Automotive Performance Group Details its Goals
23 September 1999
Automotive Performance Group Details its Goals
NEW YORK--Sept. 23, 1999--Automotive Performance Group, Inc.'s (OTCBB-RACG) Chairman and Chief Executive Officer, Dean M. Willard, today updated the Company's recent activities and outlined APG's financial goals and strategies in his Letter To Shareholders. His comments are reproduced in their entirety in the following release.September 23, 1999
DEAR APG SHAREHOLDER:
It has been approximately one month since we completed our investment in the Automotive Aftermarket Business of Loctite (Permatex) and Advanced Chemistry & Technology, Inc. (AC Tech). I am pleased to report that the Permatex and AC Tech businesses are doing very well and I have a high degree of confidence in the benefits that will accrue to APG and its shareholders as a result of this investment.
The acquisition of these businesses was not completed in the fashion that we had hoped or originally planned for. Our original plan was to provide funds into APG and then have APG function as the operating parent of Permatex and AC Tech. As late as June, we still had reasonable expectations that we had an investment structured that would have resulted in forming APG into the operating parent of Permatex and AC Tech. When we were advised that our targeted investor irreversibly changed its view of the structure of the acquisition, our primary concern turned to completing the transaction and maximizing APG's participation in the acquisition. APG had invested virtually all of its financial resources in these transactions and the completion was essential to our Company's future.
The Jordan Company provided the best opportunity for us to complete these revised objectives, and we turned with Jordan to the task of raising the bank financing and completing the Permatex and AC Tech acquisitions. The Jordan structure gave APG a 22% interest in this nearly $150 million acquisition and the right to invest with Jordan in the future growth of these businesses.
In order to maximize APG's participation in these acquisitions, we needed to convert $3.5 million of the Company's debt to equity. We negotiated with our two largest investors a senior preferred security, Series B Preferred, which terms included a 13% pay in kind coupon redeemable on the fourth anniversary of the Preferred and convertible into APG Common Stock at $2 per share. The conversion of these senior debt instruments was completed in time for the acquisition closing.
I have been advised by certain investors who received their APG common shares as a result of their investment in our two Series A offerings that they would have liked the opportunity to have invested in the same senior preferred security as our two largest investors. Our Board of Directors has reviewed this issue and I am pleased to invite any qualified investor to contact the Company as we have a need to raise additional capital for APG.
The registration of common shares received by our Series A investors has been an issue of concern to the Company and those investors. We have been in discussion with the SEC since the beginning of the year concerning the procedures necessary for the Company to file an effective registration of those shares. The registration was stalled by the Permatex/AC Tech acquisitions, as the SEC and APG negotiated the financial statement disclosures required for the registration statement. Until such time as the structure of APG's relationship to the acquired businesses was finalized the SEC and the Company could not finalize on a proper disclosure statement. This determination has now been made and when APG's required audit work is complete we will be able to file an effective registration statement.
The future of APG is now the primary issue confronting our Board and shareholders. We have a company with a major investment in valuable businesses. In order to realize fair value for these investments, APG must hold the investments for at least four to five years. In the meantime, APG management is continuing to restructure the business. We have successfully sold those operations that were causing the most serious operating losses and cash outflow for the Company. Specifically, our former racing operations and Royal Purple subsidiary have been sold.
APG is meanwhile operating Klein Engines and Competition Components (Klein), which still requires some capital support. Our expectation is that the APG capital support for Klein in the next twelve months will be in the range of $100,000 to $250,000. The Klein business operates at close to breakeven with a trimmed down staff and focus.
APG also owns an 80% interest in Boyds. This interest was acquired in the last twelve months. Significant capital infusion will be required, however, to realize full value for this asset. For example, we have an excellent opportunity in the wheel business which we believe can generate revenues in excess of $3 million in the next twelve months and be profitable. In order to realize this potential we need to provide over $1 million of working capital. The Board and management is currently evaluating our options with this opportunity, which include licensing the Boyds know how and trade name to a third party and collecting royalties on this business.
Boyds is also in a negotiation with its current licensee for the Boyds automotive appearance line to either continue our royalty agreement or consummate an outright sale of the appearance products know how and trade name for use in the appearance products market.
Boyds is also reviewing with various parties the potential use of Boyds know how and trade name in the construction of hot rods, and various components used in the construction and modification of automobiles. The intellectual property of Boyds has significant value and we are making every effort to identify profit opportunities for the Company. Unfortunately, we have been diverted at Boyds by the need to bring a lawsuit against certain parties for infringement of our intellectual property rights. This litigation is expected to result in the successful protection of the trade name but causes an otherwise nonproductive use of APG's cash resources and management time.
Earlier in the year, we announced the plan to spin Klein off directly to APG shareholders along with the Boyds investment. This option is still being considered.
Our management group is totally committed to the success of APG and Boyds. As CEO, I currently provide my services to these two entities without current compensation. Two other officers, George Barraza and Carl Walker, also provide their services without current compensation. We have negotiated with key outside professionals to provide services for either deeply discounted fees or a deferral of their fees. We are seeking opportunities for these businesses that will resolve our immediate cash needs and provide growth opportunities for the future.
APG is also currently in an extremely tight cash position and we are working hard to convert our current debts to either long term debt or equity.
I recognize that many shareholders are frustrated with the performance of APG. I share that frustration. However, our management team has made excellent progress with APG since we took over in November of 1998. We accomplished an almost total restructuring of APG, which is allowing the Company for the first time in its history to anticipate an improvement in the value of its investments and assets.
As Board Chairman and Chief Executive Officer, I welcome constructive ideas from our shareholders. I realize that we have many options and we are close to making decisions that will further effect the future of the Company. We will need additional capital to operate and to take advantage of other corporate opportunities. We currently plan to continue to grow our businesses. We also continue to seek acquisitions that will either provide businesses that can be operated as APG, or investments with excellent opportunity for providing the Company with capital appreciation. We are, of course, very aware of the need to avoid dilution of our current shareholders' interest and will focus on acquisitions that are accretive to APG's earnings.
I thank you on behalf of the entire management team for your continuing support.
Sincerely,
Dean M. Willard Chairman and Chief Executive Officer
Except for historical matters contained herein, the matters discussed in this press release are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect assumptions and involve risks and uncertainties which may affect Automotive Performance Group, Inc.'s business and prospects and cause actual results to differ materially from these forward-looking statements.
Automotive Performance Group, Inc., participates in the fast-growing high-performance automotive and specialty chemical industries through its 22% equity ownership in PBT Brands Inc., a leading manufacturer, distributor, and marketer of premium functional chemical products to the automotive maintenance and repair markets, and Advanced Chemistry & Technology, Inc. (AC Tech), which develops and manufactures sealants for the aerospace and aircraft industry