plan of Dissolution and provide for
payment of the Company's obligations. The Plan of Dissolution represents, in the
Board's opinion, the most prudent way for the Company to discharge its known
liabilities, to provide for contingent and unknown liabilities and to limit its
exposure as a result of future business activities. The Board also believes that
an orderly shutdown of its operations and dissolution will be more beneficial to
the Company's creditors than would any available alternative
10
thereto, including bankruptcy. Following dissolution, the Company will continue
its corporate existence under the Michigan Business Corporation Act ("MBCA")
solely for the purpose of engaging in activities appropriate to or consistent
with the winding up of its business and affairs. This will permit the Company to
take the steps necessary to discharge its liabilities. The Company will not be
authorized to engage in any business activities other than those related to the
winding-up of its affairs, thus limiting the Company's exposure for business
activities unrelated to the winding up of the Company's business. THE COMPANY
WILL NOT HAVE ANY FUNDS OR ASSETS AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS.
Principal Aspects of the Plan of Dissolution. The steps below will be completed
at such times as the Board of Directors of the Company, in its absolute
discretion, deems necessary, appropriate or advisable.
(a) A Certificate of Dissolution will be filed with the State of Michigan
pursuant to the MBCA. The dissolution of the Company will become effective upon
proper filing of the Certificate of Dissolution with the Department of State of
the State of Michigan ("Dissolution Date"). The Company will continue to exist
after the Dissolution Date for the purpose of closing its business, disposing of
and conveying any remaining property, discharging its liabilities and making
distributions to its shareholders of any remaining assets, but not for the
purpose of continuing the business for which the Company was organized. As noted
above, once the Company's liabilities are discharged, the Company will not have
any funds or assets available for distribution to shareholders.
(b) The Company will continue to indemnify its officers, directors, employees
and agents in accordance with its articles of incorporation and bylaws and any
contractual arrangements for actions taken prior to adoption of the Plan of
Dissolution and in connection with the Plan of Dissolution and the winding up of
the affairs of the Company. The Board of Directors, in its absolute discretion,
is authorized to obtain and maintain insurance as may be necessary, appropriate
or advisable to cover the Company's indemnification obligations and the Board of
Directors expects to do so.
(c) Under the MBCA, the Company is required, in connection with its dissolution,
to pay or provide for payment of all of its liabilities and obligations.
Following the Dissolution Date, the Company will pay, to the extent of its funds
and assets available, all expenses and fixed and other known liabilities, or set
aside as a contingency reserve assets that it believes to be adequate for
payment thereof. The Plan of Dissolution allows the Board of Directors to
establish a liquidating trust and designate the trustees of such trust.
The MBCA sets forth specific procedures that may be used by a dissolved
corporation to dispose of known claims. A dissolved corporation may notify in
writing its known creditors of the dissolution at any time after the Dissolution
Date. Such notice must state a deadline, which may not be less than 6 months
from the effective date of the notice, by which the dissolved corporation must
receive the claim. Any claim against the dissolved corporation that is not
tendered by the specified date is time barred and, following such date,
generally may not be asserted against the dissolved corporation. This procedure
applies only to known claims and specifically excludes a contingent liability or
a claim based upon an event occurring after the Dissolution Date. The MBCA also
provides, in general, that if publication is made in a newspaper of general
circulation in the county in which the principal offices of the dissolved
corporation is located, claims against the dissolved corporation will be barred
unless the claimant commences a proceeding to enforce the claim against the
dissolved corporation within one year after the publication date of the
newspaper notice. The Company may take advantage of these statutory provisions
to help minimize the Company's potential exposure for known and contingent
claims against the Company, thereby increasing the potential return to known
creditors and the potential, however remote, for a distribution to shareholders
following the discharge of, or provision for, the Company's liabilities.
(d) Claims, liabilities and expenses from winding up the Company (including
salaries, taxes, payroll and miscellaneous office expenses), will continue to
occur during implementation of the Plan of Dissolution, and the Company
anticipates that expenses for professional fees and other expenses of
dissolution may be significant. These expenses will reduce the amount of assets,
if any, available for ultimate distribution to shareholders.
NO PROCEEDS AVAILABLE FOR DIVIDEND OR DISTRIBUTION TO SHAREHOLDERS
11
THE COMPANY AND PLASTIC TRIM EXPECT TO USE ALL OF THE PROCEEDS FROM THE SALE OF
ASSETS TO PAY LIABILITIES AND OBLIGATIONS OF THE COMPANY AND PLASTIC TRIM,
INCLUDING INDEBTEDNESS FOR BORROWED MONEY, AND PAYMENT OF BONUSES TO CERTAIN
EXECUTIVES AND EMPLOYEES OF THE COMPANY AND PLASTIC TRIM AND PAYMENT OF THE
COSTS OF THE TRANSACTION, INCLUDING THE FEES OF COMPANY'S INVESTMENT BANKER. (A
more detailed description of the liabilities being paid to an affiliate of the
Company and the bonuses being paid to executives of the Company is set forth
below in Part III, Item 11 under "Executive Compensation" and Part III, Item 13
under "Certain Business Relationships and Related Transactions"). AFTER THE
REPAYMENT OF SUCH LIABILITIES AND OBLIGATIONS, THE COMPANY WILL NOT HAVE ANY
PROCEEDS FROM THE SALE OF ASSETS AVAILABLE FOR DIVIDEND OR DISTRIBUTION TO THE
SHAREHOLDERS OF THE COMPANY PURSUANT TO THE PLAN OF DISSOLUTION OR OTHERWISE.
VOTE REQUIRED
Under Michigan law, the sale of all or substantially all of the assets of a
corporation and the adoption of a plan of dissolution may be approved at a
meeting of the shareholders by the affirmative vote of shareholders owning a
majority of the outstanding shares entitled to vote thereon. Michigan statutes
provide further that if permitted by a corporation's articles of incorporation
any action that is required to be taken, or that may be taken, at any annual or
special meeting of shareholders of a Michigan corporation may be taken, without
a meeting, without prior notice and without a vote, if a written consent,
setting forth the action taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote on the
action were present and voted. The Company's articles of incorporation contain
such a provision and as the shares owned by QP Acquisition represent 94.9% of
the voting interests of the votes eligible to be cast in such matters, QP
Acquisition's execution of the Written Consent is sufficient to approve the Sale
of Assets and the Plan of Dissolution.
GENERAL INFORMATION
The following table sets forth information regarding the Company's sales for
only the operating subsidiaries it owned as of December 31, 2002 in certain
classes of similar products as percentages of net sales for the periods
indicated.
Percentage of Net Sales(1)
Year ended December 31,
-------------------------------------------------
2000 2001 2002
---- ---- ----
OEM (Original Equipment) Trim Products 63.4% 54.7% 54.4%
Aftermarket (truck and automotive replacement parts) 36.6% 45.3% 45.6%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
(1) See also Notes 9, 11, 15, and 16 of the Notes to Consolidated Financial
Statements for additional operating subsidiary information.
The Company's OEM Trim Products group consists of two operations: Plastic Trim -
Dayton and Plastic Trim - East Tawas. Plastic Trim - East Tawas manufactures and
supplies luster, painted and co-extruded metallic decorative and functional
exterior trim parts. Plastic Trim - Dayton manufactures and supplies decorative
extruded plastic exterior trim. Plastic Trim - Dayton and Plastic Trim - East
Tawas supply parts directly to OEMs and to suppliers which sell to OEMs ("Tier 1
suppliers") in automotive and light truck applications. These two operations
represent the OEM Trim Products segment.
As previously indicated, Dayton Parts, the wholly owned subsidiary of the
Company which comprised the Aftermarket segment, sold substantially all of its
assets in February, 2003 and sold all of the capital stock of Dayton Parts to
the same purchaser in March, 2003.
MANUFACTURING OPERATIONS
Plastic Trim - East Tawas manufactures decorative and functional exterior
components. Plastic Trim - East Tawas's primary manufacturing processes include
roll forming, bending, pierce and end forming, and co-extrusion of steel and
PVC. Decorative and functional parts produced by Plastic Trim - East Tawas are
often plated, painted or heat-
12
treated by third parties before final shipment to the customer. Plastic Trim -
East Tawas's decorative products are utilized as fascias, body side moldings,
window trim, pillar appliques and wheel well trim. Functional parts are used as
weather strip retainers and roof rack components and air dams.
Plastic Trim - Dayton manufactures extruded and injection molded plastic
exterior trim products. The extruded products are manufactured primarily from
PVC plastic that is extruded at high temperatures into parts of varying
dimensions. The injection-molded parts are produced utilizing TPO or PVC plastic
compound that is injected into a product mold at high temperatures. These parts
are assembled before being shipped to the customer. The parts are used primarily
for decorative and styling purposes in the production of passenger cars, light
trucks, minivans, and sport-utility vehicles. Plastic Trim - Dayton manufactures
four primary products: (1) body side moldings, which serve aesthetic and
functional purposes and are affixed to the side of a vehicle; (2) reveal
moldings, which surround a vehicle's windshield and backlight glass and cover
the gap between the edge of the glass and the car body; (3) fascia moldings
which are bright or colored decorative inserts attached to plastic bumpers or
claddings and are primarily aesthetic in nature; and (4) roof ditch moldings,
which cover the welded roof joint, and are primarily aesthetic. During the
second half of 1999, Plastic Trim - Dayton consolidated certain labor intensive
finishing operations in-house, which were previously performed by third-party
subcontractors. Thereafter, the Company discovered that these efforts resulted
in a dramatic increase in scrap rates and labor costs, and deteriorating quality
standards, which resulted in the Company's decision to reverse this
consolidation during the first quarter of 2000.
MARKETING, DISTRIBUTION AND CUSTOMERS
The Company's OEM business supplies products to domestic OEMs either directly or
through Tier 1 suppliers. For the year ended December 31, 2002, 54.4% of the
Company's net sales (for only the operating subsidiaries the Company owned as of
December 31, 2002) were to OEM or Tier 1 customers. Net sales (for only the
operating subsidiaries the Company owned as of December 31, 2002) to significant
customers for the year ending December 31, 2002 were as follows:
General Motors 32.5%
DaimlerChrysler Corporation 18.3%
No other OEM or Tier 1 customer accounts for more than 3% of the Company's net
sales.
The Company works directly with its customers, including the three major U.S.
automobile manufacturers, to design and develop products to satisfy market
demands. Most of the parts the Company produces have lead times of one to four
years from product award to production. The Company has been awarded new
business for each of the 2003-2005 model years. Because the Company's OEM
business supplies its customers on a "just-in-time" basis and ships its products
when orders are received in the aftermarket business, it does not currently
maintain a backlog.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company derives substantially all of its revenue from external customers
that are domiciled in the United States. In its last three fiscal years, the
Company's sales in the United States and in foreign countries taken as a whole
are as follows:
2000 2001 2002
---- ---- ----
United States $121,200,000 $104,400,000 $103,200,000
Foreign 17,500,000 17,800,000 12,500,000
SEASONALITY
The OEM business experiences seasonal fluctuations that are consistent with
those of other OEM suppliers. The Company typically experiences decreased sales
and operating income from its OEM business during the second half of each year
due to OEM model changeovers and vacation periods
13
COMPETITION
The OEM supplier industry is highly competitive and comprised of many companies
of various sizes. Demand for parts and components sold to OEMs is driven by the
demand for sales of new vehicles. The Company believes that the number of such
competitors will decrease in response to the OEMs' pressure for supplier
consolidation. The Company's largest competitors for exterior trim include Magna
International Inc.-Decoma Division, Guardian Industries Corp. and Cooper
Standard. Many of the Company's competitors are divisions or subsidiaries of
companies which are substantially larger and more diversified than the Company.
In addition, many of the Company's competitors have greater financial and other
resources than the Company.
The Company competes for new business both at the beginning of the development
of new models and upon the redesign of existing models. Competitive factors in
the market for the Company's OEM products include quality, reliability, cost,
timely delivery, technical expertise and development capability.
SUPPLIERS AND RAW MATERIALS
The principal raw materials used by Plastic Trim - East Tawas in its
manufacturing operations are various types and grades of steel, all of which are
readily available. The principal raw materials used by Plastic Trim - Dayton are
acrylic foam tape, paint, PVC, and thermo plastic olefin (TPO) compounds, all of
which are readily available.
INTELLECTUAL PROPERTY
The Company has a number of patents and patent applications pending in both the
United States and certain foreign jurisdictions for processes related to its
plastic injection molded products. Notwithstanding its patent portfolio, the
Company believes that the design, quality and pricing of its products and its
relations with its customers are substantially more important to its business
than patent protection.
There can be no assurance that patents will be issued from any pending
applications or that any claims allowed from existing or pending patents will be
sufficiently broad to protect the Company's technology. The Company believes
that it is not dependent to any material extent upon any one patent or group of
patents.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state, provincial and local laws and
regulations relating to the operation of its businesses and the manufacture of
its products, including those relating to product safety guidelines; generation,
handling and disposal of waste; discharge and emission controls; and protection
of health, safety and the environment. These laws include the Clean Water Act,
the Clean Air Act, the Resource Conservation and Recovery Act ("RCRA") and the
Comprehensive Environmental Response, Compensation and Liability Act in the
United States, together with implementing regulations and similar state laws and
regulations. These laws and regulations govern the manner in which the Company
handles various wastes, discharges, emissions and environmental conditions at or
attributable to its operations or facilities.
Operations at some of the Company's facilities have been and continue to be
sources of emissions and discharges of various materials, including air
emissions from coating and painting operations and discharges of process
wastewaters. For example, various Company facilities have been the sites of
releases of hazardous substances, mineral spirits, fuel and quench oils and,
possibly, other materials. Some of these materials remain at and about the sites
of these facilities. In addition, at various Company facilities, substances have
been and currently are used that are classified as hazardous under RCRA or as
pollutants, contaminants or hazardous, toxic or regulated substances under other
applicable laws. The parties from whom the Company acquired its operations have,
to various degrees, agreed to limited indemnification of the Company against
some environmental claims under the various acquisition agreements with the
Company, but there can be no assurance that these indemnities will be adequate
to cover all liabilities and expenses that may arise. Although the Company does
not know the amounts of any liabilities or expenses it may incur in the future
in connection with the investigation or remediation of materials or conditions
in connection with the control of emissions and discharges at its facilities, it
does not believe that these liabilities and expenses will have a material
adverse effect on its financial condition or results of operations.
14
Developments with regard to laws, regulations and enforcement policies could
result in additional, presently unquantifiable, costs or liabilities to the
Company or might in the future restrict the Company in ways that could require
it to modify, supplement or replace existing equipment and facilities and to
change or cease present methods of operation. Furthermore, laws, regulations and
governmental policies are subject to change and no assurance can be given that
existing laws, regulations and policies will not be amended or that new laws,
regulations and policies will not be adopted that will impose more extensive
regulation, cost or liability on the Company in the future.
EMPLOYEES
The Company had a total of approximately 677 employees on December 31, 2002, 7
of whom were located in Canada. Approximately 219 employees were represented by
labor unions, all of whom are employed at the Company's Plastic Trim - Dayton
facility. Following the divestiture of Dayton Parts in February, 2003, the
Company has 430 total employees.
HISTORICAL INFORMATION CONCERNING DAYTON PARTS, INC.
Prior to the sale of Dayton Parts' assets in February 2003 as discussed in
"Recent Developments" above in this Part I, the Dayton Parts business
represented the Truck and Automotive Replacement Parts segment. Dayton Parts
manufactured and distributed springs and spring-related products and distributed
a variety of other undercarriage replacement parts for the heavy-duty truck and
trailer aftermarket, consisting of suspension, brake, wheel-end and steering
products. These products required heating, trimming, bending and final heat
treatment prior to assembly and painting. This manufacturing process is similar
to the methods used by the OEM spring manufacturers.
Approximately 35% of Dayton Parts' sales were related to products manufactured
at its plant in Harrisburg, Pennsylvania. Other products sold by Dayton Parts
were purchased from third party manufacturers. Dayton Parts sold products to the
truck and trailer parts independent aftermarket under the brand names "Stanley
Springs," "Dayton Parts" and "BATCO."
While owned by the Company, the aftermarket business was subject to minor
seasonal fluctuations, with demand for aftermarket parts tending to be higher in
the second and third quarters, because end-users tend to make more vehicle
repairs at those times.
Dayton Parts used its own sales force to sell products for heavy and medium-duty
trucks and trailers throughout the continental United States, Mexico, Central
America and parts of Canada to approximately 1,200 customers. Although most of
Dayton Parts' products are for the repair and maintenance needs of heavy and
medium-duty trucks, trailers and mobile equipment, Dayton Parts also sold some
products for light-duty trucks. In addition to on-the-road trucks and trailers,
Dayton Parts distributed undercarriage replacement parts for specialty vehicles
such as garbage trucks, cement trucks, construction equipment and farm
equipment.
Dayton Parts sold its products primarily to spring service shops, fleet
distributors, manufacturers of specialty vehicles, warehouse distributors and
wheel and rim distributors. These outlets in turn sell parts to local truck
fleets, redistribute parts to smaller outlets such as local repair garages or
install the parts themselves on the end-users' vehicles.
15
ITEM 2. PROPERTIES
The following list indicates by location the principal manufacturing,
distribution and administrative facilities of the Company following the sale of
Dayton Parts previously described. All owned U.S. facilities are subject to
liens under the Company's existing financing arrangement with Comerica Bank:
Building Size
(Approximate Square Owned or
Primary Use of the Facility Location Feet) Leased Segment
--------------------------- -------- ----- ------ -------
Corporate headquarters Auburn Hills, MI 3,018 Leased Corporate
Manufacturing East Tawas, MI 100,000 Owned Trim Products
and administrative
Manufacturing Beavercreek, OH 105,000 Owned Trim Products
and administrative
The Company's buildings, machinery and equipment are in adequate operating
condition, and are suitable and adequate for current production requirements.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor are any of
its properties the subject of, any pending legal proceedings, other than certain
ordinary routine litigation incidental to their businesses, which in the opinion
of management is not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Through August 5, 1998, the Company's Common Stock traded on the NASDAQ National
Market tier of The NASDAQ Stock MarketSM under the symbol "JPEI." From that date
forward the Company's Common Stock has been and continues to trade on the OTC
Bulletin Board. The following table indicates the high and low sale prices for
the Company's Common Stock as reported on the OTC Bulletin Board for the last
two years. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
MARKET PRICE
-----------------------------------------------
QUARTER 2001 2002
------- -------------------- ------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First $0.09 $0.03 $0.03 $0.01
Second 0.07 0.02 .04 .005
Third 0.03 0.03 .018 .005
Fourth 0.03 0.01 .012 .002
On March 31, 2003, there were approximately 129 holders of record of the
Company's Common Stock.
The Company has never declared or paid any dividends on shares of Common Stock
or First Series Preferred Shares and has no intention of declaring or paying any
dividends on shares of Common Stock or First Series Preferred Shares in the
foreseeable future as it does not have the financial resources to do so. In
fact, the Company intends to dissolve after the completion of the Sale of Assets
and the Company will not have any funds or assets available for distribution to
shareholders.
17
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
The selected financial data presented below, as of and for the periods ended
December 31, 1998, May 27, 1999 and December 31, 1999, 2000 and 2001, May 31,
2002 and December 31, 2002 are derived from the Company's audited financial
statements, and should be read in conjunction with the Company's audited
financial statements and notes thereto included elsewhere in this Report on Form
10-K (the "Company's Financial Statements"). The selected financial data set
forth below should also be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7 of
this Annual Report on Form 10-K. The selected financial data set forth below is
not indicative of the expected future financial results of the Company, because
the data includes information regarding the earnings and assets of discontinued
operations of the Company including Dayton Parts, the assets of which were sold
in February, 2003 (see "Recent Developments" in Item 1 above). Furthermore, as
noted in "Recent Developments" in Part I, Item 1 above, the Company intends to
sell substantially all of Plastic Trim's assets and wind down and dissolve the
business of the Company.
PREDECESSOR COMPANY SUCCESSOR COMPANY NEW SUCCESSOR
-------------------------- ----------------------------------------------- -------------
JANUARY 1,
1999 MAY 28, JANUARY 1, JUNE 1,
THROUGH 1999 2002, 2002
YEAR ENDED MAY 27, THROUGH YEAR ENDED THROUGH THROUGH
DECEMBER 31, 1999 DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
1998 RESTATED 1999 2000 2001 2002 2002
---- -------- ---- ---- ---- ---- ----
Income statement data:
Net Sales $101,050(1) $-0-(1) $88,081 $87,912 $66,791 $29,638 $33,303
Cost of goods sold 98,117 -0- 73,448 82,766 66,068 26,555 31,266
Gross profit 2,933 -0- 14,633 5,146 723 3,083 2,037
--
Charge for subsidiaries under court
ordered protection 28,490 -- -- -- -- -- --
--
Loss on sale of subsidiary 5,190 -- -- -- -- -- --
--
Affiliate companies' (income) loss 1,713 (8,680) -- -- -- -- --
Interest expense, net 13,085 2,859 2,766 2,969 1,512 214 173
Income (loss) from continuing
operations before income taxes
and extraordinary item (60,193) 4,689 (2,201) (9,430) (9,680) 329 (2,432)
Discontinued operations 5,588(2) 1,454(2) 2,166(2) 970(2) 1,544(2) 815(2) 2,267(2)
Net income (loss) $(53,570) $21,990 $(110) $(9,585) $(8,075) $1,112 $(175)
18
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) continued:
PREDECESSOR COMPANY SUCCESSOR COMPANY NEW SUCCESSOR
------------------- ---------------------------------------------------- -------------
JANUARY 1,
1999, JANUARY 1,
THROUGH MAY 28, 2002, JUNE 1,
YEAR ENDED MAY 27, 1999 YEARS ENDED THROUGH 2002
DEC. 31, 1999 THROUGH DEC. 31, DEC. 31, MAY 31, THROUGH DEC. 31,
1998 RESTATED 1999 2000 2001 2002 2002
---- -------- ---- ---- ---- ---- ----
Earnings (loss) per share
from continuing
operations before
extraordinary item
assuming dilution:
Common Shares $ (12.86) $ 1.25 $ -- $ (0.08) $ (0.07) 0.01 0.00
First Series Preferred
Shares -- -- (0.05) (4.23) (3.58) 0.49 (0.08)
Balance sheet data at end
of period:
Total assets 76,974 79,498 78,905 67,595 58,654 55,354 36,914
Short-term debt 84,492 66,261 45,877 611 543 495 23,338
Long-term debt (excluding
current maturities) 50(3) 46(3) 246(3) 43,952 42,507 37,304 19(3)
1. Effective in 1998, and through May 27, 1999 - the date on which each of
ASC Holdings and Kojaian Holdings LLC acquired 47.5% of the outstanding
voting securities of the Company and the Company's bank lenders at the
time acquired 1% of the outstanding voting securities of the Company
(the "Investment Transaction") - the Company used the equity method of
accounting for certain subsidiaries from the dates of their respective
bankruptcy filings. As such, their assets and liabilities are netted in
the balance sheet caption "Investment in Affiliate Companies," which
totaled $14,661 at December 31, 1998, and $37,561 as of May 27, 1999,
the date of the Investment Transaction. The results of operations
during the bankruptcy period are shown in the caption, "Affiliate
companies' (income) loss."
2. Discontinued Operations: Reflects the results of IAF of $1,364 and $214
for the year ended December 31, 1998 and the period ended May 27, 1999
and the results of Dayton Parts, Inc. of $4,224, $1,240, $2,166, $970,
$1,544, $815 and $2,267 for the year ended December 31, 1998, the
periods ended May 27, 1999 and December 31, 1999, the year ended
December 31, 2000 and 2001 and the periods ended May 31, 2002 and
December 31, 2002, respectively.
3. Long-term debt reflects the classification of the Company's outstanding
debt as current in the amounts of $84,492, $66,261, $45,877 and $23,338
at December 31, 1998, May 27, 1999, December 31, 1999 and December 31,
2002, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Liquidity and
Capital Resources."
19
ITEM 7. 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 to assist in understanding the Company's
results of operations, its financial position, cash flows, capital structure and
other relevant financial information.
RECENT INFORMATION
See discussion under "Recent Information and Developments" under "Item 1 -
Business" of this Form 10-K.
RESULTS OF OPERATIONS
Due to the sale of Dayton Parts, Inc., on February 28, 2003, the Replacement
Parts segment has been presented in the accompanying financial statements as
Discontinued Operations. Unless indicated otherwise, the information in the
Notes to the Consolidated Financial Statements relates to the Continuing
Operations. The following presentation of results of operations has been
separated between segments, with the Trim Products segment treated as Continuing
Operations in the accompanying financial statements and the Replacement Parts
segment treated as Discontinued Operations. The operations of the segments were
unaffected by the May 30, 2002 acquisition of the Company by QP Acquisition,
although the basis of the assets in the accompanying financial statements were
changed as of the acquisition date in accordance with FAS141 "Business
Combinations." Consequently, management has discussed full year results on a
combined basis for both the Trim Products and Replacement Parts segments because
such presentation is necessary to an understanding of each segment's financial
condition, changes in financial condition, and results of operations.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Net sales for business segments comprising the Company's operating locations for
the years ended December 31, 2002 and 2001 were as follows (in thousands):
2001 2002 $ Change % Change
---- ---- -------- --------
Trim Products $ 66,791 $ 62,941 $(3,850) (5.8)%
Replacements Parts 55,379 52,723 (2,656) (4.8)
-------- -------- ------- ----
Total $122,170 $115,664 $(6,506) (5.3)%
The decrease in Trim Products sales of $3,850, or 5.8%, is related to the
completion of product programs for which the Company has not been awarded
replacement business, a decrease in customer orders on specific product programs
and the impact of customer negotiated price concessions. The decrease in
Replacement Parts sales of $2,656, or 4.8%, is attributable to a decrease in
heavy duty truck repair orders consistent with general market conditions in the
overall heavy duty aftermarket industry.
Gross profit for business segments comprising the Company's operating locations
for the years ended December 31, 2001 and 2002 was as follows (in thousands):
2001 % of Applicable Net Sales 2002 % of Applicable Net Sales
---- ------------------------- ---- -------------------------
Trim Products $ 723 1.1% $ 5,120 8.1%
Replacements Parts 13,067 23.6 13,174 25.0
------- ---- ------- ----
Total $13,790 11.3% $18,294 16.1%
The gross profit percentage for the Trim Products segment was 1.1% and 8.1% for
the years ended December 31, 2001 and 2002, respectively. The increase in the
gross profit percentage was primarily attributable to lower scrap rates, reduced
freight costs, lower third-party quality inspection costs, and higher labor
efficiencies at the Dayton, Ohio operation. Also, depreciation expense was lower
by $700,000 due to the $12 million write-down of plant,
20
property, and equipment under purchase accounting related to the reduction in
value of the ASC subordinated demand note.
The gross profit percentage for the Replacement Parts segment was 23.6% and
25.0% for the years ended December 31, 2001 and 2002, respectively. The increase
in gross profit percentage reflects sales of higher margin products and improved
manufacturing efficiencies.
Selling, general and administrative expenses (SGA) for business segments
comprising the Company's operating locations were as follows (in thousands):
2001 % of Applicable Net Sales 2002 % of Applicable Net Sales
---- ------------------------- ---- -------------------------
Trim Products $ 1,889 2.8% $ 1,555 2.5%
Replacements Parts 10,068 18.2 8,832 16.8
Corporate 5,324 4.4 5,488 4.7
------- ---- ------- ----
Total $17,281 14.1% $15,875 13.7%
SGA for the Trim Products segment was $1,889 or 2.8% of segment sales for 2001
and $1,555 or 2.5% of segment sales for 2002. The decrease in SGA expenses is
attributable to headcount reductions and reduced spending at the Dayton, Ohio
operation.
SGA for the Replacements Parts segment was $10,068 or 18.2% of segment sales for
2001 and $8,832 or 16.8% of segment sales for 2002. SGA for 2001 includes $214
of bad debt expense for the bankruptcy filing of a distribution customer.
Without this item, SGA would have been $9,854 or 17.8% of sales. The lower
expense in 2002 is due to reduced spending levels.
Corporate administrative costs were $5,324 or 4.4% of Company sales for 2001 and
$5,488 or 4.7% of Company sales for 2002. The increase in corporate
administrative costs is the result of higher payroll-related costs.
Other income for 2002 was $56, which is primarily due to a gain on the sale of
non-productive machinery and equipment.
Other expenses for 2001 were $1,765. During December 2001, due to unfavorable
operating results at the Beavercreek, Ohio operation, the Company assessed the
net book value of Beavercreek's long-lived assets for impairment. Based on the
assessment, the Company recorded a charge of $1,735, which eliminated all of the
goodwill associated with the Beavercreek operation. Also included in Other
expense for 2001 was the write-off of obsolete equipment at the Beavercreek
operation of $438. In November 2001, Beavercreek's health care provider
converted from a mutual insurance company to a stock insurance company. The
Company received common stock valued at $495 based on the market price on the
date of issuance, which is included as Other income.
Interest expense for 2001 was $2,880 compared to $1,434 for 2002. The reduction
in interest expense for 2002 is primarily due to no interest being incurred in
2002 on the $15,000 note to ASC Incorporated as the April 16, 2002 amendment to
the Comerica Facility prohibits payment of interest. Also, interest rates were
lower in the United States and Europe, as well as a reduction in total bank
borrowing compared to 2001. These items offset the amendment and waiver fee paid
to Comerica in April, 2002 of $187.5.
Income tax expense (benefit) for 2001 and 2002 was $(61) and $42, respectively.
The income tax benefit for 2001 of $61 is due to the reversal of state income
taxes in 2000 of approximately $184.
21
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Net sales for business segments comprising the Company's operating locations for
the years ended December 31, 2001 and 2000 were as follows (in thousands):
2000 2001 $ Change % Change
---- ---- -------- --------
Trim Products $ 87,912 $ 66,791 $(21,121) (24.0)%
Replacements Parts 50,797 55,379 4,582 9.0
-------- -------- -------- -----
Total $138,709 $122,170 $(16,539) (11.9)%
The decrease in Trim Products sales of $21,121, or 24.0%, is related to the
completion of product programs for which the Company has not been awarded
replacement business, a decrease in customer orders on specific product programs
and the impact of customer negotiated price concessions. The increase in
Replacement Parts sales of $4,582, or 9.0%, is attributable to an increase in
heavy duty truck repair orders consistent with general market conditions in the
overall heavy duty aftermarket industry.
Gross profit for business segments comprising the Company's operating locations
for the years ended December 31, 2001 and 2000 was as follows (in thousands):
2000 % of Applicable Net Sales 2001 % of Applicable Net Sales
---- ------------------------- ---- -------------------------
Trim Products $ 5,146 5.9% $ 723 1.1%
Replacements Parts 12,285 24.2 13,067 23.6
------- ---- ------- ----
Total $17,431 12.6% $13,790 11.3%
The gross profit percentage for the Trim Products segment was 5.9% and 1.1% for
the years ended December 31, 2000 and 2001, respectively. The decrease in gross
profit as a percentage of sales is the result of lower overhead burden
absorption due to lower sales and the impact of customer negotiated price
concessions.
The gross profit percentage for the Replacement Parts segment was 24.2% and
23.6% for the years ended December 31, 2000 and 2001, respectively. The decrease
in gross profit as a percentage of sales is the result of selling price
reductions required to meet competitive market pricing and sales of lower margin
products.
Selling, general and administrative expenses (SGA) for business segments
comprising the Company's operating locations were as follows (in thousands):
% of Applicable Net
2000 Sales 2001 % of Applicable Net Sales
---- ----- ---- -------------------------
Trim Products $ 5,269 6.0% $ 1,889 2.8%
Replacements Parts 9,627 19.0 10,068 18.2
Corporate 5,340 3.8 5,324 4.4
------- ---- ------- ----
Total $20,236 14.6% $17,281 14.1%
SGA for the Trim Products segment was $5,269 or 6.0% of segment sales for 2000
and $1,889 or 2.8% of segment sales for 2001. The decrease in SGA is
attributable to the elimination of the sales commission to MB Associates, Inc.
("MB Associates") of $1,724 as a result of the purchase of its net assets during
2000, and the subsequent inclusion of the salaries and administrative expenses
of the former MB Associates sales representatives as corporate SGA. The
remaining decrease in SGA is attributable to the headcount reductions and
reduced spending at the Beavercreek, Ohio operation.
SGA for the Replacements Parts segment was $9,627 or 19.0% of segment sales for
2000 and $10,068 or 18.2% of segment sales for 2001. The decrease in SGA as a
percentage of Replacement Parts segment sales is the result of increased sales
for Replacement Parts in 2001.
22
Corporate administrative costs were $5,340 or 3.8% of Company sales for 2000 and
$5,324 or 4.4% of Company sales for 2001. As a result of the purchase of the net
assets of MB Associates on July 1, 2000, corporate administrative costs for 2000
include six months of salaries and administrative expenses of the former MB
Associates sales representatives, while corporate administrative costs for 2001
include a full year of these salaries and administrative expenses. This increase
in corporate administrative costs in 2001 is, however, offset by headcount
reductions and reduced spending at the Company's Corporate Office. The increase
in corporate administrative costs as a percentage of Company sales is the result
of decreased Company sales in 2001.
Other expense for 2000 of $1,009 relates primarily to the write-off of obsolete
equipment at the Beavercreek operation.
Other expenses for 2001 were $1,765. During December 2001, due to unfavorable
operating results at the Beavercreek, Ohio operation, the Company assessed the
net book value of Beavercreek's long-lived assets for impairment. Based on the
assessment, the Company recorded a charge of $1,735, which eliminated all of the
goodwill associated with the Beavercreek operation. Also included in Other
expense for 2001 was the write-off of obsolete equipment at the Beavercreek
operation of $438. In November 2001, Beavercreek's health care provider
converted from a mutual insurance company to a stock insurance company. The
Company received common stock valued at $495 based on the market price on the
date of issuance, which is included as Other income.
Interest expense for 2000 was $4,646 compared to $2,880 for 2001. The reduction
in interest expense for 2001 reflects lower borrowing costs of the new bank
credit facility executed during February 2001, as well as a reduction in total
bank borrowing due to the subordinated debt funding, which carries a lower
interest rate than bank borrowing.
Income tax expense (benefit) for 2000 and 2001 was $1,125 and $(61),
respectively. The income tax benefit for 2001 of $61 is due to the reversal of
state income taxes in 2000 of approximately $184.
Income tax expense for 2000 is attributable to the Company's inability to deduct
amortization of goodwill associated with the Investment Transaction as well as
an increase in the Company's valuation reserve of $1 million to eliminate
deferred taxes recorded at May 27, 1999, in connection with the Investment
Transaction.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $5,423 in cash for the year ended December 31,
2002. Investing activities used $109 in cash for the year ended December 31,
2002, due to capital expenditures. Financing activities used $7,693 in cash,
representing debt repayments.
Prior to February 7, 2001, the Company's principal source of liquidity was a
$56.3 million demand loan from Comerica Bank which was available to fund daily
working capital needs in excess of internally generated funds. On February 7,
2001, the Company entered into a new $33 million revolving credit facility with
Comerica Bank (the "Comerica Facility"), which matured February 1, 2003, and has
been extended until June 1, 2003. The $56.3 million demand loan from Comerica
Bank was terminated on February 7, 2001. Concurrent with the execution of the
Comerica Facility, the Company received a $15 million subordinated demand loan
from ASC Incorporated, an affiliate of the Company, which repaid $15 million of
the Company's $56.3 million demand loan from Comerica Bank.
In connection with the Comerica Facility, the Company signed a promissory note
in the amount of $33 million, providing 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. For 2001 and through
March 31, 2002, the Company's margin on prime based loans and Eurodollar loans
was -1/4% and 2-1/4%, respectively. Eurodollar borrowings for 1 month to 6
months were permitted at the option of the Company. Advances under the Comerica
Facility were 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 was subject to decrease semiannually and no
longer exists. 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.
23
Required covenants under the Comerica Facility include submission of monthly and
annual financial statements and annual financial projections during a prescribed
period. Quarterly financial covenants included an interest coverage ratio for
2001 to date performance commencing September 30, 2001, and a Senior Debt to
EBITDA ratio no greater than 5 to 1 as of December 31, 2001. Both covenants
excluded the effect of the $15 million subordinated demand note from ASC
Incorporated. In addition, the payment of dividends is prohibited by the terms
of the Comerica Facility.
As of September 30, 2001 and December 31, 2001, the Company was not in
compliance with ratio covenants of the Comerica Facility. On April 16, 2002, the
Company's Comerica Facility was amended, and the September 30, 2001 and December
31, 2001 defaults were waived. The Senior Debt to EBITDA ratio covenant was
removed and the interest coverage ratio covenant was reset for 2002 year to date
performance with June 30, 2002 as the first measurement date. Interest rates
were reset based upon the interest coverage ratio using the Company's financial
performance beginning January 1, 2002. The revolving credit commitment amount
was decreased from $33 million to $30 million as the Company believed $30
million was adequate for its liquidity requirements through the remaining term
of the loan. In consideration of the amendments and waivers, the Company paid
Comerica Bank a nonrefundable amendment and waiver fee of $187,500.
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 from the proceeds of the sale of Dayton Parts, Inc. The amended Comerica
Facility matures June 1, 2003 and provides for borrowing options at a
prime-based rate plus a margin of 2%. Eurodollar borrowings are not permitted.
Advances are subject to a borrowing base restriction equal to 75% of eligible
trade receivables, 40% of eligible inventory (up to $2.5 million) and must
maintain at all times availability of at least $.5 million. The interest
coverage ratio covenant was removed. In consideration of the amendment, the
Company paid Comerica Bank a nonrefundable amendment fee of $.2 million.
Although the Company is currently discussing with Comerica a possible extension
of the Comerica Facility beyond June 1, 2003, it has not yet reached any
agreement with Comerica on an extension. There is no guarantee that the Comerica
Facility can be extended. If it is not, there is no guarantee that additional
financing, if any, will be available after the June 1, 2003 Comerica Facility
maturity.
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 Facilities prohibits any
payments to ASC Incorporated at non arm's length amounts, without prior consent.
The April 16, 2002 amendment to the Comerica Facility prohibited the Company
from paying interest to ASC Incorporated on the $15 million note. If ASC
Incorporated were to call the demand note, the Company would be required to seek
substitute subordinated debt financing to repay the principal and interest
accrued on the demand note. In such instance, there is no guarantee that the
Company would be able to obtain substitute subordinated debt financing on
favorable terms or at all, in which case the Company would be forced into
bankruptcy since it does not have enough cash to repay the amounts currently due
under the demand note. The $15 million face value note to ASC Incorporated was
reduced to its fair market value of $3 million under purchase accounting on May
31, 2002.
Borrowings at December 31, 2002 under the Company's then existing $30 million
revolving credit facility were $20 million, with unused borrowing capacity of
$3.9 million (based on the borrowing base advance restrictions).
The Company intends to complete the sale of Plastic Trim, use the proceeds to
completely repay the Comerica Facility, and use any remaining proceeds to pay
its other liabilities, including a portion of the ASC Incorporated subordinated
note. After the sale of Plastic Trim, the Company intends to liquidate any
remaining assets, wind down its affairs and dissolve in accordance with the Plan
of Dissolution. See "Plan of Dissolution" in Item 1 above.
In the event that the sale of Plastic Trim cannot be completed prior to June 1,
2003 and the Comerica Facility is not extended beyond June 1, 2003, there is no
guarantee that the Company will have enough cash to continue as a going concern
after June 1, 2003.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued Statement No. 145-
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
14, and Technical Correction, Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, and Statement No. 148, Accounting for Stock
Based
24
Compensation - Transition and Disclosure. Management does not believe the
effects of the adoption of the provisions of these accounting standards will
have a material effect on the financial statements of the Company.
KNOWN UNCERTAINTIES, EVENTS AND TRENDS
As discussed in "Recent Information and Developments" in Item 1 above, in
February, 2003 the Company and Dayton Parts sold substantially all of the assets
relating to the Dayton Parts business and on May 14, 2003 the Company entered
into the Plastic Trim Purchase Agreement for the sale of substantially all of
the assets relating to the Plastic Trim business. It is anticipated that the
sale of Plastic Trim will be completed during the first half of June 2003. Since
the assets of Plastic Trim comprise substantially all of the assets remaining in
the Company, the Company will proceed to wind down its operations and dissolve
in accordance with a Plan of Dissolution following completion of the sale of
Plastic Trim. Consequently, the Company's operations will eventually cease and
the net sales, revenues and income from operations of the Company will be
significantly reduced in the fiscal year ended December 31, 2003 as compared to
previous periods.
SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are more fully described in Note 2
of the consolidated financial statements. Certain of the accounting policies
require the application of significant judgment by management in selecting
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty.
Purchase Price Allocation. The Company was acquired by QP Acquisition on May 31,
2002. The assets and liabilities of the Company were restated at that date to
reflect fair market value, assuming that JPE will continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result if the Company sought
protection from its creditors under bankruptcy laws.
Long-Lived Assets. The Company periodically evaluates the recoverability of the
carrying amount of its long-lived assets (including property, plant and
equipment, goodwill and other intangible assets) whenever events or changes in
circumstances indicate that the carrying amount of any asset may not be
recoverable. An impairment is assessed when the undiscounted expected future
cash flows derived from an asset are less than its carrying amount. The dynamic
economic environment in which our business operates and the resulting
assumptions used to estimate future cash flows impact the outcome of all
impairment tests.
Pension Benefits. The Company maintains a defined benefit plan for its hourly
employees at the Beavercreek, Ohio operation. For financial reporting purposes,
net periodic pension and other postretirement benefit costs are calculated based
upon a number of actuarial assumptions including discount rate, rate of return
on assets and certain demographic data. Each of these assumptions is based on
Company judgment, considering all known trends and uncertainties. Any future
changes to the discount rate will impact future net periodic pension expense.
Actual asset returns for our pension plans significantly below our assumed rate
of return would result in higher net periodic expense in future years.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The sale of Dayton Parts, the lack of liquidity, and the impact of the OEM
vehicle manufacturers' efforts to rebalance inventories, as well as the
continuance of rebates, reduced customer financing rates, and the trend of
retail sales and other uncertainties, may adversely impact the Company's 2003
financial performance.
Furthermore, in the normal course of business the Company is subject to market
exposures from changes in interest rates. The Company's variable interest
expense is sensitive to changes in the general level of United States interest
rates. The Company's Comerica Facility provides for borrowing options at a
prime-based rate plus a 2% interest rate margin. As such, future borrowings
under the Comerica Facility are sensitive to changes in interest rates. At
December 31, 2002, the Company's debt included $20 million under the Comerica
Facility and $15 million of face value of the subordinated demand note to ASC
Incorporated. The subordinated note to ASC Incorporated was reduced to its fair
market value of $3 million under purchase accounting on May 31, 2002. The
weighted average interest rate of the $23 million debt was 5.4% and the fair
value of the debt approximates its carrying value.
The Company had interest expense of $1.4 million for the year ended December 31,
2002. The potential increase in interest expense from a hypothetical 2% adverse
change, assuming the December 31, 2002 debt was outstanding for the entire year,
would be $460 thousand.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JPE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors 28
Consolidated Balance Sheets as of December 31, 2001 and 2002 29
Consolidated Statements of Operations 30
For the Years Ended December 31, 2000 and 2001 and the
Period January 1, 2002 through May 31, 2002 (PREDECESSOR COMPANY)
and For the Period June 1, 2002 through December 31, 2002 (SUCCESSOR COMPANY)
Consolidated Statements of Shareholders' Equity 31
For the Years Ended December 31, 2000 and 2001 and the
Period January 1, 2002 through May 31, 2002 (PREDECESSOR COMPANY)
and For the Period June 1, 2002 through December 31, 2002 (SUCCESSOR COMPANY)
Consolidated Statements of Cash Flows 33
For the Years Ended December 31, 2000 and 2001 and the
Period January 1, 2002 through May 31, 2002 (PREDECESSOR COMPANY)
and For the Period June 1, 2002 through December 31, 2002 (SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements 34
27
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders of JPE, Inc.
We have audited the accompanying consolidated balance sheets of JPE, Inc. (d/b/a
ASCET Inc. and ASC Exterior Technologies) as of December 31, 2002 (Successor)
and 2001 (Predecessor), and the related consolidated statements of operations,
shareholders' equity, and cash flows for the period from June 1, 2002 to
December 31, 2002 (Successor) and the period from January 1, 2002 to May 31,
2002, and for each of the two years ended December 31, 2001 (Predecessor). 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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JPE, Inc. at
December 31, 2002 (Successor) and 2001 (Predecessor), and the consolidated
results of its operations and its cash flows for the period from June 1, 2002 to
December 31, 2002 (Successor) and the periods from January 1, 2002 to May 31,
2002 and for each of the two years ended December 31, 2001 (Predecessor), in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that JPE, Inc.
will continue as a going concern. As more fully described in Note 1 to the
financial statements, the Company has incurred losses from continuing operations
in each of the past three years. Additionally, the Company's current bank
agreement expires on June 1, 2003. These conditions raise substantial doubt
about JPE, Inc.'s ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
As more fully described in the notes to the consolidated financial statements,
effective May 31, 2002, an investment was made in the Company in exchange for a
voting equity interest of 95%. In accordance with Financial Accounting Standards
Board No. 141., Business Combinations, the Company's assets, liabilities, and
new capital structure have been adjusted to reflect estimated fair values as of
June 1, 2002. As a result, the consolidated financial statements as of December
31, 2002 and for the period from June 1, 2002 to December 31, 2002 are not
comparable to the Company's predecessor consolidated financial statements.
/s/ Ernst & Young, LLP
Detroit, Michigan
March 6, 2003, except for notes 1 and 6,
As to which the date is
April 30, 2003
28
JPE, INC.
CONSOLIDATED BALANCE SHEETS
at December 31,
(amounts in thousands, except share data)
--------------
ASSETS
PREDECESSOR SUCCESSOR
2001 2002
---- ----
Current assets:
Cash and cash equivalents $ 2,794 $ 415
Available for sale securities 571 --
Accounts receivable, net of allowance for doubtful accounts of $121
and $81 at December 31, 2001
and 2002, respectively 6,690 6,405
Inventory 7,987 3,184
Other current assets 1,027 994
Assets held for sale, discontinued operations, net 23,127 24,733
-------- --------
Total current assets 42,196 35,731
Property, plant and equipment, net 14,844 877
Goodwill, net 459 --
Other assets 1,155 306
-------- --------
Total assets $ 58,654 $ 36,914
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 543 $ 23,338
Accounts payable 7,036 4,640
Accrued liabilities 1,898 3,228
Accrued liabilities, discontinued operations 5,102 5,993
-------- --------
Total current liabilities 14,579 37,199
Long-term debt 42,507 19
-------- --------
Total liabilities 57,086 37,218
-------- --------
Shareholders' equity (deficit):
First Series Preferred Shares, no par value, 50 votes per share,
3,000,000 authorized, 1,973,002
shares issued and outstanding at December 31, 2001 and 2002,
respectively 16,590 206
Common stock, no par value, one vote per share, 15,000,000
authorized, 14,043,600 shares issued
and outstanding at December 31, 2001 and 2002, respectively 2,672 125
Accumulated other comprehensive income (expense) 76 (460)
Accumulated deficit (17,770) (175)
-------- --------
Total shareholders' equity (deficit) 1,568 (304)
-------- --------
Total liabilities and shareholders' equity (deficit) $ 58,654 $ 36,914
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
29
JPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share data)
--------------
PREDECESSOR COMPANY SUCCESSOR
--------------------------------------------- ---------
FOR THE FOR THE JANUARY 1 JUNE 1
YEAR ENDED YEAR ENDED THROUGH THROUGH
DECEMBER DECEMBER MAY 31, DECEMBER
31, 2000 31, 2001 2002 31, 2002
-------- -------- ---- --------
Net sales $ 87,912 $ 66,791 $ 29,638 $ 33,303
Cost of goods sold 82,766 66,068 26,555 31,266
-------- -------- -------- --------
Gross profit 5,146 723 3,083 2,037
Selling, general and administrative expenses 10,598 7,213 2,747 4,296
Other expense (income) 1,009 1,678 (207) 0
Interest expense, net 2,969 1,512 214 173
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes (9,430) (9,680) 329 (2,432)
Income tax expense (benefit) 1,125 (61) 32 10
-------- -------- -------- --------
Income (loss) from continuing operations (10,555) (9,619) 297 (2,442)
Discontinued operations:
Income from operations of Dayton Parts 970 1,544 815 2,267
-------- -------- -------- --------
Net income (loss) $ (9,585) $ (8,075) $ 1,112 $ (175)
-------- -------- -------- --------
Earnings (loss) per share from continuing operations
Common Shares $ (0.09) $ (0.09) $ 0.00 $ (0.02)
First Series Preferred Shares (4.68) (4.27) 0.13 (1.08)
Earnings per share from discontinued operations
Common Shares $ 0.01 $ 0.01 $ 0.01 $ 0.02
First Series Preferred Shares 0.43 0.69 0.36 1.01
Basic earnings (loss) per share:
Common Shares $ (0.08) $ (0.07) $ 0.01 $ 0.00
First Series Preferred Shares (4.23) (3.58) 0.49 (0.08)
Earnings (loss) per shares assuming dilution:
Common Shares $ (0.08) $ (0.07) $ 0.01 $ 0.00
First Series Preferred Shares (4.23) (3.58) 0.49 (0.08)
The accompanying notes are an integral part of the consolidated financial
statements.
30
JPE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the periods ended
(amounts in thousands, except share data)
PREDECESSOR COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------------------
NET LOSS
FOR THE
BALANCE AT INVESTMENT SHAREHOLDERS PERIOD ENDED BALANCE AT
JANUARY 1, FROM NEW BASIS DECEMBER 31, DECEMBER 31,
2000 SHAREHOLDERS CHANGE 2000 2000
------------ ------------ ------------ ------------ ------------
Warrants:
Warrants Outstanding 422,601 422,601
Amount $ 293 $ 293
First Series Preferred Shares:
Shares Outstanding 1,973,002 20,692 1,993,694
Amount $ 16,590 $ 180 $ 16,770
Common Stock
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,379 $ 2,379
Accumulated (Deficit) $ (110) $ (9,585) $ (9,695)
------------ ------------ ------------ ------------ ------------
Total Shareholders' Equity $ 19,152 $ 180 $ 0 $ (9,585) $ 9,747
============ ============ ============ ============ ============
PREDECESSOR COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2001
------------------------------------------------------------------------------------------
NET LOSS UNREALIZED
REDEMPTION FOR THE GAIN ON
BALANCE AT OF PERIOD ENDED AVAILABLE BALANCE AT
JANUARY 1, SHAREHOLDER EXPIRATION DECEMBER 31, FOR SALE DECEMBER 31,
2001 INTERESTS OF WARRANTS 2001 SECURITIES 2001
------------ ------------ ------------ ------------ ------------ ------------
Warrants:
Warrants Outstanding 422,601 (422,601)
Amount $ 293 $ (293) $
First Series Preferred Shares:
Shares Outstanding 1,993,694 (20,692) 1,973,002
Amount $ 16,770 $ (180) $ 16,590
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,379 293 2,672
Accumulated Other
Comprehensive Income $ -- $ 76 $ 76
Accumulated (Deficit) $ (9,695) $ (8,075) $ (17,770)
------------ ------------ ------------ ------------ ------------ ------------
Total Shareholders' Equity $ 9,747 $ (180) $ 0 $ (8,075) $ 76 $ 1,568
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
31
JPE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Periods Ended
($ amounts in thousands)
PREDECESSOR COMPANY
------------------------------------------------------------
NET INCOME
FOR THE
PERIOD FROM SALE OF
BALANCES AT JANUARY 1, AVAILABLE BALANCES AT
DECEMBER 31, 2002 THROUGH FOR SALE MAY 31,
2001 MAY 31, 2002 SECURITIES 2002
------------ ------------ ------------ ------------
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 16,590 $ 16,590
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,672 $ 2,672
Accumulated Other Comprehensive
Income (Expense) $ 76 $ (76) --
Accumulated (Deficit) $ (17,770) $ 1,112 $ $ (16,658)
------------ ------------ ------------ ------------
Total Shareholders' Equity $ 1,568 $ 1,112 $ (76) $ 2,604
============ ============ ============ ============
SUCCESSOR COMPANY
------------------------------------------------------------------------------------------
NET LOSS
FOR THE
PERIOD FROM
JUNE 1, 2002
BALANCES AT INVESTMENT PREDECESSOR THROUGH BALANCES AT
MAY 31, NEW SHAREHOLDER DECEMBER 31, PENSION DECEMBER 31,
2002 SHAREHOLDERS BASIS CHANGE 2002 EXPENSE 2002
------------ ------------ ------------ ------------ ------------ ------------
First Series Preferred Shares:
Shares Outstanding 1,973,002 1,973,002
Amount $ 16,590 $ 182 $ (16,566) $ $ 206
Common Stock:
Shares Outstanding 14,043,600 14,043,600
Amount $ 2,672 $ 18 $ (2,565) $ $ 125
Accumulated other
Comprehensive Income (Expense) $ 0 $ 0 $ 0 $ (460) $ (460)
Accumulated (Deficit) $ (16,658) $ 16,658 $ (175) $ $ (175)
------------ ------------ ------------ ------------ ------------ ------------
Total Shareholders' Equity
(Deficit) $ 2,604 $ 200 $ (2,473) $ (175) $ (460) $ (304)
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part
of the consolidated condensed financial statements.
32
JPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the periods ended
(amounts in thousands)
PREDECESSOR COMPANY SUCCESSOR
---------------------------------------------- ------------
FOR THE YEAR FOR THE YEAR JANUARY 1 JUNE 1
ENDED ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
2000 2001 2002 2002
------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ (9,585) $ (8,075) $ 1,112 $ (175)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 2,646 3,048 1,245 734
Write-down of subsidiaries' assets 1,009 772 -- --
Charge for impairment of Goodwill -- 1,735 -- --
Other (136) (13) (76) 401
Changes in operating assets and liabilities:
Available for sale securities -- (571) 571 --
Accounts receivable 4,985 2,004 (1,265) 1,550
Inventory 132 2,745 959 (656)
Other current assets 235 184 (9) 42
Assets held for sale 1,306 2,524 (803) 2,869
Accounts payable 828 932 (344) (2,051)
Accrued liabilities 405 (394) 1,258 61
Deferred income taxes 1,000 -- -- --
------------ ------------ ------------ ------------
Net cash provided by operating activities 2,825 4,891 2,648 2,775
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,024) (791) (59) (50)
Purchase of MB Associates (1) -- -- --
Issuance/(Redemption) of Preferred Stock 180 (180) -- --
Cash proceeds from sale of property and equipment 600 191 -- --
------------ ------------ ------------ ------------
Net cash used for investing activities (245) (780) (59) (50)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Borrowing of demand loan from affiliate -- 15,000 -- --
Repayment of demand loan -- (15,000) -- --
Net borrowings (repayments) of revolving credit
facility (2,900) (874) (5,203) (1,795)
Repayments of other debt (123) (639) (48) (647)
------------ ------------ ------------ ------------
Net cash used for financing activities (3,023) (1,513) (5,251) (2,442)
------------ ------------ ------------ ------------
Cash and cash equivalents:
Net increase (decrease) in cash (443) 2,598 (2,662) 283
Cash, beginning of period 639 196 2,794 132
------------ ------------ ------------ ------------
Cash, end of period $ 196 $ 2,794 $ 132 $ 415
------------ ------------ ------------ ------------
The accompanying notes are an integral part
of the consolidated financial statements
33
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
1. BASIS OF PRESENTATION:
In accordance with the terms of a purchase agreement dated May 7, 2002,
with ASC Holdings, QP Acquisition #2 (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 Acquisition.
In accounting for these transactions, the Company has applied purchase
accounting as prescribed by 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 the purchase price and the sum of the fair value of
tangible and identifiable 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 table 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 Acquired $ 41,804
LIABILITIES
Current Liabilities $ 15,673
Short-term debt 25,800
Predecessor Shareholder's basis 131
---------
Total Liabilities Assumed $ 41,604
---------
New Shareholders Basis $ 200
=========
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, Shareholders' Equity (Deficit), and
Cash Flows.
At the time QP acquired the shares of the Company from ASC Holdings, as
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.
34
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
1. BASIS OF PRESENTATION continued:
The Company is currently operating under a credit facility with Comerica
bank, which expires on June 1, 2003. In the event the Company is unable to
refinance the outstanding balance of the Comerica facility at interest
rates that are acceptable to the Company, the Company would be unable to
repay the bank loan on its expiration date. Such an event could cause the
Company to seek protection from its creditors under bankruptcy laws on
June 1, 2003.
The Company is indebted under a subordinated demand note to a related
party in the amount of $15 million. In the event the Company is unable to
refinance the Comerica debt, the holders of the subordinated demand note
could demand repayment. The Company would be required to seek additional
subordinated debt, if available, or seek protection from the repayment
demand under bankruptcy laws.
The above financial conditions raise substantial doubt about the Company's
ability to continue as a going concern.
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 April, 2003, management of the
Company executed an Asset Purchase Agreement whereby the assets and
liabilities of the Plastic Trim subsidiary will be sold to a third party
for $8,750,000, subject to certain terms and conditions, including the
consent of Comerica Bank. Management anticipates using the proceeds from
the sale of Plastic Trim, if the terms and conditions to the sale are
subsequently met, to repay the Comerica facility in full, extinguish other
remaining liabilities, and use any remaining proceeds to partially repay
the subordinated demand note of $15 million to the extent possible. After
such payments, management intends to dissolve the Company under the terms
and procedures required under the laws of the State of Michigan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of JPE, Inc. (the "Company"), and its
wholly-owned subsidiaries, Dayton Parts, Inc. ("Dayton Parts"), SAC
Corporation ("Starboard"), and Plastic Trim, Inc. ("Plastic Trim"). All
significant intercompany accounts and transactions with the consolidated
subsidiaries have been eliminated in the preparation of the consolidated
financial statements. As previously discussed, Dayton Parts, Inc. was sold
on February 28, 2003, and is accounted for as a discontinued operation.
BUSINESS - JPE, Inc. (d/b/a ASCET INC and d/b/a ASC Exterior Technologies)
is a manufacturer and distributor of automotive and truck components for
the original equipment manufacturers and the replacement parts markets
principally in North America. Total sales for the year ended December 31,
2001 were approximately 54.4% for trim products, and 45.6% for the
replacement parts markets. The Company's fastener business, IAF was sold
during 1999, and as such is accounted for as a discontinued operation.
35
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued:
RECLASSIFICATION - Certain amounts previously reported in the 2001 and
2000 financial statements have been reclassified to conform to the 2002
presentation.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include investments
in highly liquid instruments with a maturity of three months or less.
CONCENTRATION OF CREDIT RISK - Accounts receivable of the Company, which
represent the principal concentration of credit risk, result from sales to
companies in the automotive, light truck and heavy duty truck original
equipment and aftermarket industries. Credit is extended based upon an
evaluation of the customer's financial condition and collateral is not
required from customers. Accounts receivable are periodically reviewed for
collectibility based on a combination of historical experience and
existing economic conditions. The definition of delinquent accounts is
based on the governing contractual terms. Delinquent accounts and balances
are written off when they are determined to be fully uncollectible.
INVENTORY - Inventory is valued at the lower of cost or market using the
first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION - Property, plant and
equipment are recorded at cost. Improvements are capitalized, and
expenditures for maintenance and repairs are charged to operations as
incurred. Gains or losses on sales and retirements of properties are
included in the determination of the results of operations. Provisions for
depreciation of property, plant, and equipment have been computed using
the straight-line method based on estimated useful lives of the related
assets.
GOODWILL - The Predecessor Company had goodwill that was recorded as part
of a 1999 investment transaction. In December 2001, due to unfavorable
operating results at the Beavercreek, Ohio operation (a Trim Product
segment), the Company completed an impairment assessment which resulted in
a charge of $1,735 to eliminate that operation's goodwill. The impairment
charge was determined based on an estimate of the discounted cash flows
from the assets at the Beavercreek operation and is included within "other
expenses" in the accompanying statement of operations.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") which eliminated the amortization of
goodwill but required annual impairment tests or more frequent tests if
indicators exist. The Company adopted SFAS 142 on January 1, 2002.
Predecessor reported income (loss) and earnings (loss) per share adjusted
to exclude goodwill amortization is as follows:
36
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued:
YEAR ENDED YEAR ENDED JAN. 1 THRU
DEC. 31 DEC. 31 MAY 31
2000 2001 2002
--------- --------- ---------
Reported income (loss) $ (9,585) $ (8,075) $ 1,112
Add back: Goodwill amortization 272 269 --
Adjusted income (loss) $ (9,313) $ (7,806) $ 1,112
Basic and diluted earnings per common share:
Income (loss) as reported $ (0.08) (0.07) 0.01
Goodwill amortization -- -- --
Adjusted income (loss) after cumulative effect
of accounting change (0.08) (0.07) 0.01
Basic and diluted earnings per First Series
Preferred Share:
Income (loss) as reported $ (4.23) (3.58) 0.49
Goodwill amortization .10 .12 --
Adjusted income (loss) (4.13) (3.46) 0.49
Due to the change in basis as described in Note 1, the goodwill from the
Predecessor's Company was eliminated on June 1, 2002.
STOCK OPTIONS - The Company follows Accounting Principles Board (APB) No.
25, Accounting for Stock Issued to Employees, and related interpretations,
in accounting for employees' and non-employee directors' stock options.
Under APB 25, when the exercise price of employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized. No compensation costs for stock based
compensation awards to employees has been recognized in the accompanying
financial statements.
SFAS No. 123 defines a fair value based method of accounting for an
employee stock options or similar equity instruments. Pro forma
information regarding net income is required by SFAS 123. However, the
Company has not had any grants of stock options since 1999. As a result,
the pro forma impact on operations from pre-1999 grants of options is not
material to the accompanying financial statements.
At December 31, 2002 and 2001, there are no significant amounts of options
that are exercisable. Additionally, there are no options that are in the
money.
REVENUE RECOGNITION - The Company recognizes sales revenue upon passage of
title which is generally upon shipment of products to customers, and
collectibility is reasonably assured.
SHIPPING AND HANDLING COSTS - The Company classifies such costs as cost of
sales.
37
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued:
EARNINGS PER SHARE - In accordance with Statement of Financial Accounting
Standards No. 128- Earnings per Share, the "two class" method is used for
computing earnings per share because the First Series Preferred Shares
represent a participating security. 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. For
the periods ended December 31, 2001 and 2002, shares outstanding for the
computation of basic earnings per share were 14,043,600 common shares and
weighted average shares outstanding for the First Series Preferred Shares
were 1,973,002.305. 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. The warrants for the First Series
Preferred Shares which would have had the effect of increasing the
denominator in the earnings per share calculation by 39,672 shares, for
the year ended December 31, 2000, were excluded because the effect is
anti-dilutive. These warrants expired unexercised during the year ended
December 31, 2001. Earnings per share for the period January 1, 1999
through May 27, 1999 was computed based on 4,602,180 shares outstanding
and 43,296 equivalent shares related to stock options having a dilutive
effect.
3. INVENTORY:
Inventory, net of reserves, consisted of the following at December 31:
PREDECESSOR SUCCESSOR
2001 2002
------------ ------------
Raw materials $ 4,020 $ 933
Work in process and components 771 229
Finished goods 1,840 616
Tooling 1,356 1,406
------------ ------------
$ 7,987 $ 3,184
============ ============
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
PREDECESSOR SUCCESSOR
2001 2002
------------ ------------
Land $ 513 $ 513
Buildings 4,126 899
Machinery and equipment 15,258 0
Furniture and fixtures 1,053 0
------------ ------------
20,950 1,412
Less accumulated depreciation (6,106) (535)
------------ ------------
$ 14,844 $ 877
============ ============
Provisions for depreciation of property, plant and equipment have been
computed using the straight-line method based on 25 year lives for
buildings, 5-7 year lives for machinery and equipment, and 3-7 year lives
for furniture and fixtures.
38
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
PREDECESSOR SUCCESSOR
2001 2002
------------ ------------
Accrued compensation $ 48 $ 243
Accrued interest 94 81
Accrued employee benefits 1,028 2,073
Accrued taxes 398 418
Other 330 413
------------ ------------
$ 1,898 $ 3,228
============ ============
6. DEBT:
Debt consisted of the following at December 31, 2001 and 2002:
PREDECESSOR SUCCESSOR
2001 2002
------------ ------------
Revolving Credit Facility-Comerica Bank 27,000 20,000
Notes Payable-MB Associates purchase 975 338
Capitalized lease obligations 55 0
Subordinated demand note 15,000 3,000
Other 20 19
------------ ------------
$ 43,050 $ 23,357
Less: Current portion 543 23,338
------------ ------------
$ 42,507 $ 19
============ ============
Since May 27, 1999 and through February 7, 2001, the Company's source of
funding was a $56.3 million demand loan from Comerica Bank. On February 7,
2001, the Company entered into a new $33 million revolving credit facility
with Comerica Bank (the "Comerica Facility") which matures February 1,
2003. The $56.3 million demand loan from Comerica Bank was terminated on
February 7, 2001. Concurrent with the execution of the Comerica Facility,
the Company received a $15 million subordinated demand loan from ASC
Incorporated, an affiliate of the Company, the proceeds of which were used
to repay $15 million of the Company's $56.3 million demand loan from
Comerica Bank.
The new Comerica Facility 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.
39
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
6. DEBT continued:
Required covenants under the Comerica Facility include submission of
monthly and annual financial statements and annual financial projections
during a prescribed period. Quarterly financial covenants include an
interest coverage ratio for 2001 to date performance commencing September
30, 2001, and a Senior Debt to EBITDA ratio of no greater than 5 to 1 as
of December 31, 2001. Both covenants exclude the effect of the $15 million
subordinated demand note from ASC Incorporated. In addition, the payment
of dividends is prohibited by the terms of the Comerica Facility.
As of September 30, 2001, the Company was not in compliance with the
interest coverage ratio covenant of the Comerica Facility. As of December
31, 2001, the Company was not in compliance with both the interest
coverage ratio covenant and the Senior Debt to EBITDA ratio covenant of
the Comerica Facility. On April 16, 2002, the Company's Comerica Facility
was amended, and the September 30, 2001 and December 31, 2001 defaults
were waived. The Senior Debt to EBITDA ratio covenant was removed and the
interest coverage ratio covenant was reset for 2002 year to date
performance with June 30, 2002 as the first measurement date. Interest
rates were reset based upon the interest coverage ratio using the
Company's financial performance beginning January 1, 2002. The revolving
credit commitment amount was decreased from $33 million to $30 million as
the Company believed $30 million was adequate for its liquidity
requirements through the remaining term of the loan. In consideration of
the amendments and waivers, the Company paid Comerica Bank a nonrefundable
amendment and waiver fee of $187,500. The Company was in compliance with
the interest coverage ratio covenant at December 31, 2002.
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 believes $9 million is adequate for
its liquidity requirements through June 1, 2003, the remaining term of the
loan. The Comerica Facility matures June 1, 2003 and provides for
borrowing options at a prime-based rate plus a margin of 2%. Eurodollar
borrowings are not permitted. Advances are subject to a borrowing base
restriction equal to 75% of eligible trade receivables, 40% of eligible
inventory (up to $2.5 million) and must maintain at all times availability
of at least $.5 million. The interest coverage ratio covenant was removed.
In consideration of the amendment, the Company paid Comerica Bank a
nonrefundable amendment fee of $200,000. There is no guarantee that
additional financing, if any, will be available at rates which would
permit the Company to continue its operations after the June 1, 2003
Comerica Facility maturity.
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. 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. For the year ended December 31, 2002, approximately
$800,000 of interest would have been accrued on the $15 million note had
it not been forgiven. If ASC Incorporated were to call the demand note,
the Company would be required to seek substitute subordinated debt
financing to repay the principal and interest accrued on the demand note.
In such instance, there is no guarantee that the Company would be able to
obtain substitute subordinated debt financing on favorable terms or at
all, in which case the Company would be forced into bankruptcy since it
does not have a sufficient amount of cash to repay the amounts currently
due under the demand note.
40
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
6. DEBT continued:
On February 7, 2001, concurrent with the execution of the Comerica
Facility, the Company entered into a new $3 million Revolving Line of
Credit Note with ASC Incorporated. This Note is subordinated to the
Company's borrowings and advances under the Comerica Facility and bears
interest at a rate equal to the cost of borrowing of ASC Incorporated. The
Note was cancelled on May 31, 2002.
In addition, notes payable of the Company includes $487.5 due to the
former owners of MB Associates executed in connection with the purchase of
MB Associates on July 1, 2000 (see Note 1). These notes payable include a
$150 note payable to Joseph Z. Kwapisz, who is currently the Vice
President - Sales and Marketing of the Company. These notes payable
require payment of $487.5 on June 30, 2003. The notes payable are
non-interest bearing and are guaranteed by ASC Holdings.
Maturities of debt for the years succeeding December 31, 2002 are $23,338
for 2003, $4 for 2004, and $15 for 2005.
The Company's average effective borrowing rate was approximately 10.1% for
the year ended December 31, 2000, 6.9% for the year ended December 31,
2001, 3.8% for the five-month period ended May 31, 2002, and 3.8% for the
seven-month period ended December 31, 2002. Both Comerica Bank facilities
provide for a facility fee, which is payable quarterly in arrears.
Facility and amendment fees amounted to $329 for the year ended December
31, 2000, $19 for the year ended December 31, 2001, and $228 for the year
ended December 31, 2002, and are included in interest expense.
The Company intends to complete the sale of Plastic Trim, use the proceeds
to completely repay the Comerica Facility, and use any remaining proceeds
to repay a portion of the ASC Incorporated Subordinated Note. Assuming
those events occur, the Company intends to wind up its affairs, liquidate
all of its remaining assets and dissolve in accordance with the laws of
the State of Michigan.
In the event that the sale of Plastic Trim cannot be completed prior to
June 1, 2003 and the Comerica Facility is not extended beyond June 1,
2003, there is no guarantee that the Company will be able to continue as a
going concern after June 1, 2003.
7. INCOME TAXES:
Income tax expense (benefit) for the years ended December 31, 2000, 2001,
and the periods January 1, 2002 through May 31, 2002, and June 1, 2002
through December 31, 2002 is as follows:
PREDECESSOR SUCCESSOR
----------------------------------------------- ----------------
JANUARY 1, 2002 JUNE 1, 2002
THROUGH MAY 31, THROUGH DEC. 31,
2000 2001 2002 2002
------------ ------------ --------------- ----------------
Current income taxes:
State $ 90 $ (107) $ 32 $ 10
Foreign 35 46 0 0
------------ ------------ ------------ ------------
Total current income taxes 125 (61) 32 10
------------ ------------ ------------ ------------
Deferred income taxes:
Federal 1,000 -- 0 0
------------ ------------ ------------ ------------
Total deferred income taxes 1,000 -- 0 0
------------ ------------ ------------ ------------
Total income tax expense (benefit) $ 1,125 $ (61) $ 32 $ 10
============ ============ ============ ============
The provision for income taxes differs from the amount of income taxes
determined by applying the statutory U. S. federal income tax rate to
pretax income as a result of the following:
41
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
7. INCOME TAXES, continued:
PREDECESSOR SUCCESSOR
-------------------------------------------------- ------------
JANUARY 1, 2002 JUNE 1, 2002
THROUGH THROUGH
MAY 31, DEC. 31,
2000 2001 2002 2002
------------ ------------ ------------ ------------
Statutory U.S. federal tax rate (34%) (34%) 34% (34%)
State taxes, net of federal tax benefit 1% (2%) 1% 6%
Goodwill amortization 3% 2% 1% 2%
Foreign tax rate in excess of below U.S.
federal tax rate -- -- 3% 2%
Increase/(decrease) in valuation reserve 43% 39% (29%) 24%
All other -- (5%) -- --
------------ ------------ ------------ ------------
Effective tax rate 13% 0% 10% 0%
============ ============ ============ ============
Deferred income taxes reflect the estimated future tax effect of temporary
differences between the amount of the assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations.
At December 31, 2001, and 2002 deferred tax assets and liabilities are as
follows:
PREDECESSOR SUCCESSOR
2001 2002
------------ ------------
Deferred tax assets:
Goodwill $ 2,881 $ 2,591
Inventory 811 739
Allowance for doubtful accounts 301 294
Employee benefits 190 316
AMT tax credit 78 78
Net operating losses 8,447 8,695
All other 789 827
------------ ------------
Total deferred tax assets 13,497 13,540
------------ ------------
Deferred tax liabilities:
Property and equipment 2,741 3,264
Prepaid pension 134 133
------------ ------------
Total deferred tax liabilities 2,875 3,397
------------ ------------
Net deferred tax assets 10,622 10,143
Valuation reserve (10,622) (10,143)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
The Company has cumulative operating loss carry forwards in excess of $20
million that expire beginning in 2019. Because of the Company's plans to
dissolve, as discussed in Note 1, a full valuation allowance has been
recorded against these deferred tax assets.
42
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
8. EMPLOYEE BENEFIT PLANS:
401(k) PLAN
The Company has several different defined contribution plans consisting of
a 40l(k) plan and profit sharing plans which cover substantially all U.S.
based non-union employees. The Company's matching 401(k) and profit
sharing contributions are discretionary and were suspended July 1, 1998.
On June 25, 1999, the Company's matching 401(k) and profit sharing
contributions were reinstated retroactive to January 1, 1999. The
Company's Board of Directors opted to discontinue profit sharing
contributions effective January 1, 2002. The charge to operations for the
years ended December 31, 2000 and 2001 were $960 and $945, respectively,
and $149 for the five-month period ended May 31, 2002, and $208 for the
seven-month period ended December 31, 2002.
PENSION PLAN
The Company maintains a defined benefit pension plan for its hourly
employees at the Beavercreek, Ohio operation. Eligibility includes all
hourly employees at the time of hire and employees must participate in the
Union. Benefits for employees covered by the plan are based on years of
service. Plan funding strategies are actuarially determined based on
census data and a measurement date of January 1 each year to calculate the
prepaid pension or minimum liability at December 31, 2002 and 2001. Plan
assets consist of money market investments, bonds and equity securities.
Employees do not earn any vesting until the completion of five years
employment at which time they become fully vested.
The following table summarizes the change in plan assets:
PENSION BENEFITS
---------------------------
PREDECESSOR SUCCESSOR
----------- ----------
2001 2002
---------- ----------
Fair value of plan assets at beginning of the year $ 2,172 $ 2,375
Actual return on plan assets (89) (18)
Employer contributions 363 267
Benefits paid (71) (86)
---------- ----------
Fair value of plan assets at end of the year $ 2,375 $ 2,538
========== ==========
The following table summarizes the change in benefit obligation:
PENSION BENEFITS
----------------------------------------------
PREDECESSOR SUCCESSOR
------------------------------ -------------
JAN. 1, 2002 JUNE 1, 2002
THROUGH THROUGH
MAY 31, DEC. 31,
2001 2002 2002
------------ ------------ ------------
Benefit obligation at beginning of the year $ 2,361 $ 2,778 $ 3,095
Service cost 223 95 133
Interest cost 174 95 132
Actuarial (gain)/loss 91 162 285
Benefits paid (71) (35) (51)
------------ ------------ ------------
Benefit obligation at end of the year $ 2,778 $ 3,095 $ 3,594
============ ============ ============
43
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
8. EMPLOYEE BENEFIT PLANS continued:
The following table summarizes the components of net benefit costs:
PENSION BENEFITS
---------------------------------------------------------------
PREDECESSOR SUCCESSOR
----------------------------------------------- -------------
JAN. 1, 2002 JUNE 1, 2002
THROUGH THROUGH
MAY 31, DEC. 31,
2000 2001 2002 2002
------------ ------------ ------------ ------------
Service cost $ 218 $ 223 $ 95 $ 133
Interest cost 160 174 95 132
Expected return on plan assets (177) (184) (86) (121)
------------ ------------ ------------ ------------
Benefit cost $ 201 $ 213 $ 104 $ 144
============ ============ ============ ============
The following table summarizes the funded status of employee benefit plans
and the related amounts that were recognized in the accompanying balance
sheets:
PENSION BENEFITS
-----------------------------
PREDECESSOR SUCCESSOR
------------- -------------
2001 2002
------------ ------------
Benefit obligation $ 2,778 $ 3,594
Plan assets at fair value 2,375 2,538
------------ ------------
Funded status (403) (1,056)
Unrecognized net gain 596 --
============ ============
Prepaid pension cost/(minimum liability) $ 193 $ (1,056)
============ ============
Significant actuarial assumptions are as follows:
PENSION BENEFITS
--------------------------
PREDECESSOR SUCCESSOR
------------ -----------
2001 2002
---------- -----------
Discount Rate 7.25% 6.85%
Expected long-term rate of return on assets 8.00% 8.00%
9. DISCONTINUED OPERATIONS AND SALE OF DAYTON PARTS, INC.
On February 28, 2003, the Company sold the assets and stock of Dayton
Parts to GenCap America for approximately $18.5 million. The net proceeds
from this sale were used to pay down the Comerica Facility. Dayton Parts,
which represents the Replacement Parts segment of the Company's business,
has been presented in the accompanying consolidated financial statements
as Discontinued Operations. Dayton Parts' income from operations for the
period January 1, 2002 through May 31, 2002 was $815 and for the period
June 1, 2002 through December 31, 2002 was $2,267. Dayton Parts' assets
held for sale at December 31, 2002 were $24,733, consisting of Accounts
Receivable, Inventory, Other Current Assets, and Plant, Property and
Equipment. Dayton Parts' accrued liabilities at December 31, 2002 were
$5,993, consisting of Accounts Payable and other accrued liabilities.
44
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
9. DISCONTINUED OPERATIONS AND SALE OF DAYTON PARTS, INC. continued:
QP had determined that it would be in the best interests of the Company to
consider a sale of Plastic Trim. A viable buyer emerged, and on April 7,
2003, the Buyer and the Company executed a letter of intent and term
sheet. From and after that date, Buyer and the Company conducted
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 and entered into an
Amended and Restated Purchase Agreement as of May 14, 2003 (which, in such
form, is referred to throughout this Annual Report on Form 10-K as the
Plastic Trim Purchase Agreement). The pending sale is subject to receiving
the consent of Comerica Bank. It is anticipated that the sale of Plastic
Trim will be completed in the first half of June 2003.
The following is a summary of Dayton Parts Statement of Operations for
2000 through 2002:
PREDECESSOR SUCCESSOR
-------------------------------------------- ------------
FOR THE FOR THE JANUARY 1, JUNE 1,
YEAR ENDED YEAR ENDED THROUGH THROUGH
DEC. 31, DEC. 31, MAY 31, DEC. 31,
2000 2001 2002 2002
------------ ------------ ------------ ------------
Net sales $ 50,797 $ 55,379 $ 22,488 $ 30,235
Cost of goods sold 38,512 42,312 17,081 22,468
------------ ------------ ------------ ------------
Gross profit 12,285 13,067 5,407 7,767
------------ ------------ ------------ ------------
Selling, General and
administrative expenses 9,638 10,068 4,047 4,785
Other expense 0 87 55 96
Interest expense 1,677 1,368 480 567
Income taxes 0 0 10 52
------------ ------------ ------------ ------------
Net Income $ 970 $ 1,544 $ 815 $ 2,267
============ ============ ============ ============
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Selected cash payments and noncash activities, for the years ended
December 31, 2000, 2001 and for the five-month period ended May 31, 2002
and the seven-month period ended December 31, 2002 were as follows:
PREDECESSOR SUCCESSOR
-------------------------------------------- ------------
FOR THE FOR THE JANUARY 1, JUNE 1,
YEAR ENDED YEAR ENDED THROUGH THROUGH
DEC. 31, DEC. 31, MAY 31, DEC. 31,
2000 2001 2002 2002
------------ ------------ ------------ ------------
Cash paid for interest $ 4,194 $ 2,991 $ 597 $ 835
Cash paid for income taxes 299 65 24 34
11. SEGMENT INFORMATION:
Because of the sale of the Dayton Parts subsidiary, which is accounted for
as a discontinued operation, the Company operates in only one segment.
45
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
11. SEGMENT INFORMATION, continued:
A reconciliation of segment assets to consolidated assets is as follows:
PREDECESSOR SUCCESSOR
------------ ------------
2001 2002
------------ ------------
Segment Assets $ 54,575 $ 34,072
Corporate Assets 4,079 2,842
------------ ------------
$ 58,654 $ 36,914
============ ============
The Company's sales to individual customers in excess of 10% of total
revenue were:
PREDECESSOR SUCCESSOR
------------------------------------- -----------
JANUARY 1, JUNE 1,
THROUGH THROUGH
MAY 31, DEC. 31,
2000 2001 2002 2002
-------- ------------ ---------- --------
General Motors Corporation 35% 31% 33% 33%
DaimlerChrysler Corporation 25% 20% 18% 18%
The Company had export sales of approximately $17.5 million, $17.8
million, and $12.5 million, principally to Canada, Mexico, and Central
America, for 2000, 2001, and 2002 respectively. The Company operates in
the North American geographic area.
12. FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximates fair value.
Available for sale securities: Are recorded at market prices quoted on
national stock exchanges on the balance sheet date.
Accounts receivable and accounts payable: The carrying amounts reported in
the balance sheet for accounts receivable and accounts payable approximate
fair value.
Long-and short-term debt: The carrying amounts of the Company's borrowings
under its revolving credit arrangement and its long-term debt approximate
fair values, as the interest rates float with short term rates.
13. COMMITMENTS
The Company maintains long-term operating leases covering office
equipment, vehicles, and real estate. Commitments related to these leases
are $1,142, $893, $658, $592, and $98 for the years 2003 - 2007,
respectively. Rent expense for the Company for 2000 and 2001 was $1,295
and $2,267, respectively, $1,002 for the five-month period ended May 31,
2002, and $1,402 for the seven-month period ended December 31, 2002.
46
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
14. RELATED PARTY TRANSACTIONS
During 2000, 2001, and 2002, transactions between the Company and ASC
Incorporated include payments of $250, $208, and $0, respectively, to ASC
Incorporated for consulting services rendered to the Company with respect
to operating, management, legal and financial matters. The April 16, 2002
amendment to the Comerica Facility prohibits the Company from paying or
agreeing to pay any management fee to anyone with an equity interest in
the Company.
In addition, the Company has paid ASC Incorporated $114 for the five-month
period ended May 31, 2002, and $159 for the seven-month period ended
December 31, 2002, to cover rent, technical, quality control and
information technology services rendered by ASC Incorporated to the
Company, and has received reimbursement of $352 for costs incurred by the
Company for services rendered by the Company's senior management to ASC
Incorporated.
During 2001, interest expense of $677 was paid by the Company to ASC
Incorporated in connection with the Company's $15 million and $3 million
subordinated demand notes to ASC Incorporated. During 2002, interest
expense of $105 was paid by the Company to ASC Incorporated in the
five-month period ended May 31, 2002 (Predecessor) in connection with the
Company's $15 million and $3 million subordinated demand notes to ASC
Incorporated. The $3 million demand note was cancelled on May 31, 2002;
however, the $15 million demand note remains outstanding. The April 16,
2002 amendment to the Comerica Facility prohibits the Company from paying
interest to ASC Incorporated on the $15 million note. If ASC Incorporated
were to call the $15 million demand note, the Company would be required to
seek substitute subordinated debt financing to repay the principal and
interest accrued on the demand note. In such instance, there is no
guarantee that the Company would be able to obtain substitute subordinated
debt financing on favorable terms or at all, in which case the Company may
be forced to seek protection from its creditors under the U.S. bankruptcy
laws.
47
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly Financial Data for the years ended December 31, 2001 and 2002 is
as follows:
FOR THE PERIOD OR QUARTER ENDED
---------------------------------------------------------------
PREDECESSOR SUCCESSOR
----------------------- --------------------------------------
APRIL 1 TO JUNE 1 TO
MARCH 31, MAY 31, JUNE 30, SEPT 30, DEC 31,
2002 2002 2002 2002 2002
--------- ---------- --------- -------- ---------
Net Sales $ 29,745 $ 22,381 $ 9,534 $ 27,861 $ 26,143
Cost of Goods Sold 25,144 18,492 8,158 24,268 21,308
Gross Profit 4,601 3,889 1,376 3,593 4,835
Net Income (Loss) as reported 87 1,041 (42) (693) 544
Fourth Quarter Adjustments -- -- 100 300 (400)
Net income (loss) as restated 87 1,041 58 (393) 144
Earnings (loss) per share amounts are as follows:
FOR THE PERIOD OR QUARTER ENDED
------------------------------------------------------------
PREDECESSOR SUCCESSOR
----------------------- -----------------------------------
APRIL 1 TO JUNE 1 TO
MARCH 31, MAY 31, JUNE 30, SEPT 30, DEC 31,
2002 2002 2002 2002 2002
---------- --------- -------- -------- --------
Earnings (loss) from continuing operations
Common Shares $ 0.00 $ 0.01 $ 0.00 $ (0.01) $ (0.01)
First Series Preferred Shares (0.18) 0.32 (0.12) (0.61) (0.37)
Earnings (loss) from
discontinued operations
Common Shares $ 0.00 $ 0.00 $ 0.00 $ 0.01 $ 0.01
First Series Preferred Shares 0.22 0.14 0.14 0.43 0.43
Basic and diluted loss per share:
Common Shares $ 0.00 $ 0.01 $ 0.00 $ 0.00 $ 0.00
First Series Preferred Shares 0.04 0.46 0.03 (0.17) 0.06
During the quarter ended December 31, 2002, depreciation expense was
reduced by $700,000 due to a $12 million write-down of plant, property,
and equipment required as an adjustment of the purchase price allocation
at related to the reduction in fair value of the ASC subordinated demand
note.
48
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
FOR THE QUARTER ENDED
-----------------------------------------------------------------
PREDECESSOR
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2001 2001 2001 2001
----------- ------------ ------------- -------------
Net Sales $ 30,379 $ 34,491 $ 28,753 $ 28,547
Cost of Goods Sold 27,267 29,472 26,280 25,361
Gross Profit 3,112 5,019 2,473 3,186
Net loss (2,244) (583) (2,520) (2,728)
Earnings (loss) from continuing operations
Common Shares $ (0.02) $ 0.00 $ (0.03) $ (0.03)
First Series Preferred Shares (0.80) 0.00 (1.55) (1.55)
Earnings (loss) from discontinued
operations
Common Shares $ 0.00 $ (0.01) $ 0.01 $ 0.01
First Series Preferred Shares (0.20) (0.26) (0.43) (0.34)
Basic loss per share:
Common Shares $ (0.02) $ (0.01) $ (0.02) $ (0.02)
First Series Preferred Shares (0.99) (0.26) (1.12) (1.21)
Loss per share assuming dilution:
Common Shares $ (0.02) $ (0.01) $ (0.02) $ (0.02)
First Series Preferred Shares (0.99) (0.26) (1.12) (1.21)
During the quarter ended December 31, 2001, due to unfavorable operating
results at the Beavercreek, Ohio operation, the Company assessed the net
book value of Beavercreek's long-lived assets for impairment. Based on the
assessment, the Company recorded a charge of $1,735, which eliminated all
of the goodwill associated with the Beavercreek operation. Also recorded
during the quarter ended December 31, 2001 was the write-off of obsolete
equipment at the Beavercreek operation of $438. In November 2001,
Beavercreek's health care provider converted from a mutual insurance
company to a stock insurance company. The Company received common stock
valued at $495 based on the market price on the date of issuance, which is
included in the results for the quarter ended December 31, 2001.
16. SUBSEQUENT EVENT (UNAUDITED)
On April 7, 2003, the Company signed a letter of intent / term sheet with
an unrelated third party for the sale of substantially all of the assets
of the Trim Products subsidiary. 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, which was subsequently amended
and restated on April 30, May 2, May 6, and May 14, 2003 (which, in such
form, is referred to throughout this Annual Report on Form 10-K as the
Plastic Trim Purchase Agreement). The pending sale is subject to receiving
the consent of Comerica Bank and satisfying various other closing
conditions.
On April 30, 2003, the Company filed a Confidential Preliminary
Information Statement materials with the Securities and Exchange
Commission, consisting of (i) a letter to the shareholders of JPE, and
(ii) an Information Statement on Schedule 14C relating to the Written
Consent (collectively, including the Appendices attached thereto, the
"Preliminary Information Statement Materials"), the definitive forms of
which will be furnished to the holders of Common Shares, no par value per
share, and First Series Preferred Shares, no par value per share, of JPE
("JPE Common Stock") entitled to vote or give authorization or
49
JPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
consent in regard to the matters addressed in the Written Consent and from
whom consent is not solicited on behalf of JPE pursuant to Section 14(a)
of the Exchange Act.
The Written Consent relates to the approval of (i) the sale of
substantially all of the assets of Plastic Trim, JPE's wholly-owned
subsidiary, and certain of the assets of JPE used in the business of
Plastic Trim, pursuant to the Plastic Trim Purchase Agreement, which sale
constitutes the sale of substantially all of JPE's assets, and (ii) a Plan
of Dissolution of the Company pursuant to which JPE will, after the
consummation of the sale of Plastic Trim's assets, dissolve and liquidate
its assets, the proceeds of which liquidation will be used to discharge
its debts, obligations and liabilities to its creditors and, to the extent
of remaining proceeds available therefore, distribute such remaining net
assets to its shareholders in accordance with their respective interests.
The Company does not expect that any net assets will remain for
distribution to shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
CURRENT DIRECTORS
Certain information regarding the current directors of the Company is set forth
below. The Company's bylaws provide that the Board of Directors is divided into
three classes, each class serving staggered three-year terms. The Board of
Directors currently consists of two directors. David L. Treadwell was elected as
a director pursuant to a written consent executed on April 24, 2000 by the
holders of 95% of the Company's Common and First Series Preferred Shares. Scott
K. Koepke was elected as a director by the Board of Directors to fill the
vacancy created by the death of Heinz C. Prechter in 2001. C. Michael Kojaian
and Lawrence P. Doyle each resigned as director of the Company after QP
Acquisition acquired 9,441,420 Common Shares and 1,952,352 Preferred Shares of
the Company from ASC Holdings in May 2002. Each director will hold office until
the annual meeting of the stockholders for the year within which their term
expires, or, in each case, until his successor is elected and qualified.
Vacancies existing in the Board may be filled by a majority vote of the
remaining directors.
The members of the Board of Directors as of the date of filing this report on
Form 10-K are as follows:
Name Age Position Term to Expire:
---- --- -------- ---------------
David L. Treadwell 48 Director 2003
Scott K. Koepke 53 Director 2003
EXECUTIVE OFFICERS
The Company's Executive Officers as of the date of filing of this report on Form
10-K are identified below and serve at the discretion of the Board of Directors.
Name Age Position
---- --- --------
Scott K. Koepke 53 President and Chief Operating Officer
Robert A. Naglick 45 Vice President, Chief Financial Officer, Treasurer and
Secretary
Joseph Z. Kwapisz 56 Vice President - Sales and Marketing
Mr. Naglick has notified the Company of his intention to resign as an officer of
the Company effective June 8, 2003.
Following each director's and executive officer's name is a brief account of his
or her business experience during the past five years.
DAVID L. TREADWELL
Mr. Treadwell became Chairman of the Company in May of 1999 upon ASC Holding's
acquisition of a controlling interest in the Company. Mr. Treadwell served as
Chairman of the Board of Directors and the Chief Executive Officer of the
Company from May 27, 1999 until his resignation from those offices, which became
effective on March 31, 2003. He remains a director of the Company. He also
served as Chairman of ASC Incorporated, and as the President and Chief Executive
Officer of Prechter Holdings, Inc. and affiliated companies which had been owned
by Heinz C. Prechter, some of which were acquired by an affiliate of QP
Acquisition in May and June 2002. These companies include ASC Incorporated, an
automotive systems company specializing in open air and specialty vehicle
systems; and Heritage Development Corporation, a real estate and development
activity. Mr. Treadwell is also a director of Flatrock Metals, Cadillac Coffee
and Third Fifth Bank (Regional Board).
51
SCOTT K. KOEPKE
Mr. Koepke was elected President and Chief Operating Officer of the Company on
April 24, 2000. He has also served in various executive offices of ASC
Incorporated since October 1999. At the present time, he serves as the Chief
Operating Officer of ASC Incorporated. Prior to joining ASC Incorporated, Mr.
Koepke was a plastics industry consultant from 1997 to 1999, and spent 20 years
with Owens Corning in both new product development and international operations.
ROBERT A. NAGLICK
Mr. Naglick was appointed Vice President and Chief Financial Officer of the
Company on August 16, 2000. He was also appointed as Treasurer in August 2001
and as Secretary in April 2003. Prior to joining the Company, Mr. Naglick was
Director-Operations Finance for ASC Incorporated and held various finance
positions with ASC Incorporated since 1996.
JOSEPH Z. KWAPISZ
Mr. Kwapisz was appointed Vice President of Sales and Marketing on July 1, 2000.
Prior to his appointment, Mr. Kwapisz was with the Company's exclusive sales
agency, MB Associates, as Vice President of Sales and Marketing from 1992
through June of 2000.
OTHER EXECUTIVES DURING 2002
LORI E. KOENIG
Ms. Koenig was appointed Secretary of the Company in June 2002 and resigned in
April 2003. Over the last five years, Ms. Koenig served in various executive
offices of Prechter Holdings, Inc. and affiliated companies which had been owned
by Heinz C. Prechter, some of which were acquired by an affiliate of QP
Acquisition in May 2002.
GARY A. SMALLEY
Gary A. Smalley served as General Manager of Dayton Parts from August 1996 until
the completion of the sale of Dayton Parts in February, 2003. As such, he was an
executive officer of the Company during that period. Prior to joining Dayton
Parts, Mr. Smalley was Vice President and General Manager of Allparts, Inc. from
July 1995 to August 1996, a former subsidiary of the Company.
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 generally requires the
Company's Directors and Executive Officers and persons who own more than 10% of
a registered class of the Company's equity securities ("10% owners") to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common shares of the Company. Directors,
Executive Officers and 10% owners are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of copies of
such reports furnished to the Company and written representations that no other
reports were required to be filed during the 2002 fiscal year, all Section 16(a)
filing requirements applicable to its Directors, Executive Officers and 10%
owners were met.
52
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each director of the Company who was not an officer or employee of the Company
is entitled to receive a semi-annual director's fee of $3,000 and is reimbursed
for expenses of attending Board of Directors and committee meetings. Neither Mr.
Treadwell nor Mr. Koepke received any compensation for their services as
directors during 2002. The Company's Director Stock Option Plan was terminated
by the Company's Board of Directors on November 22, 2000.
SUMMARY COMPENSATION TABLE OF EXECUTIVE OFFICERS
The following table sets forth information for the fiscal years ended December
31, 2002, 2001 and 2000 concerning compensation of the Company's Chief Executive
Officer and each of the Company's executive officers whose total annual salary
and bonus exceeded $100,000 in 2002.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
FISCAL OTHER ANNUAL ALL OTHER
NAME AND POSITION YEAR SALARY (1) BONUS COMPENSATION (2) COMPENSATION
- ----------------- ------ ---------- ------ ---------------- ------------
David L. Treadwell (3) 2002 - - - -
Chairman of the Board 2001 - - - -
and Chief Executive Officer 2000 - - - -
Scott K. Koepke (4) 2002 $204,979 (4) $90,000 - $5,000 (6)
President and 2001 190,000 (4) 66,680 - $9,800 (6)
Chief Operating Officer 2000 120,000 (4) 75,000 - 7,200 (6)
Robert A. Naglick (5) 2002 140,530 (5) 40,125 - 4,052 (6)
Vice President, Chief 2001 128,646 (5) 7,624 8,859 (6)
Financial Officer, Treasurer 2000 50,240 (5) 19,000 2,500 (6)
and Secretary
Joseph Z. Kwapisz (7) 2002 175,000 35,000 - (6)
Vice President-Sales & 2001 175,000 35,000 - 9,800 (6)
Marketing 2000 87,500 17,500 - 6,300 (6)
Gary Smalley(8) 2002 135,000 8,775 - 2,200 (6)
General Manager 2001 135,000 4,320 - 6,210 (6)
Dayton Parts, Inc. 2000 135,000 - - 8,100 (6)
(1) Amounts represent the dollar value of base salary earned by the named
executive officer during the fiscal year covered as reported on the
officer's W-2.
(2) The dollar value of perquisites provided to each of the named executive
officers does not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the named executive officer.
(3) Mr. Treadwell does not receive compensation for his services directly from
the Company. Since August 2002, his services were provided to the Company
in accordance with his Employment Agreement with Heritage Holdings, Inc.,
which is dated August 13, 2002. Until QP Acquisition acquired
approximately 95% of the voting stock of the Company from ASC Holdings in
May 2002, Mr. Treadwell provided his services to the Company pursuant to a
Consulting Services Agreement with ASC Holdings dated May 27, 1999.
Payments made by the Company under this Consulting Services Agreement for
the year ended December 31, 2002 were $0, for the year ended 2001 were
$208,333, for the year ended 2000 were $250,000 (see Item 13 "Certain
53
Relationships and Related Transactions"). Mr. Treadwell resigned his
positions as Chief Executive Officer and Chairman of the Board of
Directors of the Company effective on March 31, 2003; he remains as a
director of the Company.
(4) Mr. Koepke was appointed President and Chief Operating Officer on April
24, 2000. Total salary and other compensation paid to Mr. Koepke
represents amounts paid by the Company, of which $49,082, $32,141, and
$24,376 were reimbursed by ASC Incorporated, an affiliate of the Company,
for 2002, 2001, and 2000, respectively, for services rendered by Mr.
Koepke to ASC Incorporated.
(5) Mr. Naglick was appointed Vice President and Chief Financial Officer on
August 16, 2000. Mr. Naglick was also appointed Treasurer in August 2001
and Secretary in April 2003. Total salary and other compensation paid to
Mr. Naglick represents amounts paid by the Company, of which $18,366,
$26,318, and $8,523 were reimbursed by ASC Incorporated, an affiliate of
the Company, for 2002, 2001, and 2000, respectively, for services rendered
by Mr. Naglick to ASC Incorporated.
(6) Represents the amount contributed by the Company to the employee's account
under the Company's 401(k) Savings Plan.
(7) Mr. Kwapisz was appointed Vice President-Sales and Marketing on July 1,
2000.
(8) Effective with the sale of Dayton Parts in February 2003, Mr. Smalley was
no longer an executive officer of the Company. On August 1, 2002, Dayton
Parts entered into an Executive Severance Agreement with Mr. Smalley under
which Mr. Smalley was entitled to certain severance payments if his
employment was terminated under circumstances following a change in
control of Dayton Parts. The purchaser of Dayton Part's assets assumed the
Executive Severance Agreement with Mr. Smalley in February 2003. As a
result, the Company no longer has any payment or other obligations to Mr.
Smalley.
AGGREGATE OPTION EXERCISE IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning the value of unexercised
stock options held by each named Executive Officer of the Company as of December
31, 2002.
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at December 31, 2002 at December 31, 2002
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ------------------ ---------------------------- -----------------------------
David L. Treadwell 0/0 $0/0
Scott K. Koepke 0/0 0/0
Robert A. Naglick 0/0 0/0
Joseph Z. Kwapisz 0/0 0/0
Gary Smalley 25,000/0 0/0
Lori E. Koenig 0/0 0/0
(1) In calculating the value of unexercised in-the-money options at December
31, 2002, the Company used a market value of $.001 per share, the closing
price of shares of Common Shares on the OTC Bulletin Board on December 31,
2002.
54
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS; BONUS AWARDS
Employment Agreement and Bonus Award Letter for Scott K. Koepke
Pursuant to a Letter Agreement, dated as of April 18, 2002, between JPE, Inc.,
ASC Incorporated and Scott K. Koepke, as amended on September 10, 2002 (the
"Koepke Letter Agreement"), ASC Incorporated agreed to make Mr. Koepke available
to the Company to serve as the President and Chief Operating Officer of the
Company. Under the agreement, the Company agreed to include Mr. Koepke on its
payroll, pay him an annual base salary equal to $225000, provide him benefits in
accordance with the Company's employee benefit plans and grant him four weeks
paid vacation per year.
The Koepke Letter Agreement further includes the right of Mr. Koepke to the use
of a Company-owned or -leased automobile of a type that the Board of Directors
deems appropriate. The Company must pay all costs associated with the use of
such automobile, except for Mr. Koepke's personal use of it.
The Koepke Letter Agreement also provides Mr. Koepke with the right to receive
$150,000 in cash from the Company within 30 days following any change of control
or liquidation of the Company occurring before April 18, 2004.
By another letter agreement among the Company and Mr. Koepke in February 2003,
Mr. Koepke forfeited the right to receive $150,000 upon a change in control or
liquidation of the Company under the Koepke Letter Agreement in exchange for the
Company's payment of a $90,000 bonus relating to his contribution to the
improvement of the Company's performance in 2002.
Under an additional letter agreement among the Company, ASC Incorporated and Mr.
Koepke, dated March 3, 2003, the Company agreed that effective as soon as
possible, Mr. Koepke would be included on ASC Incorporated's payroll rather than
JPE's payroll and that his annual base salary under the Koepke Letter Agreement
would be increased to $250,000. Furthermore, ASC Incorporated agreed to
reimburse the Company for 80% of Mr. Koepke's base salary and benefits paid to
him under the Koepke Letter Agreement from January 1, 2003 until the date on
which Mr. Koepke is transferred to the employ of ASC Incorporated. This letter
agreement also effectively modified the Koepke Letter Agreement so that ASC
Incorporated, instead of the Company, would provide benefits to Mr. Koepke and
the Company would reimburse ASC Incorporated for 20% of Mr. Koepke's base salary
and 20% of the cost of his benefits so long as Mr. Koepke continues to provide
services to the Company.
Under a Bonus Award Letter dated June 21, 2002 between the Company and Scott K.
Koepke, the President and Chief Operating Officer of the Company, Mr. Koepke is
entitled to a bonus equal to 4% of the principal and interest paid to ASC
Incorporated in respect to a $15 million loan that ASC Incorporated made to the
Company in February, 2001 (the "ASC Loan") from the proceeds of the sale of
Dayton Parts and Plastic Trim after other obligations of the Company are paid.
Under the Bonus Award Letter, Mr. Koepke is also entitled to 4% of any net
proceeds received by QP Acquisition in connection with a change of control of
the Company. QP Acquisition will not receive any proceeds from the sale of
Dayton Parts or Plastic Trim.
Executive Severance Agreement, Bonus Award Letter and Completion Bonus Letter
for Robert A. Naglick
On June 21, 2002, the Company entered into an Executive Severance Agreement with
Mr. Robert A. Naglick, a Vice President, Chief Financial Officer and Treasurer
of the Company. In April 2003, Mr. Naglick was also appointed as Secretary of
the Company. The agreement provides that, if the Company terminates Mr. Naglick
on or within one year following a change of control of the Company, Mr. Naglick
would be paid an amount in cash equal to one (1) year of his base salary
immediately prior to the change of control minus the amount of his base salary
that he earns in the period between the change of control and the date of his
termination. Mr. Naglick is also entitled to payment for medical insurance
coverage for a period of up to 12 months after a change of control (or for such
shorter period as commences after their termination of employment subsequent to
a change of control and ends 12 months after a change of control). The Company
would not be obligated to make the severance payment or pay for Mr. Naglick's
medical insurance coverage, however, if Mr. Naglick is terminated due to his
death, disability or voluntary retirement or for "cause." Under the agreement,
Mr. Naglick would be deemed to be terminated for "cause" if he: (i)
55
materially failed to perform his assigned duties and not cured such failure (if
curable) within fifteen (15) days of his receipt of written notice of the
failure; (ii) materially breached any provision of the agreement and not cured
such breach (if curable) within fifteen (15) days of his receipt of written
notice of the breach; (iii) engaged in personal dishonesty in connection with
his assigned duties or that harms or is intended to harm the Company; (iv)
engaged in gross misconduct or gross negligence in connection with his assigned
duties or that harms or is intended to harm the Company; (v) engaged in a breach
of fiduciary duty to the Company involving personal profit; (vi) willfully
violated any law, rule, regulation, or final cease-and-desist order (other than
minor traffic violations or similar offenses); or (vii) engaged in other serious
misconduct of such a nature that his continued employment may reasonably be
expected to affect the Company or its reputation adversely.
Furthermore, if ASC Incorporated, an affiliate of the Company, offers Mr.
Naglick a position with comparable pay and benefits to what he would receive
from the Company under his Executive Severance Agreement, Mr. Naglick must
accept ASC Incorporated's offer in lieu of the severance payment under his
Executive Severance Agreement.
The Executive Severance Agreement also includes covenants of Mr. Naglick not to
disclose any confidential or proprietary information of the Company and not to
engage in, work for, participate in the ownership, management, operation or
control of, be connected with, or have any financial interest in, any business
engaged in the same or similar activities to those (a) carried on by the Company
or its subsidiaries as at the date of the agreement or thereafter or (b)
actively considered by the Company or its subsidiaries during the last 24 months
of Mr. Naglick's employment with the Company (other than as a passive owner of
1% or less of the stock of a publicly traded company). The prohibited activities
include, but are not limited to, the design and manufacture of automotive
plastic trim components.
Mr. Naglick has indicated to the Company his intention to voluntarily resign his
employment and executive offices with the Company on June 8, 2003. If Mr.
Naglick voluntarily leaves the employ of the Company on June 8, 2003 as
anticipated, he will forfeit his rights to receive the severance payment under
his Executive Severance Agreement.
Under a Bonus Award Letter dated June 21, 2002, the Company agreed to pay Robert
Naglick 2% of the principal and interest paid by the Company to ASC Incorporated
in respect to the ASC Loan from the proceeds of the sale of Dayton Parts and
Plastic Trim after other obligations of the Company are paid and 2% of any net
proceeds received by QP Acquisition upon a change of control of Company, as long
as he remains an employee of the Company on the applicable payment date. The
Company contemplates paying a bonus to Mr. Naglick based on payments to ASC
Incorporated whether or not he remains employed with the Company or its
affiliates as of the date the bonus payment is actually paid to him. QP
Acquisition will not receive any proceeds from the sale of Dayton Parts or
Plastic Trim.
On July 15, 2002, the Company entered into a Completion Bonus Letter with Mr.
Naglick pursuant to which the Company agreed to pay Mr. Naglick $66,875 in cash
in connection with a change in control of the Company if Mr. Naglick uses his
best efforts to perform his duties and remains employed with the Company through
the date of such change in control.
The terms of the Completion Bonus Letter have been modified by a subsequent
letter agreement dated May 15, 2003. The letter agreement provides that, based
on Mr. Naglick's efforts on behalf of the Company, if he remains employed with
the Company through June 8, 2003 and the sale of Plastic Trim's assets to the
Buyer closes before the end of 2003, Mr. Naglick will receive a completion bonus
of $26,875 as a result of such sale. The letter agreement further provides that
if he remains employed with the Company through June 8, 2003 and executes a
general release of all claims that he may have against the Company and its
affiliates, Mr. Naglick will receive a completion bonus of $40,000, upon the
effective date of such general release, that is related to the sale of Dayton
Parts that was completed in February 2003. The subsequent letter agreement also
confirms that Mr. Naglick would not be entitled to any severance payment or
medical insurance coverage payments under his Executive Severance Agreement.
Executive Severance Agreement, Bonus Award Letter and Completion Bonus Letter
for William J. Carroll
On June 21, 2002, Plastic Trim entered into an Executive Severance Agreement
with Mr. William J. Carroll, General Manager of Plastic Trim. The Agreement
provides that, if Plastic Trim terminates Mr. Carroll on or within one year
following a change of control of Plastic Trim, Mr. Carroll would be paid an
amount in cash equal to one (1) year of
56
his base salary immediately prior to the change of control minus the amount of
his base salary that he earns in the period between the change of control and
the date of his termination. Mr. Carroll is also entitled to payment for medical
insurance coverage for a period of up to 12 months after a change of control (or
for such shorter period as commences after their termination of employment
subsequent to a change of control and ends 12 months after a change of control).
Plastic Trim would not be obligated to make the severance payment or pay for Mr.
Carroll's medical insurance coverage, however, if Mr. Carroll is terminated due
to his death, disability or voluntary retirement or for "cause." Under the
agreement, Mr. Carroll would be deemed to be terminated for "cause" if he: (i)
materially failed to perform his assigned duties and not cured such failure (if
curable) within fifteen (15) days of his receipt of written notice of the
failure; (ii) materially breached any provision of the agreement and not cured
such breach (if curable) within fifteen (15) days of his receipt of written
notice of the breach; (iii) engaged in personal dishonesty in connection with
his assigned duties or that harms or is intended to harm Plastic Trim; (iv)
engaged in gross misconduct or gross negligence in connection with his assigned
duties or that harms or is intended to harm Plastic Trim; (v) engaged in a
breach of fiduciary duty to Plastic Trim involving personal profit; (vi)
willfully violated any law, rule, regulation, or final cease-and-desist order
(other than minor traffic violations or similar offenses); or (vii) engaged in
other serious misconduct of such a nature that his continued employment may
reasonably be expected to affect Plastic Trim or its reputation adversely.
Furthermore, if ASC Incorporated, an affiliate of the Company, offers Mr.
Carroll a position with comparable pay and benefits to what he would receive
from Plastic Trim under his Executive Severance Agreement, Mr. Carroll must
accept ASC Incorporated's offer in lieu of the severance payment under his
Executive Severance Agreement.
Under a Bonus Award Letter dated June 21, 2002, the Company agreed to pay Mr.
Carroll, 2% of the principal and interest paid by the Company to ASC
Incorporated in respect to the ASC Loan from the proceeds of the sale of Dayton
Parts and Plastic Trim after other obligations of the Company are paid and 2% of
any net proceeds received by QP Acquisition upon a change of control of Company,
as long as he remains an employee of Plastic Trim on the applicable payment
date. The Company contemplates paying a bonus to Mr. Carroll based on payments
to ASC Incorporated whether or not he remains employed with Plastic Trim or its
affiliates as of the date the bonus payment is actually paid to him. QP
Acquisition will not receive any proceeds from the sale of Dayton Parts or
Plastic Trim.
On July 15, 2002, Plastic Trim entered into a Completion Bonus Letter with Mr.
Carroll pursuant to which Plastic Trim agreed to pay Mr. Carroll $57,756 in cash
in connection with a change in control of the Plastic Trim if Mr. Carroll uses
his best efforts to perform his duties and remains employed with Plastic Trim
through the date of such change in control.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options exercised or granted during the fiscal year ended
December 31, 2002.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
During 1993, Section 162(m) of the Internal Revenue Code was enacted to limit
the corporate deduction for compensation paid to each of the five most highly
compensated executive officers of a publicly-held corporation to $1 million per
year, unless certain requirements are met. The Compensation Committee has
reviewed the impact of this legislation on the Company's executive compensation
plans and concluded that this legislation should not apply to limit the
deduction for executive compensation paid by the Company in 2002.
57
REPORT OF COMPENSATION COMMITTEE
The report of the Compensation Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Form 10-K
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporated
this information by reference, and shall not be deemed filed under such Acts.
Introduction and Organization
The current member of the Compensation Committee is David L. Treadwell. The
duties of the Compensation Committee include the review and development of
compensation programs for key management, the evaluation of executive
performance, the administration of the Company's compensation programs and the
provision of recommendations about compensation matters to the Board of
Directors.
General Policies
The Compensation Committee's overall compensation policy with regard to
executive officers is to provide a compensation package that is intended to
attract and retain qualified executives and to provide incentives to achieve the
Company's goals and increase shareholder value. The Compensation Committee
implements this policy through base salaries, bonuses and, from time to time,
grants of stock options, stock appreciation rights and restricted stock.
Base Salaries
Base salary is determined for each of the Company's key executives by the
Compensation Committee based upon recommendations of the Company's President and
Chief Operating Officer. Factors affecting executive salary determinations
include experience, leadership, the Company's performance and achievements,
individual initiative, performance and achievements and an evaluation of the
responsibilities of the position held by the executive. No specific weighting of
factors is used.
Bonuses
The Company awards its executive officers discretionary bonuses deemed
appropriate by the Compensation Committee. Bonuses are intended to provide
incentives to achieve the Company's financial and operational goals and increase
shareholder value, as well as to recognize an executive's individual
contributions to the Company. Factors affecting executive bonus determinations
include an evaluation of the Company's results and the executive's initiative,
performance and achievements, and the executive's salary. The Compensation
Committee does not use any specific weighting of factors. The Compensation
Committee obtains recommendations from the President and Chief Operating Officer
as to executive officer bonuses based on an evaluation of each individual
executive's performance during the year.
During fiscal 2002, the Company and its subsidiaries entered into various
agreements to pay bonuses to certain executive officers. The material terms of
the bonus agreements are summarized above in " - Employment Contracts,
Termination of Employment and Change-in-Control Arrangements; Bonus Awards."
Long-Term Incentives
Under the Company's 1993 Stock Option Incentive Plan for Key Employees, as
amended, awards under the 1993 Stock Incentive Plan are available to provide
participants with an increased incentive to make significant contributions to
the long-term performance and growth of the Company and to attract and retain
key employees of exceptional ability. Prior to the date of the Investment
Transaction, May 27, 1999, the Company granted certain key management
individuals stock options under this plan. On November 22, 2000, the Company's
Board of Directors opted to amend the Plan to limit the maximum number of shares
available for grant under the plan to 500,000 shares, and to terminate the plan
no later than October 6, 2010. These amendments received shareholder approval on
July 19, 2001. The options qualifying as incentive options will not be less than
100 percent of the higher of the fair
58
market value of the shares on the date of the original grant or the fair market
value of the shares on November 22, 2000. Since May 27, 1999, no further options
have been granted under this plan.
Other Compensation
The Company has adopted certain employee benefit plans, including its 401(k)
savings plan and health benefit plans, in which executive officers have been
permitted to participate. Benefits under these plans are not directly or
indirectly tied to the Company's performance.
Chief Executive Officer Compensation
David L. Treadwell, Chief Executive Officer of the Company during the fiscal
year 2002 and until March 31, 2003, did not receive compensation for his
services directly from the Company. During fiscal 2002 until QP Acquisition
acquired 95% of the voting stock of the Company in May 2002, his services were
provided to the Company pursuant to a Consulting Services Agreement with ASC
Holdings dated May 27, 1999 (see Item 13 "Certain Relationships and Related
Transactions"). Beginning in August 2002, Mr. Treadwell's services were provided
to the Company as required by his Employment Agreement with Heritage Holdings,
Inc., which is dated August 13, 2002.
By the Compensation Committee
David L. Treadwell
59
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002 and until his resignation on March 31, 2003, Mr. Treadwell did not
receive compensation for his services directly from the Company; however,
companies of which Mr. Treadwell served as an officer and director received
consulting payments from or were otherwise affiliated with companies that are
lenders to or have otherwise provided services to the Company (see Item 13 -
"Certain Relationships and Related Transactions").
STOCK PERFORMANCE GRAPH
The following table compares the cumulative return since December 31, 1995 on a
hypothetical investment in JPE, Inc. (JPEI), the NASDAQ National Market (U.S.)
Index and other motor vehicle equipment manufacturers and distributors. The
stock price performance shown on the graph is not necessarily indicative of
future price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG JPE, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
(LINE GRAPH)
Cumulative Total Return
-----------------------
12/97 12/98 12/99 12/00 12/01 12/02
----- ----- ----- ----- ----- -----
JPE, INC. 100.00 8.99 1.13 0.54 0.18 0.02
NASDAQ STOCK MARKET (U.S.) 100.00 140.99 261.48 157.42 124.89 86.33
PEER GROUP 100.00 118.57 73.41 42.79 54.38 9.38
* $100 invested on 12/31/97 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information relating to the beneficial ownership of
outstanding shares of Common Shares and First Series Preferred Shares of the
Registrant by each person who is known to the Company to be the beneficial owner
of more than 5% of the outstanding shares of Common Shares and First Series
Preferred Shares as of March 31, 2003.
BENEFICIAL OWNERS OF MORE THAN 5% OF SHARES
NAME AND ADDRESS OF AMOUNT & NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------- ---------------- -------------------- --------
Common Shares QP Acquisition #2, Inc.(1) 9,441,420 67.2%
Questor Partners Fund II, L.P.(2)
Questor Side-by-Side Partners II, L.P.(2)
Questor Side-by-Side Partners II 3(c)(1), L.P.(2)
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
David L. Treadwell(3) 9,441,420 67.2%
One Heritage Place, Suite 150
Southgate, MI 48195
First Series QP Acquisition #2, Inc.(1) 1,952,352 (1) 98.9%
Preferred Shares Questor Partners Fund II, L.P.(2)
Questor Side-by-Side Partners II, L.P.(2)
Questor Side-by-Side Partners II 3(c)(1), L.P.(2)
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
David L. Treadwell(3) 1,952,352 98.9%
One Heritage Place, Suite 150
Southgate, MI 48195
(1) QP Acquisition has pledged these shares of the Company as collateral to
secure the Company's $9 million Revolving Credit loan from Comerica Bank.
(2) Questor Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P. and
Questor Side-by-Side Partners II 3(c)(1), L.P. own controlling interests
in QP Acquisition and each, therefore, may be deemed to beneficially own
QP Acquisition's shares of JPE, Inc. within the meaning of Rule 13d-3.
(3) Mr. Treadwell is a director of JPE, Inc., was Chief Executive Officer of
JPE, Inc. until March 31, 2003, and owns 21% of the shares of QP
Acquisition and may, therefore, be deemed to beneficially own QP
Acquisition's shares of JPE, Inc. within the meaning of Rule 13d-3.
61
SECURITIES OWNERSHIP OF MANAGEMENT
NAME OF AND ADDRESS AMOUNT & NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------- ---------------- -------------------- --------
Common Shares David L. Treadwell(1) 9,441,420 67.2%
Director
One Heritage Place, Suite 150
Southgate, MI 48195
Scott K. Koepke 0 *%
Director, President and Chief Operating Officer
1030 Doris Road
Auburn Hills, MI 48326-2613
Robert A. Naglick 0 *%
Vice President, Chief Financial Officer
1030 Doris Road
Auburn Hills, MI 48326-2613
Joseph Z. Kwapisz(1) 4,200 *%
Vice President - Sales and Marketing
1030 Doris Road
Auburn Hills, MI 48326-2613
Lori Koenig(2) 0 *%
Secretary
1030 Doris Road
Auburn Hills, MI 48326-2613
Directors & executive officers of the Company as a group 9,445,620 67.3%
First Series David L. Treadwell(1) 1,952,352 98.9%
Preferred Shares Director
One Heritage Place, Suite 150
Southgate, MI 48195
Scott K. Koepke 0 *%
Director, President and Chief Operating Officer
1030 Doris Road
Auburn Hills, MI 48326-2613
Robert A. Naglick 0 *%
Vice President, Chief Financial Officer
1030 Doris Road
Auburn Hills, MI 48326-2613
Joseph Z. Kwapisz 6,898 *%
Vice President - Sales and Marketing
1030 Doris Road
Auburn Hills, MI 48326-2613
Lori Koenig(2) 0 *%
Secretary
1030 Doris Road
Auburn Hills, MI 48326-2613
Directors & executive officers of the Company as a group 1,959,250 99.3%
62
(1) Mr. Treadwell is a director of JPE, Inc., was Chief Executive Officer of
JPE, Inc. until March 31, 2003, and owns 21% of the shares of QP
Acquisition and may, therefore, be deemed to beneficially own QP
Acquisition's shares of JPE, Inc. within the meaning of Rule 13d-3.
(2) Lori Koenig resigned as Secretary April 15, 2003.
* Less than 1.0%.
EQUITY COMPENSATION PLANS
The table below provides aggregate information relating to the Company's
employee option plans as of December 31, 2002. Additional information concerning
such employee option plans is provided in "Report of Compensation Committee -
Long Term Incentives," above.
Plan Category (a) (b) (c)
Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding options, remaining available for
outstanding options, warrants warrants and rights future issuance under
and rights equity compensation plans
(excluding securities
reflected in column (a))
- ---------------------------- ----------------------------- ----------------------------- -------------------------
Equity compensation plans 51,750 $7.25 0
approved by security holders
Equity compensation plans 0 $0.00 0
not approved by security
holders
Total 51,750 $7.25 0
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 27, 1999, the Company entered into a Consulting Services Agreement with
ASC Holdings which required payment of $250,000 annually, payable monthly, for
consulting services provided by ASC Holdings with respect to various business,
operating, management, legal and financial matters. No payments were made under
this consulting arrangement in 2002, and the Consulting Services Agreement was
terminated upon QP Acquisition's purchase of 95% of the voting stock of the
Company that was owned by ASC Holdings.
In connection with the rendering of services by the Company's executive officers
and other key management personnel to ASC Incorporated, the Company received
reimbursement of $352 thousand for actual costs incurred by the Company during
2002. In addition, the Company paid $273 thousand during 2002 to ASC
Incorporated for rent, technical and quality control services, and information
technology support. An affiliate of QP Acquisition owns all of the outstanding
capital stock of ASC Incorporated.
The Company's $15 million and $3 million subordinated demand notes to ASC
Incorporated accrued interest at ASC Incorporated's cost of borrowing. As of
December 31, 2002, $105 thousand of interest was paid to ASC Incorporated and $0
of interest was accrued and payable to ASC Incorporated. The April 16, 2002
amendment to the Comerica Facility prohibits the Company from paying interest to
ASC Incorporated on the $15 million note.
In February 2001, prior to ASC Incorporated becoming an affiliate of QP
Acquisition, ASC Incorporated made the ASC Loan to the Company in the principal
amount of $15,000,000. At the same time, ASC Incorporated also provided the
Company with a $3 million line of credit. The ASC Loan and the line of credit
were required by Comerica Bank as a condition to Comerica Bank refinancing the
Company's loan at that time. At the time the ASC
63
Loan and line of credit were provided, ASC Incorporated was owned by Heinz C.
Prechter, deceased, who was also the principal beneficial shareholder of the
Company. The line of credit was not utilized after an affiliate of QP
Acquisition acquired ASC Incorporated and is no longer in effect. The ASC Loan
provides that it bears interest at ASC Incorporated's cost of borrowing (during
the period that interest was paid it was paid at ASC Incorporated's actual
weighted average cost of borrowing of approximately 4.5%). The principal amount
of the loan is payable on demand and interest is payable monthly. As of December
31, 2002, $105 thousand of interest was paid to ASC Incorporated and $0 of
interest was accrued and payable to ASC Incorporated. As Comerica Bank has
restricted the Company from paying interest on the ASC Loan, the Company has
ceased accruing interest for such loan. The Company granted ASC Incorporated a
security interest in substantially all of the Company's assets to secure
repayment of the loan. The security interest of ASC Incorporated in the
Company's assets and its right to receive payment from the Company is subject
and subordinate to all obligations of the Company to Comerica Bank. Proceeds
from the sale of Plastic Trim's assets as well as any proceeds received by the
Company from the escrow established in connection with the sale of Dayton Parts
will be used to pay transaction related expenses, pay the secured debt of
Comerica Bank and pay obligations to other creditors, including a portion of the
ASC Loan.
David Treadwell, who is a director of the Company, is also a director of ASC
Incorporated. Mr. Treadwell also served between May 27, 1999 and March 31, 2003
as Chairman of the Board and Chief Executive Officer of the Company and was,
from May 24, 2002 until September 2002, acting Chief Executive Officer of ASC
Incorporated. Until March 31, 2003, Mr. Treadwell also served as an officer and
director of various other affiliates of the Company. In addition, Mr. Treadwell
owns approximately 21% of the capital stock of QP Acquisition and has
approximately a .063% interest in the capital stock of QP Acquisition #1, Inc.,
and a .07% ownership interest in QP Realty LLC, both affiliates of QP
Acquisition. Mr. Treadwell also holds a note payable from QP Acquisition #1,
Inc. for approximately $14,425. QP Acquisition #1, Inc. owns all of the issued
and outstanding capital stock of ASC Incorporated. QP Realty LLC owns certain
real estate, including real estate occupied by ASC Incorporated and subleased to
the Company. Mr. Treadwell is entitled to receive severance payments, payment of
medical insurance premiums and office space from Heritage Development Company,
an affiliate of the Company, until March 31, 2004 or the date he obtains
full-time employment from another employer and has agreed to provide consulting
services to Heritage Development Corporation and its affiliates. It is currently
contemplated that if various performance criteria related to work that Mr.
Treadwell continues to do for affiliates of QP Acquisition are met, Mr.
Treadwell will receive a bonus from an affiliate of the Company, approximately
$25,000 of which would relate to Mr. Treadwell's efforts in advising the Company
in connection with the sale of its subsidiaries.
Scott K. Koepke is a director of the Company and its President and Chief
Operating Officer. Mr. Koepke is also Chief Operating Officer of ASC
Incorporated. Until March 1, 2003, the Company was paying Mr. Koepke his salary
and benefits. Until January 1, 2003, ASC Incorporated was reimbursing the
Company for approximately 32% of such salary and 20% of the benefits. Starting
January 1, 2003, ASC Incorporated began reimbursing the Company for 80% of Mr.
Koepke's salary and benefits. Effective March 1, 2003, ASC Incorporated began
paying Mr. Koepke his salary and benefits and the Company reimburses ASC
Incorporated for 20% of such salary and benefits (such reimbursement is
currently approximately $55,000 per year).
Messrs. Koepke and Naglick, who are executive officers of the Company, and
William J. Carroll, the General Manager of Plastic Trim, are entitled to certain
bonus awards as a result of the sale of Dayton Parts' and Plastic Trim's assets.
These bonus awards, and certain other severance payments and benefits due
Messrs. Koepke, Naglick and Carroll, are summarized in Item 11 "Executive
Compensation - Employment Contracts, Termination of Employment and
Change-in-Control Arrangements; Bonus Awards."
The Company has a $150,000 note payable to Joseph Z. Kwapisz, who is currently
the Vice President - Sales and Marketing of the Company, in connection with the
purchase of MB Associates on July 1, 2000 (see Footnote 1 to the Financial
Statements in Part II, Item 8). Mr. Kwapisz is one of the former owners of MB
Associates.
ITEM 14 CONTROLS AND PROCEDURES.
Evaluation. Within the 90 days prior to the date of this report on Form 10-K,
the Company evaluated the effectiveness of the design and operation of our
"disclosure controls and procedures" ("Disclosure Controls"). This
64
evaluation ("Controls Evaluation") was done under the supervision and with the
participation of management, including the President and Chief Operating Officer
acting as Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that our Disclosure Controls or our
"internal controls and procedures for financial reporting" ("Internal Controls")
will prevent all error and all fraud. A control system, no matter how well
conceived, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded
that, to the best of their knowledge and subject to the limitations noted above,
the Disclosure Controls are effective to timely alert management to material
information relating to us during the period when our periodic reports are being
prepared.
In accordance with SEC requirements, the CEO and CFO note that, to the best of
their knowledge, since the date of the Controls Evaluation to the date of this
Annual Report, there have been no significant changes in Internal Controls or in
other factors that could significantly affect Internal Controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
65
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LISTING OF DOCUMENTS
(1) Financial Statements
The Company's Consolidated Financial Statements included in
Item 8 hereof, as required at December 31, 2000, 2001, and
2002, consist of the following:
o Reports of Independent Auditors
o Consolidated Balance Sheets
o Consolidated Statements of Operations
o Consolidated Statements of Shareholders' Equity
o Consolidated Statements of Cash Flows
o Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
The financial statement schedule of the Company appended
hereto, as required for the years ended December 31, 2000,
2001 and 2002, consists of the following:
II. Valuation and Qualifying Accounts
(3) Exhibits
See Exhibit Index.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K with the Securities
and Exchange Commission during the fourth quarter of the fiscal year
ended December 31, 2002, but did file a report on Form 8-K with the
Securities and Exchange Commission on March 4, 2003.
66
ITEM 16. PRINCIPAL ACCOUNTANT, FEES AND SERVICES
The Board of Directors has reappointed Ernst & Young as independent accountants
to audit the financial statements of the Company for the current fiscal year,
and to review financial statements contained in the Company's interim period
reports on Form 10Q in accordance with the Statement on Auditing Standards No.
71.
Audit Fees
Total fees paid to Ernst & Young by the Company for its audit of the Company's
2002 financial statements and for its review of financial statements on Form 10Q
were $165,000
Audit Related Fees
The total fees paid to Ernst & Young for audit related services were $23,500
during 2002.
Tax Fees
The Company paid Ernst & Young $79,000 for tax services for the year ended
December 31, 2002. The types of tax services provided included assistance with
tax compliance and the preparation of tax returns, tax consultation, and
planning.
Financial Information Systems Design and Implementation Fees
The Company did not pay any fees to Ernst & Young in 2002 for financial
information systems design and implementation services.
67
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 on May 22, 2003 by the undersigned, thereunto duly authorized.
JPE, INC.
By: /s/ Robert A. Naglick
-------------------------------
Robert A. Naglick
Vice President, Chief Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ David L. Treadwell Director May 22, 2003
- ---------------------------
David L. Treadwell
/s/ Scott K. Koepke President May 22, 2003
- ------------------------------------
Scott K. Koepke Chief Operating Officer
/s/ Robert A. Naglick Vice President May 22, 2003
- ------------------------------------
Robert A. Naglick Chief Financial Officer
Principal Accounting Officer
68
CERTIFICATION
I, Scott K. Koepke, President and Chief Operating Officer of JPE, Inc., certify
that:
1. I have reviewed this Annual Report on Form 10-K of JPE, Inc.
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(c) The registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 22, 2003 /s/ Scott K. Koepke
-----------------------------
Scott K. Koepke
President and Chief
Operating Officer
69
CERTIFICATION
I, Robert A. Naglick, Vice President and Chief Financial Officer of JPE, Inc.,
certify that:
1. I have reviewed this Annual Report on Form 10-K of JPE, Inc.
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(c) The registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 22, 2003 /s/ Robert A. Naglick
-----------------------------
Robert A. Naglick
Vice President and Chief
Financial Officer
70
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Asset Purchase Agreement dated December 31, 1992, among Varity
Corporation, a subsidiary of Varity Corporation formerly known as
Dayton Parts, Inc., the Registrant and JPE Acquisition I, Inc.,
incorporated by reference to Exhibit 2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68544).
2.2 Stock Purchase Agreement dated December 13, 1994 by and among JPE,
Inc. and the Shareholders of SAC Corporation, incorporated by
reference to Registrant's Current Report on Form 8-K dated December
28, 1994.
2.3 Asset Purchase Agreement dated February 28, 1995 among JPE
Acquisition II, Inc., Key Manufacturing Group Limited Partnership
and TTD Management, Inc., incorporated by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated March 14, 1995.
2.4 Acquisition Agreement dated as of April 6, 1995 among JPE, Inc.,
Plastic Trim Acquisition Corp. and Plastic Trim, Inc., incorporated
by reference to Exhibit 2 to Registrant's Current Report on Form 8-K
dated April 24, 1995.
2.5 Agreement of Purchase and Sale dated November 15, 1996 between JPE,
Inc., in trust for 1203462 Ontario Inc., and Pebra Inc.,
incorporated by reference to Registrant's Current Report on Form 8-K
dated January 6, 1997.
2.6 Stock Purchase Agreement dated April 16, 1997 among JPE, Inc.,
Dayton Parts, inc. and the Stockholders of Brake, Axle and Tandem
Company, incorporated by reference to Registrant's Current Report on
Form 8-K dated April 30, 1997.
2.7 Asset Purchase Agreement, dated as of August 28, 1998, by and
between R&B, Inc. and Allparts, Inc., incorporated by reference to
Exhibit 2.1 to Registrant's Current Report on Form 8-K dated
November 12, 1998.
2.8 Amendment No. 1, dated October 15, 1998, to Asset Purchase
Agreement, dated as of August 28, 1998, by and between R&B, Inc. and
Allparts, Inc., incorporated by reference to Exhibit 2.2 to
Registrant's Current Report on Form 8-K dated November 12, 1998.
2.9 Agreement dated December 8, 1998 between The Bank of Nova Scotia,
Ventra Group Inc., General Motors Corporation, General Motors of
Canada Limited and Grant Thornton Limited, incorporated by reference
to Exhibit 2.9 to the Registrant's Annual Report on Form 10-K dated
April 15, 1999.
2.10 Stock Purchase Agreement dated as of March 26, 1999 by and among
JPE, Inc., Industrial & Automotive Fasteners, Inc. and MacLean
Acquisition Company, incorporated by reference to Exhibit 2.10 to
the Registrant's Annual Report on Form 10-K dated April 15, 1999.
2.11 Amended and Restated Asset Purchase Agreement, dated as of May 14,
2003, by and among JPE, Inc., Plastic Trim, Inc. and PTI
Acquisition, LLC.(1)
2.12 Plan of Dissolution of the Company.
3.1 Articles of Incorporation, incorporated by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1 (File No.
33-68544).
3.2 Bylaws, adopted as of May 28, 1999, incorporated by reference to
Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.
4 Form of Certificate for Shares of the Common Stock, incorporated by
reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-1 (File No. 33-68544).
(1) Disclosure schedules omitted. A list of disclosure schedules is included
after the table of contents of the Amended and Restated Purchase
Agreement. The issuer will furnish a supplementary copy of any omitted
disclosure schedule to the Commission upon request.
71
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Form of Certificate for Shares of Preferred Stock, incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form
8-K dated May 27, 1999.
4.2 Form of Preferred Stock Warrant issued to Bank Group, incorporated
by reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated May 27, 1999.
4.3 Form of Preferred Stock Warrant to be issued to share holder of
record of JPE, Inc. Common Stock as of June 11, 1999, incorporated
by reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated May 27, 1999.
10.1 Shareholder Agreement (Conformed Copy), incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.2 Indemnification Agreement dated September 1, 1993, between the
Registrant and Dr. John Psarouthakis, incorporated by reference to
Exhibit 10.7 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.3 Indemnification Agreement dated September 1, 1993, between the
Registrant and Dr. Otto Gago, incorporated by reference to Exhibit
10.8 to the Registrant's Registration Statement on Form S-1 (File
No. 33-68544).
10.4 Indemnification Agreement dated September 1, 1993, between the
Registrant and John F. Daly, incorporated by reference to Exhibit
10.9 to the Registrant's Registration Statement on Form S-1 (File
No. 33-68544).
10.5 Indemnification Agreement dated September 1, 1993, between the
Registrant and Donald R. Mandich, incorporated by reference to
Exhibit 10.10 to the Registrant's Registration Statement on Form S-1
(File No. 33-68544).
10.6 JPE, Inc. Warrant to Purchase Common Stock issued by the Registrant
in favor of Roney & Co., incorporated by reference to Exhibit 10.11
to the Registrant's Registration Statement on Form S-1 (File No.
33-68544). Pursuant to its terms, the foregoing Warrant was
surrendered and exchanged for substitute Warrants identical to the
foregoing Warrant in all respects except for the name of the
substitute Warrant holder and the number of shares of the
Registrant's Common Stock for which the substitute Warrants are
exercisable, which terms are as follows:
Number of Shares
of Common Stock for
Warrant Holder which Warrant is Exercisable
-------------- ----------------------------
Roney & Co. 10,000
John C. Donnelly 6,250
James C. Penman 6,250
Dan B. French, Jr. 2,500
10.7 Exclusive Distributor Agreement dated December 31, 1992, between
Dayton Walther Corporation ("DWC") and Dayton Parts, incorporated by
reference to Exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
10.8 Exclusive Distributor Agreement dated December 31, 1992, between DWC
and Dayton Parts, incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (File No. 33-68544).
10.9 Letter Agreement dated December 31, 1992, from Kelsey-Hayes Company
to JPE Acquisition I, Inc. (now known as Dayton Parts), incorporated
by reference to Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 (File No. 33-68544).
72
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.10 Lease Agreement dated May 3, 1993, between Central Storage &
Transfer Company of Harrisburg, Inc. ("CSTCH") and Dayton Parts, as
amended by First Addendum to Lease dated May 3, 1993, between CSTCH
and Dayton Parts, incorporated by reference to Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1 (File No. 33-68544).
10.11 JPE, Inc. 1993 Stock Incentive Plan for Key Employees, as amended,
incorporated by reference to Exhibit 28 to the Registrant's
Registration Statement on Form S-8 (File No. 33-92236).
10.12 Form of JPE, Inc. Warrant to purchase an aggregate of 100,000 shares
of Common Stock at $9.50 per share issued by the Registrant in favor
of the sellers of SAC Corporation, incorporated by reference to
Exhibit 4.a. to the Registrant's Form 8-K dated December 28, 1994.
10.13 Third Amendment to JPE, Inc. 1993 Stock Incentive Plan for Key
Employees, incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
* 10.14 JPE, Inc. Director Stock Option Plan, incorporated by reference to
Exhibit 28 to the Registrant's Registration Statement on Form S-8
(File No. 33-93328).
10.15 Form of Indemnification Agreement dated February 8, 1995, between
the Registrant and Donna L. Bacon, incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
10.16 Form of Indemnification Agreement between the Registrant and James
J. Fahrner, incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995.
10.17 Form of Indemnification Agreement between Registrant and C. William
Mercurio, incorporated by reference to Exhibit 10.19 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.
10.18 Third Amended and Restated Credit Agreement dated as of December 31,
1996, by and among Comerica Bank, other participants and JPE, Inc.
(the "Credit Agreement"), incorporated by reference to Exhibit 10.20
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.19 Credit Agreement dated as of December 20, 1996 between JPE Canada
Inc. and The Bank of Nova Scotia, incorporated by reference to
Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
10.20 Form of Indemnification Agreement between the Registrant and David
E. Cole, filed, incorporated by reference to Exhibit 10.22 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997.
10.21 Amendment 1 dated April 16, 1997 to the Credit Agreement,
incorporated by reference to Exhibit 10.23 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.22 Amendment 2 dated August 14, 1997, effective June 30, 1997, to the
Credit Agreement, incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
10.23 Amendment 3 dated February 13, 1998 to the Credit Agreement,
incorporated by reference to Exhibit 10.25 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.24 Amendment 4 and Limited Waiver, dated as of May 15, 1998, to the
Credit Agreement, incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
10.25 Letter Agreement (the "Forbearance Agreement"), dated August 10,
1998 among the Banks, Comerica Bank, as Agent, JPE, Inc. and its
subsidiaries, incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
73
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.26 First Amendment dated August 31, 1998 to Forbearance Agreement,
incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.27 Second Amendment dated September 4, 1998 to Forbearance Agreement,
incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.28 Third Amendment dated September 16, 1998 to Forbearance Agreement,
incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.29 Fourth Amendment dated October 1, 1998 to Forbearance Agreement,
incorporated by reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.30 Final Order Authorizing Postpetition Financing and Providing
Adequate Protection for Plastic Trim, Inc. dated October 29, 1998,
incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.31 Final Order Authorizing Postpetition Financing and Providing
Adequate Protection for Starboard Industries, Inc. dated October 29,
1998, incorporated by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
* 10.32 Executive Severance Agreement dated February 20, 1998 between
Registrant and Donna L. Bacon, incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
* 10.33 Amendment No. 1, dated May 21, 1998, to Executive Severance
Agreement between Registrant and Donna L. Bacon, incorporated by
reference to Exhibit 10.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
* 10.34 Executive Severance Agreement dated February 20, 1998 between
Registrant and James J. Fahrner, incorporated by reference to
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
* 10.35 Amendment No. 1, dated May 21, 1998, to Executive Severance
Agreement between Registrant and James J. Fahrner, incorporated by
reference to Exhibit 10.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
* 10.36 Stay Bonus Agreement, dated as of September 1, 1998, between JPE,
Inc. and Donna L. Bacon, incorporated by reference to Exhibit 10.7
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
* 10.37 Stay Bonus Agreement, dated as of September 21, 1998, between JPE,
Inc. and James J. Fahrner, incorporated by reference to Exhibit 10.8
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
* 10.38 Stay Bonus Agreement, dated as of September 30, 1998, between JPE,
Inc. and Karen A. Radtke, incorporated by reference to Exhibit 10.9
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.39 Fifth Amendment, dated December 1, 1998, to Forbearance Agreement,
incorporated by reference to Exhibit 10.39 to the Registrant's
Annual Report on Form 10-K dated April 15, 1999.
10.40 Sixth Amendment, dated March 26, 1999, to Forbearance Agreement,
incorporated by reference to Exhibit 10.40 to the Registrant's
Annual Report on Form 10-K dated April 15, 1999.
10.41 Form of Indemnification Agreement, dated as of September 30, 1998,
between the Registrant and Richard P. Eidswick, incorporated by
reference to Exhibit 10.41 to the Registrant's Annual Report on Form
10-K dated April 15, 1999.
74
EXHIBIT
NUMBER DESCRIPTION
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10.42 Form of Indemnification Agreement, dated as of November 9, 1998,
between the Registrant and Richard R. Chrysler, incorporated by
reference to Exhibit 10.42 to the Registrant's Annual Report on Form
10-K dated April 15, 1999.
10.43 Form of letter dated November 28, 1998 from Dr. John Psarouthakis
terminating Shareholder Agreement, incorporated by reference to
Exhibit 10.43 to the Registrant's Annual Report on Form 10-K dated
April 15, 1999.
* 10.44 Letter dated February 5, 1999 amending terms of Stay Bonus Agreement
between the Registrant and James J. Fahrner, incorporated by
reference to Exhibit 10.44 to the Registrant's Annual Report on Form
10-K dated April 15, 1999.
* 10.45 Letter dated February 5, 1999 amending terms of Stay Bonus Agreement
between the Registrant and Karen A. Radtke, incorporated by
reference to Exhibit 10.45 to the Registrant's Annual Report on Form
10-K dated April 15, 1999.
10.46 Investment Agreement dated April 28, 1999 among ASC Holdings LLC,
Kojaian Holdings LLC and JPE, Inc., incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form 10-K dated
May 27, 1999.
10.47 Tenth Amendment dated May 21, 1999, to forbearance Agreement,
incorporated by reference to Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K dated May 27, 1999.
10.48 Letter Agreement, dated May 26, 1999, among Comerica Bank as Agent,
JPE, Inc. and its subsidiaries, incorporated by reference to Exhibit
10.3 to the Registrant's Current Report on Form 8-K dated May 27,
1999
10.49 Letter Agreement, dated May 27, 1999, among Comerica Bank, JPE, Inc.
and its subsidiaries, incorporated by reference to Exhibit 10.4 to
the Registrant's Current Report on Form 8-K dated May 27, 1999.
10.50 Form of Promissory Note dated May 27, 1999 in the principal amount
of $20,000,000 executed by JPE, Inc. and its subsidiaries,
incorporated by reference to Exhibit 10.5 to the Registrant's
Current Report on Form 8-K dated May 27, 1999
10.51 Form of Promissory Note dated May 27, 1999 in the principal amount
of $6,300,000 executed by JPE, Inc. and its subsidiaries,
incorporated by reference to Exhibit 10.6 to the Registrant's
Current Report on Form 8-K dated May 27, 1999
10.52 Form of Promissory Note dated May 27, 1999 in the principal amount
of $30,000,000 executed by JPE, Inc. and its subsidiaries,
incorporated by reference to Exhibit 10.7 to the Registrant's
Current Report on Form 8-K dated May 27, 1999
10.53 Advance Formula Agreement, dated May 27, 1999 between JPE, Inc. and
its subsidiaries and Comerica Bank, incorporated by reference to
Exhibit 10.8 to the Registrant's Current Report on Form 8-K dated
May 27, 1999.
10.54 Form of Security Agreement (All Assets), dated as of May 27, 1999,
executed by JPE, Inc. and each of its subsidiaries, incorporated by
reference to Exhibit 10.9 to the Registrant's Current Report on Form
8-K dated May 27, 1999
10.55 Patent and Trademark Security Agreement, dated as of May 27, 1999
made by JPE, Inc. in favor of Comerica Bank, incorporated by
reference to Exhibit 10.10 to the Registrant's Current Report on
Form 8-K dated May 27, 1999
10.56 Security Agreement (Negotiable Collateral), dated as of May 27,
1999, executed by each of ASC Holdings LLC, Kojaian Holdings, JPE,
Inc. and its wholly-owned subsidiary, SAC Corporation, incorporated
by reference to Exhibit 10.11 to the Registrant's Current Report on
Form 8-K dated May 27, 1999
10.57 Guaranty, dated as of May 27, 1999, executed by ASC Holdings LLC,
Kojaian Holdings LLC, API/JPE, Inc. and SAC Corporation,
incorporated by reference to Exhibit 10.12 to the Registrant's
Current Report on Form 8-K dated May 27, 1999
75
EXHIBIT
NUMBER DESCRIPTION
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10.58 Letter Agreement, dated May 27, 1999, among Heinz C. Prechter, Mike
Kojaian and C. Michael Kojaian, incorporated by reference to Exhibit
10.13 to the Registrant's Current Report on Form 8-K dated May 27,
1999
10.59 Shareholders Agreement dated May 27, 1999 between ASC Holdings LLC
and Kojaian Holdings LLC, incorporated by reference to Exhibit 10.14
to the Registrant's Current Report on Form 8-K dated May 27, 1999
10.60 Employment Agreement, dated May 27, 1999, between Richard R.
Chrysler and JPE, Inc., incorporated by reference to Exhibit 10.15
to the Registrant's Current Report on Form 8-K dated May 27, 1999
10.61 Termination Agreement and Release of All Liability, dated May 27,
1999, between Richard C. Chrysler and JPE, Inc., incorporated by
reference to Exhibit 10.16 to the Registrant's Current Report on
Form 8-K dated May 27, 1999.
10.62 Termination Agreement and Release of All Liability, dated May 27,
1999, between Richard P. Eidswick and JPE, Inc., incorporated by
reference to Exhibit 10.17 to the Registrant's Current Report on
Form 8-K dated May 27, 1999.
10.63 Letter Agreement among GMAC Business Credit LLC, Comerica Bank and
Plastic Trim, Inc., incorporated by reference to Exhibit 10.18 to
the Registrant's Current Report on Form 8-K dated May 27, 1999.
10.64 Letter Agreement among GMAC Business Credit LLC, Comerica Bank and
Starboard Industries, Inc., incorporated by reference to Exhibit
10.19 to the Registrant's Current Report on Form 8-K dated May 27,
1999.
10.65 Letter Agreement, dated August 30, 1999, among Mike Kojaian, C.
Michael Kojaian, Kojaian Holdings LLC, Heinz C. Prechter and ASC
Holdings LLC, incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated December 30, 1999.
10.66 Release of Guarantor (Kojaian Holdings LLC) from Guaranty dated May
27, 1999, incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K dated December 30, 1999.
10.67 Agreement dated September 24, 1999 between Registrant and The Bank
Of Nova Scotia releasing the Registrant of the Guarantee made on
behalf of JPE Canada Inc., incorporated by reference to Exhibit
10.67 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.68 Subordinated Demand Revolving Credit Note for $1,500,000, dated
January 24, 2001, between the Registrant and ASC Incorporated,
incorporated by reference to Exhibit 10.68 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2000.
10.69 Credit Agreement dated February 7, 2001 between the Registrant and
Comerica Bank, incorporated by reference to Exhibit 10.69 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 2000.
10.70 Form of Revolving Credit Note dated February 7, 2001 to Comerica
Bank in the principal amount of $33,000,000 executed by the
Registrant, incorporated by reference to Exhibit 10.70 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 2000.
10.71 Advance Formula Agreement, dated February 7, 2001 between the
Registrant and Comerica Bank, incorporated by reference to Exhibit
10.71 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000.
10.72 Subordination Agreement dated February 7, 2001 between ASC
Incorporated, Comerica Bank and the Registrant, incorporated by
reference to Exhibit 10.72 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2000.
76
EXHIBIT
NUMBER DESCRIPTION
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10.73 Revolving Line of Credit Note for $3,000,000 dated February 7, 2001,
between the Registrant and ASC Incorporated, incorporated by
reference to Exhibit 10.73 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2000.
10.74 Subordinated Demand Business Loan Rate for $15,000,000, dated
February 7, 2001, between the Registrant and ASC Incorporated,
incorporated by reference to Exhibit 10.74 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2000.
10.75 Subordinated Security Agreement, executed by the Registrant on
February 7, 2001, incorporated by reference to Exhibit 10.75 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 2000.
10.76 First Amendment to the JPE, Inc. 1993 Stock Incentive Plan for Key
Employees dated November 22, 2000, incorporated by reference to
Exhibit 10.76 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000.
* 10.77 Letter Agreement, dated as of April 18, 2002, between JPE, Inc., ASC
Incorporated and Scott K. Koepke regarding the employment of Mr.
Koepke, incorporated by reference to Exhibit 10.6 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002.
* 10.78 Amendment to Letter Agreement, dated as of September 10, 2002,
between Scott K. Koepke and JPE, Inc.
* 10.79 Executive Severance Agreement, dated as of June 21, 2002, between
JPE, Inc., and Robert A. Naglick, incorporated by reference to
Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2002.
* 10.80 Completion Bonus Letter Agreement, dated as of July 15, 2002,
between JPE, Inc., and Robert A. Naglick, incorporated by reference
to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2002.
* 10.81 Bonus Award Letter Agreement, dated as of June 21, 2002, between
JPE, Inc., and Robert A. Naglick, incorporated by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2002.
* 10.82 Letter Agreement, dated as of May 15, 2003, between JPE, Inc. and
Robert A. Naglick.
20.1 Press Release dated December 30, 1999 announcing ASC Holdings LLC
becomes majority owner of Registrant, incorporated by reference to
Exhibit 20.1 to the Registrant's Current Report on Form 8-K dated
December 30, 1999.
21 Subsidiaries of the Registrant, incorporated by reference to Exhibit
10.39 to the Registrant's Annual Report on Form 10-K dated April 15,
1999.
23 Consent of PricewaterhouseCoopers LLP, incorporated by reference to
Exhibit 23 to the Registrant's Annual Report on Form 10-K dated
April 15, 1999.
23.1 Consent of Ernst & Young LLP, filed with this report.
99.1 Section 1350 Certification of the Company's Principal Executive
Officer
99.2 Section 1350 Certification of the Company's Chief Financial Officer
* Indicates management contract or compensatory plan or arrangement
77