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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 SEPTEMBER 30, 1996
COMMISSION FILE NO. 0-21362
HARVARD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 21-0715310
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2502 NORTH ROCKY POINT DRIVE, SUITE 960, TAMPA FLORIDA 33607
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 288-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share NASDAQ National Market
Pay-In-Kind Exchangeable Preferred Stock,
(par value $.01) per share Over the Counter Market
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The aggregate market value of Registrant's voting stock held by
nonaffiliates of Registrant, as of December 1, 1996, was $26,886,215 based on
the average bid and asked prices of the Common Stock on the NASDAQ National
Market on such date.
The number of shares outstanding of Registrant's Common Stock, as of
December 1, 1996, was 7,014,357.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of that term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Additional written or oral
forward-looking statements may be made by the Company from time to time, in
filings with the Securities Exchange Commission or otherwise. Statements
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions described above. Forward-looking
statements may include, but are not limited to, projections of revenues, income
or losses, capital expenditures, plans for future operations, the elimination
of losses under certain programs, financing needs or plans, compliance with
financial covenants in loan agreements, plans for sale of assets or businesses,
plans relating to products or services of the Company, assessments of
materiality, predictions of future events, and the effects of pending and
possible litigation, as well as assumptions relating to the foregoing. In
addition, when used in this discussion, the words "anticipates," "estimates,"
"expects" "intends," "plans" and variations thereof and similar expressions
are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained herein. Statements in this Annual Report,
particularly in "Item 1. Business-Compliance with Environmental Laws", "Item
3. Legal Proceedings", the Notes to Consolidated Financial Statements and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences. Other factors that could contribute to or cause such
differences include, but are not limited to, unanticipated increases in launch
and other operating costs, a reduction and inconsistent demand for passenger
cars and light trucks, labor disputes, capital requirements, adverse weather
conditions, the inability to negotiate favorable terms in the definitive
agreements for program modifications with a major customer, unanticipated
developments in pending litigation, and increases in borrowing costs, product
demand, pricing, market acceptance, risk of dependence on third party
suppliers, intellectual property rights and litigation, risks in product and
technology development and other risk factors detailed in the Company's
Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
ITEM 1. BUSINESS
Automotive
Harvard Industries, Inc. (the "Company" or the "Registrant") was
incorporated in the State of Delaware in 1932, and reincorporated in the State
of Florida in 1996 through a merger with and into a wholly-owned subsidiary. It
is primarily engaged in the business of designing, engineering, and
manufacturing components for original equipment manufacturers ("OEMs") producing
cars and light trucks in North America. Its principal customers are General
Motors Corporation ("GM"), Ford Motor Company ("Ford"), and Chrysler Corporation
("Chrysler", and collectively with GM and Ford, the "U.S. Automakers").
The Company's headquarters are located at 2502 North Rocky Point Drive,
Suite 960, Tampa, Florida 33607. The terms "Company" and "Registrant" as used
herein mean Harvard Industries, Inc., together with all of its subsidiaries,
unless the context indicates otherwise.
In July, 1995, a subsidiary of the Company was merged with and into
Doehler-Jarvis, Inc. ("Doehler-Jarvis"), the then largest independent
manufacturer of aluminum castings in North America (based on revenues),
specializing in complex, high volume aluminum castings primarily for use in the
automotive industry (the "Merger"). Founded in 1907 by Herman Doehler, the
inventor of the die casting process, Doehler-Jarvis has pioneered the
development and initial production of many aluminum die cast products for the
automotive industry.
Consolidated net sales for the fiscal year ended September 30, 1996 were
$824.8 million (of which $296.0 million was attributable to Doehler-Jarvis) as
compared with $631.8 million of consolidated net sales for the fiscal year ended
September 30, 1995. Excluding the 1996 and 1995 Doehler-Jarvis sales,
consolidated net sales for the 1996 fiscal
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year declined $57.4 million as compared with the previous fiscal year. Of such
sales (i) approximately 43%, 31% and 8% were attributable to GM, Ford and
Chrysler, respectively, for the fiscal year ended September 30, 1996 and (ii)
approximately 35%, 27% and 11% were attributable to GM, Ford and Chrysler,
respectively, for the fiscal year ended September 30, 1995. The Company's
automotive business sales represented 96% and 95%, respectively, of the
consolidated net sales for the fiscal years ended September 30, 1996 and
September 30, 1995.
The Company conducts its automotive operations through four wholly-owned
direct subsidiaries, namely, The Kingston-Warren Corporation
("Kingston-Warren"), Harman Automotive, Inc. ("Harman"), Hayes-Albion
Corporation ("Hayes-Albion"), and Doehler-Jarvis. These subsidiaries, together
with the Trim Trends Division of Hayes-Albion, produce a wide range of products
including: rubber glass-run channels; rubber seals for doors and trunk lids;
outside rearview mirrors; complex, high volume aluminum castings and other cast,
fabricated, machined and decorated metal products; and metal stamped and roll
form products.
Non-Automotive Business
In addition to its automotive business, the Company also (i) produces
furniture for the United States government and various state and local
government entities and retail businesses, wholesale clubs and superstores and
(ii) assembles and sells rocket launchers for use on rotary and fixed wing
aircraft. The Company's furniture business sales represented 3.6% and 4.4%,
respectively, and armament and electronics products business sales represented
0.4% and 0.6%, respectively, of the Company's consolidated net sales for the
fiscal years ended September 30, 1996 and September 30, 1995.
During the 1995 fiscal year, the Company divested its specialty fastener
business, previously conducted through its Elastic Stop Nut Division ("ESNA").
The Company classified such activity as a discontinued operation during the 1994
fiscal year. The land and vacant buildings located in Union, New Jersey, were
written off during the 1996 fiscal year. The balance sheet reflects the
remaining net assets of ESNA at September 30, 1996 at the estimated net
realizable value, consisting primarily of royalty receivables. See
"Non-Automotive Business - Discontinued Operations - Specialty Fasteners" for
additional information and Note 4 to Consolidated Financial Statements.
Strategic Alternatives
The Company has retained The Blackstone Group L.P. to explore strategic
financial alternatives to maximize shareholder value. Such alternatives could
include a possible sale or merger of the Company or a sale of one or more of
the Company's subsidiaries or the assets of a subsidiary or other designated
plant assets, other than those mentioned below. The Blackstone Group will
provide financial advisory services to the Company in connection with such a
transaction.
The Company retained Salomon Brothers to render financial advisory and
investment banking services in connection with the possible sale of Harman
Automotive Inc. and the Company's Harvard Interiors Manufacturing Co. division,
a minor, non-automotive phase of the Company's business. The Company recently
received a proposal for the possible sale of the assets of Harman Automotive
Inc., for approximately $18,000,000 to be paid in cash and the assumption of
certain liabilities, subject to executing a letter of intent, performing due
diligence, and the buyer obtaining financing. Liabilities not assumed by the
buyer will remain obligations of the Company. There can be no assurance that
this or a similar transaction involving Harman or Harvard Interiors will be
approved by the Company or will be consummated.
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BUSINESS DESCRIPTION
Overview
Automotive component manufacturers, like the Company, are invited to
bid for specific products and component systems to be incorporated in both new
and existing automotive platforms. If the platform already exists, the current
supplier may be favored by the OEM because of the supplier's familiarity with
the existing product as well as its existing investment in the manufacturing
process and tooling. As a result, it is considered unusual for incumbent
suppliers to be removed from existing orders, particularly if they have been
able to consistently deliver the existing products on time within agreed upon
specifications and at competitive prices.
On new platforms there has been an increasing trend toward involving
potential suppliers much earlier in the design and development process in order
to encourage the supplier to share some of the design and development burden.
Achieving this cooperative supplier status is a significant step towards winning
a long-term supply order and gives the recipient a decided advantage over the
competition. However, even if awarded an order, in almost all instances it will
be at least two to four years before these cooperative suppliers see their
products incorporated into new platforms. Consequently, the key success factors
for suppliers to the automotive industry have changed from pure cost
minimization to total program management that encompasses state-of-the-art
design, manufacture and delivery of high quality components and systems. This
trend reinforces the importance of early involvement with the automotive
manufacturers and consistent quality performance on existing business.
There is also an increasing trend towards potential suppliers committing to
target prices on parts or systems as a condition of being awarded a design and
supply order. Under target price arrangements, the burden of cost overruns
generally must be borne by the supplier. In addition, in order to secure
long-term supply arrangements, annual price concessions through productivity
improvements are expected by OEMs. As automotive parts suppliers continue to
face downward pricing pressures on the components they supply to the OEMs,
automotive production volumes become critical in maintaining and increasing
operating profitability.
Design, Production and Delivery
The Company has strong design and engineering capabilities, which enable it
to better serve its customers in the initial phases of product development. The
Company's Computer Aided Engineering ("CAE") group, located at its automotive
headquarters in Farmington Hills, Michigan, is the focal point of this
initiative. At this location, the CAE group utilizes Computer Aided Design
("CAD") techniques, which allow the Company's design engineers to input a
product's physical and performance characteristics into state-of-the-art
hardware and software systems. These systems subsequently produce 3-D
representations of the products, which can be automatically downloaded into
Computer Numerically Controlled ("CNC") milling and cutting machines. These CNC
machines can produce tooling, equipment and manufacture products with a high
degree of accuracy with reduced load times and increased accuracy and timing,
thereby reducing the historically high labor content in the Company's product
costs. Furthermore, the Company, through its finite element analysis capability,
can mathematically test its product designs prior to production, resulting in
savings
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through the elimination of numerous physical prototypes while significantly
reducing the lead time typical in developing and testing new products. The
Company's research and development facilities are located in Toledo, Ohio and
Newfields, New Hampshire where Company personnel meet with customers to
incorporate the customer's structural and thermal requirements into the product
design process. In addition, the Company maintains engineering facilities at
Farmington Hills, Michigan and Wytheville, Virginia.
Part of the Company's design philosophy is the early involvement of its
manufacturing engineers in the initial stages of a product's design. This
"Design-for-Manufacture" approach helps create a product that not only meets its
required design and performance characteristics, but also results in a product
that is easier and less expensive to manufacture. By adopting this approach the
Company is able to save costs typically related to engineering changes which can
hamper the production of new products, as well as reduce the amount of time it
takes to get new products to market.
Consistent with the Company's design approach is its increasing involvement
in cooperative supplier programs. As a cooperative supplier, the Company
receives the initial design responsibilities for a specific product or component
for a particular vehicle in the early stages of its design. These programs,
which effectively move the burden of design and development of new products from
OEMs to their suppliers, resulting in corresponding increased costs, have
represented an increasing trend in the automotive industry in the late 1980's
and early 1990's. Through its increased focus and investment in its already
strong design and engineering capabilities, the Company believes it is well
positioned to secure new cooperative supplier opportunities. For example, during
fiscal 1995 the Company received a supply order for a magnesium steering column
bracket for GM for which the Company had been the cooperative design source. In
1995 and 1996, the Company was the cooperative supplier on three major body
sealing programs at GM, prior to the programs being awarded. Two of these
programs were ultimately awarded to the Company in early 1996.
Following the design of its products, the Company employs the use of work
cells and synchronous manufacturing techniques to improve production efficiency.
Central to this approach is the emphasis on a "continuous improvement"
environment that empowers employees to develop new and more efficient
manufacturing techniques. As a result, the Company believes it is capable of
quickly and efficiently reacting to changes in product mix and demand while
maximizing the productivity of its assets.
The demonstrated strengths of the Company's overall design, production, and
delivery capabilities have resulted in supplier quality ratings from the
Company's major customers. Most of the Company's facilities have been given high
quality ratings by the Company's major customers, including the GM Mark of
Excellence Award, the Ford Q-1 Award, and the Chrysler QE Award. However,
reinstatement of the Ford Q-1 Award is being sought in respect of three Company
facilities where such status was suspended by Ford. This action by Ford is not
expected to have any material adverse effect upon the Company's existing
business or the generation of new business. The affected facilities are,
however, taking steps to comply with Ford's required improvement targets and
delivery schedules. The Company is in the process
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of registering to obtain QS 9000 certification, which has standardized the
automotive manufacturer requirements, and is expected to replace individual
manufacturer's ratings. The Company has received QS 9000 certification at its
research and development facilities located in Newfields, New Hampshire, its
sales, administrative, and engineering center located in Farmington Hills,
Michigan, its manufacturing facility located in Wytheville, Virginia and the
Trim Trends Divisions' plant located in Deckerville, Michigan. Management is
attempting to obtain QS 9000 certification in its remaining plants by the end
of 1997.
The Company is engaged in two segments of operations: (i) automotive
accessories; and (ii) non-automotive business. Financial information regarding
the Company's industry segments is set forth in Note 23 to the Consolidated
Financial Statements.
AUTOMOTIVE BUSINESS
The North American automotive parts supply business is composed of sales to
OEMs and sales to the automotive aftermarket. The Company sells its products
predominantly to OEMs, as well as to other suppliers of OEMs, for installation
as original equipment in new cars and trucks.
New Business Development
Historically, the U.S. Automakers furnished their suppliers with blueprints
and specifications for their required products and chose their vendors based on
price and reputation. However, in today's automotive supplier marketplace, it is
typical for the U.S. Automakers to electronically furnish their suppliers with
mathematical data describing the surfaces of the part or system in question,
along with the technical description of its functional requirements. At this
point, the supplier is expected to assume responsibility for all of the
activities that are necessary to bring the part to production. The development
cycle includes the design and engineering function as well as the production of
prototypes for design validation. After validation of the prototype parts or
system, tooling is designed and built to manufacture the finished product. This
cycle usually requires between two and three years to complete, and during this
time, the supplier assumes most of the responsibility for managing the interface
of the various groups within its own and the customer's organization. These
groups include the supplier's and OEM's respective purchasing/sales, design,
engineering, quality assurance, and manufacturing areas.
Prior to the current era of supplier total program responsibility, customer
interface was historically limited to the supplier sales function dealing with
the customer purchasing function. In today's marketplace, it is necessary for
the Company's engineers and technicians to constantly interface with their
counterparts at the U.S. Automakers to secure design contracts. This is the
principal starting point in the process of being awarded future business. There
are significant differences among suppliers in their ability to design and
manage complex systems and bring them through the product design and
manufacturing cycle on time and at a competitive price.
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OEM Purchasing, Practices and Trends
In the late 1980s and early 1990s, the U.S. Automakers instituted a number
of fundamental changes in their sourcing procedures. Principal among these
changes has been an increased focus and pressure on suppliers' cost and quality
performance, a significant consolidation in the number of suppliers and, most
recently, a movement toward purchasing integrated systems, where the supplier
provides the manufacturing, design, engineering and program management support
for a complete package of integrated products.
OEMs have implemented cost reduction programs that require suppliers, in
exchange for multi-year supply agreements, to pass on a portion of the benefit
of productivity improvement in the form of lower prices. These initiatives have
required suppliers to implement programs to lower their costs and reduce
component and system prices to the OEMs.
Finally, as a "Tier I" supplier, the Company is responsible for delivering
its products on a "just-in-time" basis directly into its customers'
manufacturing facilities. To facilitate this delivery system, the Company
utilizes direct computer links to its customers. These technological links allow
the Company not only to meet just-in-time delivery requirements but also to
minimize inventories, carrying costs and fixed costs for both itself and the
OEMs.
OEMs are expected to continue to purchase integrated systems in order to
reduce their internal labor and overhead costs and design lead time associated
with purchasing related parts from multiple suppliers. By purchasing complete
component "systems," OEMs are able to shift engineering, design, program
management, and product investment costs to fewer and more capable suppliers. By
designing and supplying component systems, a supplier is able to reduce costs
and improve quality by identifying system-wide solutions. The Company believes
that this shift creates an opportunity for suppliers, such as the Company, to
provide an integrated array of components.
New North American OEMs (Transplants)
Over the last decade, foreign automotive manufacturers have gained a
significant share of the U.S. market, first through exports and more recently
through U.S.-based manufacturing facilities. Japanese export sales have dropped
significantly from 1983 to 1993, while Japanese Transplant sales have grown
dramatically, as Japanese car companies have shifted more of their production to
North America. Based on industry analysts' estimates, Transplants produced 51.8%
of the Japanese cars sold in the United States in 1994 compared with 8.4% in
1985. As a percent of total North American car production, Transplant production
increased from 2.0% in 1985 to 18.8% in 1995. Certain independent industry
analysts forecast that Japanese Transplant sales will continue to grow over the
next several years as additional production is shifted from overseas to North
American facilities.
To the extent that the growth of Transplant sales results in loss of market
share for the Company's U.S. Automaker customers, the Company will experience an
adverse effect. The Company plans to solicit additional business
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from Transplants. There can be no assurance, however, that any additional
business will be generated from Transplants or if any such additional business
is obtained that it will compensate for any lost business that the Company may
experience.
Demand
As an OEM supplier, the Company is significantly affected by consumer
demand for new vehicles in North America. Demand in North American car and
light truck markets is tied closely to the overall strength of the North
American economies. After attaining production of approximately 13.6 million
units in 1985, North American car and light truck production fell to 10.4
million units in 1991. Since this low point, production has risen to 15.3
million units for the 1995 calendar year, with comparable units projected for
calendar year 1996.
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The following table sets forth information as of September 30, 1996, regarding
the businesses conducted by the Company's automotive subsidiaries:
<TABLE>
<CAPTION>
- --------------- -------------------- ----------------------- -------------------- -------------------- ------------------------
KINGSTON-WARREN HARMAN TRIM TRENDS
AUTOMOTIVE HAYES-ALBION DIVISION DOEHLER-JARVIS
- --------------- -------------------- ----------------------- -------------------- -------------------- ------------------------
<S> <C> <C> <C> <C> <C>
General Rubber glass-run Outside rearview Cast products and Metal stamped and Aluminum castings
Business: channels and mirrors; interior fabricated metal roll form
sealing strips and exterior door products products
handles
Major GM GM GM GM Ford
Customers: Toyota Chrysler Ford Ford General Motors
Ford Chrysler Chrysler
Caterpillar
Toyota
Dana
Major Product Buick LeSabre Buick Skylark GM Northstar engine Chevolet Astro Buick Century
Platforms: Cadillac DeVille Cadillac DeVille applications Chevrolet Venture Buick LeSabre
Cadillac Seville Cadillac El Dorado GM Quad 4 engine Chrysler Concorde Buick Riviera
Chevrolet Caprice Cadillac Seville applications Chrysler Town Buick Regal
Chevrolet Cavalier Chevrolet Caprice Ford light trucks & Country Van Buick Roadmaster
Chevrolet Malibu Chevrolet Camaro Ford Thunderbird Dodge Caravan Buick Skylark
Oldsmobile Cutlass Chevrolet Lumina Lincoln Town Car Dodge Intrepid Cadillac Brougham
Oldsmobile 88 Chevrolet Monte Carlo Chrysler minivans Eagle Vision Cadillac DeVille
Pontiac Bonneville Oldsmobile Achieva Chrysler Neon Ford Escort Cadillac El Dorado
Pontiac Grand Prix Oldsmobile Cutlass Caterpillar engine Plymouth Voyager Cadillac Seville
Pontiac Sunfire Oldsmobile 88 applications GMC Safari Chevrolet 1500 truck
Toyota Avalon Pontiac Firebird Toyota Lexus Chevrolet 2500 truck
Toyota Camry Pontiac Bonneville Chevrolet Monte Chevrolet 3500 truck
Ford HN-80 Chevrolet Malibu Carlo Chevrolet Astro Van
Olds Cutlass Chevrolet Beretta
Isuzu Truck Engine Chevrolet Blazer
Chevrolet Camaro
Chevrolet Cavalier
Chevrolet Celebrity
Chevrolet Corsica
Chevrolet Lumina
Chevrolet Monte Carlo
Chevrolet S10
Chevrolet S Blazer
Chevrolet Suburban
Dodge Ram
T300 truck
Ford Bronco
I Ford
Club Wagon
Ford Crown Victoria
Ford Econoline Van
Ford Explorer
Ford Pickup
Ford F-250 pickup
Ford F-350 pickup
Ford Lincoln Mark VIII
Ford Mustang
Ford Taurus
Ford Thunderbird
Ford Windstar
GMC 1500 truck
GMC 2500 truck
GMC 3500 truck
GMC 5-15 truck
GMC Jimmy
GMC Rally
GMC Safari
GMC Sport Van
GMC Yukon/Tahoe
</TABLE>
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<TABLE>
<CAPTION>
- --------------- -------------------- ----------------------- -------------------- -------------------- ------------------------
KINGSTON-WARREN HARMAN TRIM TRENDS
AUTOMOTIVE HAYES-ALBION DIVISION DOEHLER-JARVIS
- --------------- -------------------- ----------------------- -------------------- -------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Major Product Geo Prism
Platforms: Jaguar all models
Mercury Cougar
Mercury Grand Marquis
Mercury Mountainer
Mercury Sable
Nissan Altima
Oldsmobile Achieva
Oldsmobile Cierra
Oldsmobile Custom
Oldsmobile Delta 88
Oldsmobile Toronado
Pontiac Bonneville
Pontiac Firebird
Pontiac Grand Am
Pontiac Grand Prix
Pontiac Sunbird
Toyota Avalon
Toyota Camry
Toyota Corona
Toyota Corolla
Toyota Mini Van
Approximate
Number of
Employees: 1,338 534 1,635 1,064 1,992
Number of
Manuracturing
Facilities: 3 1 6 5 3
- --------------- -------------------- ----------------------- -------------------- -------------------- ------------------------
</TABLE>
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The following table provides a detailed summary of the Company's New Booked
Business as of September 30, 1996. "New Booked Business" refers to new business
commencing in 1996 or thereafter, for which annual purchase orders have been
received for production in the years specified in the table set forth below,
which production typically continues through the product's lifecycle and is
subject to the volume requirements of customers. The Company is unable to
calculate estimated future sales with a meaningful degree of accuracy.
COMPANY NEW BOOKED BUSINESS
<TABLE>
<CAPTION>
Percent of New Booked Business
Supplier/ Product -------------------
Customer Product Platform Sourced 1996 1997 1998 1999
- -------- ------- -------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Kingston-Warren:
Ford Rubber Sealing Components Heavy truck 100% x x x x
GM Rubber Sealing Components Cavalier/Sunfire 100 x x x x
GM Rubber Sealing Components Malibu/Cutlass (P90) 100 x x x
GM Rubber Sealing Grand Prix 100 x x x x
GM Bonneville x
GM LeSabre x
Oldsmobile 88 x
Harman:
GM Outside Rearview Mirrors Camaro/Firebird 100% x x x x
GM Exterior Door Handles Pontiac Bonneville 100 x x x
GM Exterior Door Handles Oldsmobile 88 100 x x x
GM Exterior Door Handles Fleetwood/DeVille 100 x x x x
GM Exterior Door Handles Seville 100 x x
GM Exterior Door Handles El Dorado 100 x x x x
GM Exterior Door Handles Oldsmobile Achieva 100 x x x x
GM Exterior Door Handles Grand Am 100 x x
GM Exterior Door Handles Buick Skylark 100 x x
GM Exterior Door Handles Caprice 100 x x
GM Exterior Door Handles LeSabre Estate Wagon 100 x
GM Exterior Door Handles Buick Roadmaster 100 x
GM Exterior Door Handles Brougham 100 x
GM Outside Mirrors Malibu/Cutlass 100 x x x
Hayes-Albion:
Allied Signal Governor Housing n/a 100% x x x x
Caterpillar Misc. Diecastings n/a 100 x x x x
Caterpillar Misc. Screw Machinery n/a 100 x x x x
Chrysler Plastic Fan* WJ V-8 100 x x x
Chrysler Steering Column Bracket AN truck 100 x x x
Dayco Bracket QUAD-4 100 x x x x
Ford Carrier PN-96 100 x x x x
Ford Slip Yoke Car & Lt truck 100 x x x x
Ford Bearing Cap PN-96 100 x x x x
GM Plastic Fan CK truck 100 x x x
GM EGR Adapter 2.3 & 2.4 L 100 x x x x
GM Steering Column Bracket Malibu/Cutlass (P90) 100 x
Mannhart Hopper n/a 100 x x
TRW Various Diecastings n/a 100 x x x x
United Metal Bushing n/a 100 x x x x
United Metal Sleeve Casting n/a 100 x x x x
United Tech Gear Housing n/a 100 x x x x
Isuzu Cylinderhead covers Isuzu truck 100 x x x x
100 x x x x
</TABLE>
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<TABLE>
<CAPTION>
Percent of New Booked Business
Supplier/ Product -------------------
Customer Product Platform Sourced 1996 1997 1998 1999
- -------- ------- -------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Trim Trends
Division:
Chrysler LWR Rad Support Chrysler LH Sedan 100% x x x
Chrysler Beam Sill-to-Sill Chrysler LH Sedan 100 x x x
Chrysler Ctr. Strut Mtg. Cap Chrysler LH Sedan 100 x x x
Chrysler Door Frame Chrysler NS Van 100 x x x x
Ford Door Frame Ford Escort 100 x x x x
GM Door Tracks GM-200 100 x x x x
GM Outer Dr. Belt Rein. GM-Malibu & Cutlass 100 x x x
GM Bracket n/a 100 x x x x
GM Door Beam GM T-800 100 x
GM Belt Rein. GM X 130 100 x x
Doehler-Jarvis:
Ford Diesel Transmission Case Econoline Bronco, 100 x x x x
F-Series
Ford Transmission Components Taurus, Mercury Sable 100 x x x x
GM Transmission Case Century, Skylark 100 x x
Cavalier, Corsica
Lumina, Grand Am
GM Jaguar Transmission Case Rolls Royce, Jaguar 100 x x x x
Astin Martin
John Deere Water Pump Cover Industrial 100 x x x x
GM 5.0/5.7 Liter Intake G van, CK truck, 100 x x x x
Manifold - 5 P. truck, Suburban
Tahoe, Yukon
Sturdy Controls Ford Control Box Ford 4.6LV8 100 x x x x
TRW Pump Body/Cover Mack, International 100 x x x x
Harvester trucks
Hitachi Engine Bracket Nissan Ultima 100 x x x x
Toyota Oil Pan Assembly Toyota Avalon, Camry 100 x x x x
(N. America)
Long Mfg. Oil Cooler F Series Explorer 100 x x x x
and Econoline
Onan Kubota Head/Block Industrial 100 x x x x
Nationwide Transmission Retainer Jeep Grand Cherokee 100 x x x x
Simpson Oil Pump Chrysler LH Sedan 100 x x
& Sebring, Dodge
Cirrus, Plymouth
Stratus
GM V-6 Front Cover Olds W, Buick 100 x
Riviera, Chevy Hi-Mid
Sedan,
Cadillac Eldorado,
Cadillac Catera 40 x x x x
GM Transmission Pump Body Jimmy, Blazer,
S/T truck
Suburban 100 x x x x
Linex Air Conditioner Corvette, Camaro/
Compressor Housing Firebird, S/T truck 100 x x
Olds W, Buick Rivera
Chevy Hi-Mid Sedan,
GM V-6 Lower Engine Crank Olds W, Buick Rivera, 100 x
Case Chevy Hi-Mid Sedan,
Cadillac Eldorado,
Buick Luxury,
Cadillac Catera
GM V-6 Aluminum Engine Olds W, Buick 100 x
Block* Riviera, Chevy Hi-Mid
Sedan, Cadillac
Eldorado, Cadillac
Catera, Buick Luxury
</TABLE>
- -------------
* See "Doehler-Jarvis - Business Description" for information regarding
notification from GM to Doehler-Jarvis to act as design/developer supplier of
cylinder block aluminum castings for GM's Premium 19982 V6 engine program.
11
<PAGE> 13
Certain recently delivered purchase orders are specifically referenced
below and identified either as new purchase orders, which represent new booked
business generated for the Company, or as replacement purchase orders, which
renew and reaffirm the Company's relationship as the parts supplier for certain
models. In accordance with industry practice, these purchase orders are
generally long-term arrangements for supplying the customer's annual
requirements for a particular model. Customers may also enter into purchase
orders for a specific vehicle, covering various model years at one time.
Although individual purchase orders are renewable on an annual basis and
generally contain provisions allowing the purchaser to terminate upon notice,
such automobile supply relationships typically extend over the program's life
cycle.
THE KINGSON-WARREN CORPORATION
Kingston-Warren, which has conducted business since 1945, produces rubber
glass-run channels, sealing strips and body seals, which weather seal the doors
and windows of automobiles and reduce air leakage into the vehicle, thus
contributing to noise reduction and aerodynamic efficiency. The sealing strip is
produced by a complex process of metal roll forming, rubber extruding, flocking
and curing, which is followed by secondary procedures consisting of trimming,
notching, stretch bending and molding. Kingston-Warren is a leading supplier to
GM of both sealing strips and glass-run channels and has been designated the
sole supplier of glass-run channels for several new GM models. Recent new
customers include Ford and Toyota. Kingston-Warren also manufactures
flow-through material storage racks and electronic order-picking systems
primarily for warehouses and distribution centers. Kingston-Warren has three
manufacturing locations -- Newfields, New Hampshire; Wytheville, Virginia; and
Church Hill, Tennessee.
The Company has entered into an agreement with Hutchinson SA, a French
company, which looks towards the eventual formation of a joint venture, to
manufacture, market and sell primary and secondary automotive door seals and
related products for world car programs. If the joint venture is formed, the
Company will be required to make capital contributions to the joint venture.
DOEHLER-JARVIS, INC.
Doehler-Jarvis, which has conducted business since 1907, specializes in
complex, high volume aluminum castings primarily for use in the automotive
industry. Doehler-Jarvis is headquartered in Toledo, Ohio and primarily conducts
its operations through three Doehler-Jarvis owned manufacturing facilities
located in Toledo, Ohio, Pottstown, Pennsylvania and Greeneville, Tennessee.
The automotive components manufactured by Doehler-Jarvis include automatic
transmission cases and components, cylinder heads, cam carriers, intake
manifolds, front engine covers, water pumps and rack and pinion housings.
Doehler-Jarvis' automotive products are used in over 130 vehicle models,
predominantly light trucks and rear-wheel drive luxury automobiles. Management
believes that this diversified sales base helps to reduce Doehler-Jarvis'
exposure to production declines in any particular model, while also providing
some resistance to an economic downturn
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<PAGE> 14
due to the orientation toward light trucks and luxury automobiles, sales of
which historically have been less affected during periods of reduced economic
growth.
Aluminum castings are manufactured using one of four principal processes:
high pressure die casting; semi-permanent and permanent mold casting; squeeze
casting; and sand casting. Doehler-Jarvis uses the high pressure die casting and
semi-permanent and permanent mold casting processes as well as its proprietary
Doehler Core(C) process for its current production.
Doehler-Jarvis became a wholly-owned subsidiary of the Company pursuant
to a merger transaction on July 28, 1995. Consolidated sales of Doehler-Jarvis
and its subsidiaries amounted to $296.0 million for the year ended September
30, 1996 and gross profit margins were less than 1%, which was caused mainly by
operation inefficiencies at the Toledo and Pottstown plants, including the
impact of operating the Toledo plant on a seven day week basis resulting in
significant overtime costs and the negative margins incurred from sales of the
Doehler-Jarvis Manifold Program and a Program for Bell Housings ("the
Programs"). Subject to continuing negotiations, adjustments have been made by
the customer to the program terms that are expected to reduce or eliminate such
losses. The Company has experienced a deficiency of earnings over fixed charges
as a result of the unprofitable operations of Doehler-Jarvis and the increased
interest cost associated with the Merger. Management anticipates the reduction
or elimination of losses under the Programs by March or April, 1997.
Management continues to believe that the increase in its revenue base by
reason of the acquisition of Doehler-Jarvis and the resulting increased size of
the Company provide the Company with a stronger domestic presence as a "Tier 1"
Supplier at a time when OEMs are continuing to reduce the number of "Tier 1"
Suppliers with which they do business.
GM has selected Doehler-Jarvis as the supplier of three major aluminum
castings for GM's 1998 1/2 Premium V6 engine program. Doehler-Jarvis will be the
exclusive producer of the aluminum engine blocks, engine covers and lower
crankcase castings for this new advanced engine. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Capital Expenditures and Other Uses of Funds."
HARMAN AUTOMOTIVE, INC.
Harman, which has conducted business since 1934, is a full-line producer of
outside rearview mirrors for use as original equipment by the U.S. Automakers.
Harman primarily designs and produces remote-controlled mirrors, which are
either cable or electric operated, and hand-controlled mirrors. The mirrors are
either molded plastic or die-cast zinc and are painted, fabricated and assembled
according to customer specifications at Harman's own integrated facilities.
Harman's customers include GM and Chrysler. The Company's manufacturing
facility is located in Bolivar, Tennessee.
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<PAGE> 15
Harman experienced significant quality and delivery problems in the 1989
and 1990 model years. This experience resulted in Harman being unable to bid on
orders at Ford and Chrysler. Management has since corrected these problems
through both personnel and system changes. Although Harman has not been
reinstated as a long-term supplier at Ford, Ford has recently "benchmarked"
Harman for consideration as a supplier for new mirror programs expected to be
completed by April 1997 and is performing a facility, quality and technology
assessment of Harman. Even if Ford reinstates Harman as one of Ford's long-term
suppliers, however, it is not expected that the Company will generate any new
Ford business prior to the 2000 model year.
Harman sales to Ford amounted to approximately $32.0 million in fiscal
1994, and sales for the fiscal year ended September 30, 1995 aggregated $16.0
million and fell to $3.4 million in fiscal 1996. In response to the loss of Ford
business, Harman has been expanding its product lines and obtained from GM
orders of approximately $2.0 million for exterior door handle business, which
was furnished in fiscal 1995, and an additional $10 million order for exterior
door handle business, which was furnished in fiscal 1996. During the 1995 model
year, Harman commenced the manufacture of a GM mirror that was resourced from a
competitor. In each of fiscal 1995 and 1996, the revenues attributable to this
award were approximately $4.6 million. This program is expected to continue
through the 2001 model year. In addition, Harman has received an additional
order for a passenger car exterior rear view mirror system for application in
the 1997 model year and for interior and exterior door handles for application
in the 1998 model year. During 1996, Harman closed its manufacturing facility in
Sevierville, Tennessee and the remaining production was consolidated into the
Bolivar, Tennessee plant.
Management has retained Salomon Brothers Inc to render financial
advisory and investment banking services in connection with the possible sale
of Harman's assets. The Company recently received a proposal for the
possible sale of Harman for approximately $18.0 million to be paid in cash and
the assumption of certain liailities, subject to executing a letter of
intent, performing due diligence, and the buyer obtaining financing.
Liabilities not assumed by the buyer will remain obligations of the Company.
There can be no assurance that this or a similar transaction involving Harman
will be approved by the Company or will be consumated.
HAYES-ALBION CORPORATION
Hayes-Albion, which has conducted business since 1888, engages in the
casting, fabricating and machining a wide range of quality metal products
primarily for the North American automotive industry and, to a lesser extent,
for the farm equipment and general industrial markets. Hayes-Albion's products
consist of ferrous and non-ferrous castings and fans. Products made from ferrous
castings include transmission parts, universal joint yokes, rear axle housings
and suspension parts and are manufactured primarily for use in the automotive
industry. These products are also sold to the agricultural equipment and
automotive industries. Products made from aluminum, magnesium and zinc castings
are manufactured by Hayes-Albion for the automotive, transportation,
construction, and machinery industries. Hayes-Albion's principal customers are
GM, Ford, Chrysler, Caterpillar, Toyota and Dana. Hayes-Albion supplies cylinder
head covers for delivery to Toyota's Tahara plant in Japan for use in Toyota's
Lexus models. Hayes-Albion has six manufacturing facilities, one each located in
Albion and Jackson, Michigan; Tiffin, Ohio; Ripley, Tennessee; St. Louis,
Missouri; and Rock Valley, Iowa.
14
<PAGE> 16
TRIM TRENDS
Trim Trends Division, which has conducted business since 1948, is a
full-line producer of functional and decorative metal stamped and roll form
products for use as original equipment by the U.S. Automakers. These products
are manufactured using a variety of raw materials, including carbon steel,
stainless steel, and aluminum that are fabricated according to customer
specifications. The Trim Trends Division's customers include GM, Ford, and
Chrysler. The Trim Trends Division has five manufacturing facilities -
Deckerville and Snover, Michigan; Spencerville and Bryan, Ohio; and Dundalk,
Ontario. Prior to June 1995, the Trim Trends Division was also a producer of
glass assemblies.
The Trim Trends Division has received the door sash business for the Ford
Escort beginning with the 1997 model year. The Trim Trends Division has also
been awarded the door beam business in two GM high volume programs, one of which
commences in the 1999 Model Year and the other commences in the 2000 Model Year.
In addition, the Trim Trends Division is actively seeking programs at GM and
Chrysler for upper door frames, bumper impact beams, door impact beams and other
door and structural components. The Trim Trends Division was recently successful
in obtaining awards from Chrysler to supply door frames for its NS Van platforms
and structural components for the LH Sedan and an award from GM to supply a door
component for its GM 200 platform.
HARVARD INTERIORS
Harvard Interiors Manufacturing Co. Division ("Harvard Interiors"), an
operating division of the Company, and in business since 1908, is engaged in (i)
the manufacture and assembly of a line of office chairs, including ergonomic
chairs sold principally to the United States Government and various state and
local government entities and retail businesses, wholesale clubs and superstores
and (ii) the assembly and sale of rocket launchers for use on rotary and fixed
wing aircraft. Harvard Interiors has two plants located in St. Louis and Arnold,
Missouri. At September 30, 1996, Harvard Interiors had 230 employees.
Federal, state and local governments accounted for approximately 33.2% and
45.6% of Harvard Interiors' chair sales for the years ended September 30, 1996
and September 30, 1995, respectively.
The rocket launchers, which consist of a casing for holding rockets and
enclosed electrical systems for controlled firing, are assembled at the St.
Louis facilities of Harvard Interiors. In addition, this Division assembles
certain electronic and electrical parts and products to various manufacturers'
specifications. The largest customer of Harvard Interiors is the United States
Government, which accounted for approximately 31.7% and 34.7% of Harvard
Interiors sales for the years ended September 30, 1996 and September 30, 1995,
respectively.
Management, as part of its determination to focus upon the Company's
automotive business, has retained Salomon Brothers Inc to render financial
advisory and investment banking services in connection with the possible sale of
Harvard Interiors.
15
<PAGE> 17
BACKLOG
The automotive segment operates pursuant to purchase orders which are
filled on a current basis. As a result, the automotive segment of the Company's
business does not have backlog of any material significance. Also, there is no
material backlog in respect of the Company's non-automotive business segment.
INTELLECTUAL PROPERTY
The Company from time to time applies for patents with respect to
patentable developments, the protection of which is important to Doehler-Jarvis
and Kingston-Warren. Otherwise, no patent or group of patents held by the
Company is, in the opinion of management, of material importance to the
Company's business as a whole. The primary patents relating to the
DoehlerCore(C) System begin expiring in November 1998, while the primary patents
relating to the squeeze casting business begin expiring in January 2008. The
other patents held by Doehler-Jarvis expire at various times to October 2017.
COMPETITION
The Company, in all phases of its activities, is subject to competition
from many companies larger in size and with greater financial resources as well
as from a number of companies of equal or similar size which specialize in
certain of the Company's activities. The Company considers major competitors
with respect to each unit in its automotive business to include the following:
Kingston-Warren: Standard Products, Gencorp and B.T.R.; Hayes-Albion: Intermet,
Grede, Schwitzer, Lunt and Racine; Harman: Ichikoh, Siegel Roberts, United
Technology, Donnelly Corporation, Britex, and Magna International; Trim Trends
Division: Excel Industries, Inland Fisher Guide and Magna International;
Doehler-Jarvis: Ryobi Die Casting (USA), Inc., Gibbs Die Casting Corp., ITT
Lester Industries, Inc., Fort Wayne Foundry Corp., CMI International Inc. and
Teksid SPA, as well as the captive aluminum casting operations of the U.S.
Automakers. Competitive factors in the market include product quality, customer
service, product mix, new product design capabilities, cost, reliability of
supply and supplier ratings. Management expects the total number of suppliers to
continue to decrease as OEMs continue to reduce their supply base. The
non-automotive business segment of the Company's business is affected by many
factors not within its control, such as variations in military requirements of
the United States and Canadian governments and budget allocation.
MARKETING AND SALES
The Company markets and distributes its products to non-governmental
entities through sales persons and independent manufacturers' representatives,
the loss of any one of whom would not have a materially adverse impact on the
Company. The Company and its subsidiaries compete for OEM business at the
beginning of the development of new products, upon customer redesign of existing
components and customer decisions to outsource captive component productions.
Such sales to automotive OEMs are made directly by the Company's sales, customer
service and engineering force. Through sales and engineering personnel, the
Company services its automotive OEM customers and manages its continuing
programs of product development and design improvement. In keeping with industry
practice, OEMs generally award blanket purchase orders and contract for specific
parts and components for a given model for a
16
<PAGE> 18
particular powertrain or other mechanical component, the duration of which is
usually through the life cycle of the product. These components are generally
used across several platforms or models. Purchase orders do not commit
customers to purchase any minimum number of components and usually extend over
the component life and are not necessarily dependent upon model changes. Sales
to governmental agencies are usually generated through responses to invitations
for bids and requests for proposals that are distributed to qualified
contractors and advertised to the public as well as through unsolicited
proposals made to the procurement agencies. Substantially all of the Company's
sales are derived from United States and Canadian sources.
EMPLOYEES
As of September 30, 1996, the Company employed 6,990 persons, most of whom
are involved in production and maintenance, with the balance engaged in
administration, sales and clerical work. Of such persons, 3,254 or 46.6% are
unionized. Many of the Company's production and maintenance employees are
covered by collective bargaining agreements with various unions, with contracts
expiring for 1,139 employees in 1997, for 608 employees in 1998 and 1,499
employees in 1999. The Company believes that its relations with its employees
are satisfactory.
The Company expects that all of the collective bargaining agreements will
be extended or renegotiated in the ordinary course of business. As a result of
such renegotiations, the Company expects that its labor and fringe benefit costs
will increase in the future. The Company does not believe that the outcome of
such renegotiation will have a material effect upon the Company's financial
position or results of operations. The Company has never experienced any work
stoppages at its facilities and has been able to extend or renegotiate its
various collective bargaining agreements without disrupting production.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The raw materials required by the Company are obtained from regular
commercial sources of supply and, in most cases, multiple sources. Under normal
conditions, such as those that currently exist, there is no difficulty in
obtaining requirements at competitive prices. However, future shortages of raw
materials could have a material adverse effect on all phases of the Company's
business. No shortages have been experienced by the Company in obtaining its
required raw materials. The Company considers its major raw material suppliers
with respect to each unit in its automotive business to include:
Kingston-Warren: PPG and Burton Rubber; Hayes-Albion: Consumer's Power, Jackson
Iron and Metal and Acustar; Harman: BASF, T.F.C. Inc. and E.D.S. Manufacturing,
Inc.; Trim Trends Division: Inland Steel. These suppliers furnish energy, steel,
glass, rubber, and paint to such units. Doehler-Jarvis is not dependent on any
individual supplier. Its principal raw material is aluminum, which is purchased
from multiple suppliers. Captive aluminum processing operations enable
Doehler-Jarvis to purchase less costly scrap aluminum and non-certified aluminum
ingot and refine the metal to the required certified specifications. Its
purchase orders with its OEM customers provide for price adjustments related to
changes in the cost of aluminum.
17
<PAGE> 19
SEASONALITY
The Company's principal operations are directly related to the domestic
automotive industry. Consequently, the Company experiences seasonal fluctuations
to the extent that the operations of the domestic automotive industry slow down
during the summer months when plants close for vacation period and model year
changeovers and during the month of December for plant holiday closures.
RESEARCH AND DEVELOPMENT
Although the Company operates in mature industries, it continues to expend
funds for research and development of new products, processes and applications.
The Company's strategy has been to focus its research and development effort on
current product improvements, new product development and new process
development in order to enhance current operations, customer satisfaction and
produce continuous improvements for the future. However, research and
development expenditures for the Company's units have not been material to the
Company's operations on a consolidated basis.
Doehler-Jarvis assigns engineering teams to work closely with specific
customers to incorporate their requirements into the product design process.
These teams build prototypes for in-house and customer testing, and design
sophisticated production casting systems for Doehler-Jarvis' plants. In
addition, Doehler-Jarvis' engineers regularly work with scientists and
researchers at several universities to support continued advanced research in
metallurgical properties and applications.
The DoehlerCore(C) System was developed by Doehler-Jarvis' research and
development staff. This patented technique is currently used for the production
of complex parts with deep undercuts and/or channels. Expanding the use of the
DoehlerCore(C) System to manufacture aluminum engine blocks could provide a
significant future opportunity for Doehler-Jarvis. Management of Doehler-Jarvis
has assembled a group of engineers to focus exclusively on the design and
development of DoehlerCore(C) aluminum engine blocks.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Although the Company is, and may from time to time in the future, be
subject to enforcement proceedings under environmental laws, the Company does
not believe that the ultimate disposition of these proceedings will have a
material adverse effect upon its capital expenditures, operations, competitive
position, financial condition, results of operations or liquidity. Federal,
state and local environmental laws, regulations and requirements are a
significant factor in the Company's business. The Company is subject to a
multitude of compliance requirements, including permits, and air and water
discharge and emission limitations, including emissions produced by furnaces,
under laws such as federal and state Clean Air and Clean Water Acts, and solid
waste management laws such as the federal Resource Conservation and Recovery Act
("RCRA"). Analogous state laws also regulate underground storage tanks and
cleanup of discharges from such tanks, as well as disposal of lubricating oil
and discharge of water used to clean machines. During the past several years,
the Company has been named as a potentially responsible party ("PRP") by the
United States Environmental
18
<PAGE> 20
Protection Agency ("EPA") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or Superfund") at a number of sites,
including sites at Vega Alta, Puerto Rico and Gnadenhutten, Ohio (the latter
elsewhere referred to herein as the "Alsco-Anaconda Site"). Management believes
that it is not reasonably likely that the Company's share of any investigation
and remediation costs associated with such matters will have a material adverse
effect upon the Company's financial condition, results of operations or
liquidity.
Doehler-Jarvis has also received requests for information and notices of
potential liability under "Superfund-type laws" with respect to approximately
eight sites which relate to offsite disposal activities conducted by prior
owners of its assets, and thus relate to activities that occurred prior to the
organization of Doehler-Jarvis' predecessor in 1990. Management believes that
most of such notices and requests relate to activities occurring when
Doehler-Jarvis was owned by NL Industries, Inc. ("NL") which has acknowledged
liability for certain sites. As part of the merger transaction under which the
Company acquired Doehler-Jarvis in July 1995, Farley Inc. ("Farley") has agreed
to remain responsible following the transaction for all environmental costs and
expenses relating to certain sites. To date, Doehler-Jarvis has not incurred any
cost in connection with any of the above sites and, based on NL's and Farley's
acknowledgment of responsibility, management does not expect the Company to
incur any such costs in the future. There can be no assurance, however, that NL
and Farley will continue to take responsibility for these sites. There also can
be no assurance that attempts will not be made in the future to hold the Company
responsible for contamination in newly discovered sites, and even where the
disposal that caused the contamination occurred prior to 1990.
Certain of Doehler-Jarvis' facilities have asbestos-containing materials
("ACMs") or suspected ACMs primarily in the form of pipe insulation, floor
tiles, ceiling tiles, fireproofing and boiler insulation. Some of the ACMs or
suspected ACMs are friable. Because there are no legal or health requirements to
remove ACMs, except in the case of demolition or reconstruction projects,
Doehler-Jarvis will, as a general practice, manage ACMs in place. Accordingly,
the Company does not anticipate incurring material costs in connection with
ACMs.
NEW FINANCING AGREEMENT
The Company and certain of the Company's subsidiaries entered into a
Financing Agreement, dated as of October 4, 1996 (the "Financing Agreement"),
with a group of lenders (the "Lenders") and The CIT Group/Business Credit Inc.,
as a Lender and as Agent (the "Agent") for the Lenders. The Financing Agreement
provides up to a $120,000,000 line of credit, consisting of (i) revolving loans
("Revolving Loans") and letters of credit of up to $90,000,000 (including a
letter of credit subfacility, such that $25,000,000 may be extended in the form
of letters of credit (principally stand-by) issued on behalf of the Company and
the subsidiaries) (the "Revolving Credit Line"), subject to the borrowing base
formula discussed below, and (ii) a $30,000,000 term loan facility (the "Term
Loans"), which Term Loans are allocated among such subsidiaries as set forth in
the Financing Agreement. The commitments under the
19
<PAGE> 21
Revolving Credit Line terminate, and all outstanding amounts of Revolving Loans
become due and payable on October 4, 1999, and Term Loans mature and become due
and payable on October 4, 1999.
The total amount of outstanding revolving loans, together with the stated
amount of letters of credit, under the Financing Agreement is limited to amounts
up to $90,000,000 in the aggregate and shall not exceed as to the Company and
each borrowing subsidiary the sum of (i) 85% of the aggregate outstanding
"eligible accounts receivable" of such company, plus (ii) a specified percentage
(which percentage is 50% in the case of raw materials and finished goods
inventory, and 25% in the case of work-in process inventory) of the value of the
eligible inventory of such Company as determined at the lower of cost or market,
provided that the outstanding amount of Revolving Loans advanced against such
eligible inventory is limited to $20,000,000. The standards for eligibility for
eligible accounts receivable and eligible inventory are set forth in the
Financing Agreement.
As security for payment of the Revolving Loans and letters of credit and
other obligations, including the Term Loans and applicable guarantees, the
Company and each borrowing subsidiary has granted to the Lenders a security
interest and general lien on, present and future accounts receivable, inventory,
documents, bank accounts and certain general intangibles (to the extent
necessary to realize upon such accounts receivable and inventory), together with
proceeds thereof. As further security for payment of the Term Loans and the
guaranty thereof by the Company and each borrowing subsidiary, there has been
granted to the Lenders a security interest and general lien on present and
future acquired equipment and other pledged collateral including the outstanding
shares of capital stock of each borrowing subsidiary, and other present and
future general intangibles, together with proceeds thereof. Each of the Company
and borrowing subsidiaries has unconditionally and irrevocably guaranteed the
obligations of all of the borrowers under the Financing Agreement, which
guarantees are secured as set forth above.
If the Financing Agreement and the line of credit are terminated by the
Company prior to October 4, 1997, an early termination fee must be paid in an
amount equal to 0.75% of the aggregate amount of the aggregate line of credit.
Revolving Loans under the Financing Agreement bear interest at the prime
rate of The Chase Manhattan Bank (as defined in the Financing Agreement)
plus 1.5% per annum, or at the companies' option, LIBOR (as defined in the
Financing Agreement) plus 3.5% per annum. The Term Loan has an interest rate
equivalent to prime plus 1.75% per annum. The Lenders also earn a fee of 2% per
annum on the face amount of each standby letter of credit in addition to passing
along to the borrowers all bank charges imposed on the Lenders by the letter of
credit issuing bank. Further, the Lenders receive a line of credit fee of .5%
per annum on the unutilized portion of the Revolving Line of Credit, together
with certain other fees as have been separately agreed upon.
The Financing Agreement contains, among other things, covenants restricting
the ability of the borrowers, without the Lenders' consent, to sell or otherwise
dispose of assets or merge, incur debt, pay dividends, repurchase or
20
<PAGE> 22
redeem capital stock and indebtedness, create liens, make capital expenditures,
make certain investments or acquisitions, enter into transactions with
affiliates and otherwise restricting corporate activities. The Financing
Agreement also contains a covenant requiring the maintenance of a minimum
amount of EBITDA (defined as consolidated earnings of the borrowers before
interest and tax obligations, depreciation and amortization as well as the
non-cash portion of post retirement benefits and other adjustments, including
losses or gains on fixed asset dispositions) and restrictions on the amounts
expended for capital expenditures and the amount of Revolving Loans utilized to
finance capital expenditures. The Financing Agreement was amended on December
20, 1996 to amend the EBITDA covenants. The Company does not expect any
covenants, as amended, to impair materially its ability to conduct business in
the usual course. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Debt Service".
The Financing Agreement contains events of default which are usual and
customary in transactions of this type, including, among other things, payment
defaults in respect of the line of credit, cross-defaults to certain other
indebtedness, breach of covenants or representations and warranties included in
the Financing Agreement and related documents and the institution of any
bankruptcy proceedings, subject, in certain instances, to specified grace and
cure periods. Upon the occurrence and continuance of an event of default under
the Financing Agreement, the Lenders may terminate their commitments to make
loans and issue letters of credit thereunder, declare the then outstanding loans
due and payable and demand cash collateral in respect of outstanding letters of
credit.
On October 4, 1996, the Company and the borrowing subsidiaries referred to
above borrowed an aggregate amount of $38,273,310, of which $30,000,000 was
borrowed as Term Loans and $8,273,310 was borrowed as Revolving Loans. In
addition, an aggregate amount of $19,406,000 of letters of credit (principally
stand-by) was issued and outstanding under the Revolving Credit Line.
Contemporaneously with entering into the Financing Agreement the Company
terminated its then existing Revolving Credit Agreement, dated as of July 28,
1995, among the Company, and certain of its subsidiaries, Chemical Bank, as
administrative and collateral agent, and the other lenders named therein.
Proceeds of the Term Loans, together with proceeds of Revolving Loans, were used
to repay all outstanding loans under such prior Revolving Credit Agreement.
For additional information concerning the Company's indentures, capital
leases, industrial revenue bonds, and indebtedness, as well as its outstanding
Pay-In-Kind Exchangeable Preferred Stock ("PIK Preferred Stock"), see Note 9 and
19 of the Notes to Consolidated Financial Statements.
OTHER
On October 18, 1994, the Board of Directors adopted a Stockholder Rights
Plan providing that one Right shall be attached to each share of Common Stock of
the Company. Each Right entitles the registered holder as of October 21, 1994,
to purchase from the Company a unit (a "Unit") consisting of one one-hundredth
of a share of Series A Junior Preferred Stock, par value $.01 per share (the
"Preferred Stock"), at a Purchase Price of $64.00 per Unit (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights
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<PAGE> 23
Agreement"), dated as of October 18, 1994, as amended, between the Company and
Shawmut Bank Connecticut, National Association, a national banking association
as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificate will be
distributed. The Rights will be separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person"), other than an Exempted Person (as defined below), has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii)
10 business days (or such later date as may be determined by the Board of
Directors) following the commencement of a tender offer or exchange offer that
would result in a person or group, other than an Exempted Person, beneficially
owning 15% or more of such outstanding shares of Common Stock. Until the
Distribution Date, (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
Any person who, together with all affiliates and associates of such person,
is the beneficial owner of securities representing 10% but less than 20% of the
shares of Common Stock outstanding on the date the Board of Directors authorized
the dividend (the "Rights Dividend Declaration Date"), as disclosed in public
filings with the Securities and Exchange Commission prior to such date shall be
an "Exempted Person". However, any such person shall no longer be deemed to be
an Exempted Person and shall be deemed an Acquiring Person if such person,
together with all affiliates and associates of such person, becomes the
beneficial owner, at any time after the Rights Dividend Declaration Date, of
securities representing 26% or more of the shares of Common Stock then
outstanding. The purchaser, assignee or transferee of the shares of Common Stock
of an Exempted Person shall not be an Exempted Person.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on October 21, 2004, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificate alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock prior to the Distribution
Date will be issued with Rights.
In the event that any person becomes the beneficial owner of 15% or more of
the then outstanding shares of Common Stock (unless such acquisition is made
pursuant to a tender or exchange offer for all outstanding shares of the
Company, at a price determined by a majority of the independent Directors of the
Company who are not representatives,
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nominees, Affiliates or Associates of an Acquiring Person to be fair and
otherwise in the best interest of the Company and its stockholders), each holder
of a Right will thereafter have the right to receive, upon exercise, Common
Stock (or, in certain circumstances, cash, property or other securities of the
Company), having a value equal to two times the Exercise Price of the Right. The
Exercise Price is the Purchase Price subject to adjustment in accordance with
the terms of the Rights Agreement. Notwithstanding any of the foregoing,
following the occurrence of the event set forth in this paragraph (the "Flip-In
Event"), all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by an Acquiring Person will be null
and void. However, Rights are not exercisable following the occurrence of the
Flip-In Event set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $64.00 per Right not owned by an
Acquiring Person (or by certain related parties) following an event set forth in
the preceding paragraph would entitle its holder to purchase Common Stock with a
value of $128.00 (or other consideration, as noted above) for $64.00. Assuming
that the Common Stock has a per share value of $64.00 at such time, the holder
of each valid Right would be entitled to purchase 2.0 shares of Common Stock for
$64.00.
In the event that following the Stock Acquisition Date, (i) the Company is
acquired in a merger or consolidation in which the Company is not the surviving
corporation (other than a merger that follows a tender offer determined to be
fair to the stockholders of the Company, as described in the preceding
paragraph) or (ii) 50% or more of the Company's assets or earning power is sold
or transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) shall thereafter have the right to receive, upon
exercise of the Right, Common Stock of the acquiring company having a value
equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Stock on the last
trading date prior to the date of exercise.
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At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right.
Under certain circumstances, the decision to redeem shall require the
concurrence of a majority of the Continuing Directors (as defined below).
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
The term "Continuing Director" means any member of the Board of Directors
of the Company who was a member of the Board of Directors prior to the adoption
of the Rights Plan and any person who is subsequently elected to the Board of
Directors if such person is recommended or approved by a majority of the
Continuing Directors, but shall not include an Acquiring Person, or an affiliate
or associate of an Acquiring Person, or any representative of the foregoing
entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board of Directors (in certain circumstances, with the concurrence of the
Continuing Directors) in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights (excluding the interest
of any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided that no amendment to adjust the time period governing
redemption shall be made at such time as the Rights are not redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirers from making takeover proposals or tender offers. However, the
Rights are not intended to prevent a takeover, but rather are designed to
enhance the ability of the Board of Directors to negotiate with an acquirer on
behalf of all of the shareholders.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to certain anti-takeover provisions that apply to a
public corporation organized under Florida law, unless the corporation has
elected to opt out of those provisions in its articles of incorporation or
bylaws. The Florida Business Corporation Act (the "FBCA") prohibits the voting
of shares in a publicly-held Florida corporation that are acquired in a "control
share acquisition" unless the holders of a majority of the corporation's voting
shares
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(exclusive of shares held by officers of the corporation, inside directors, or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A "control share acquisition" is
defined as an acquisition that immediately thereafter entitles the acquiring
party to vote in the election of directors within each of the following ranges
of voting power: (i) one-fifth or more but less than one-third of such voting
power, (ii) one-third or more but less than a majority of such voting power, and
(iii) more than a majority of such voting power.
The Board of Directors may, however, exclude an acquisition from the
reach of the prohibition on the voting of shares acquired in a "control share
acquisition." The Company's Board of Directors has excluded such a transaction
by Pengo Securities Corp., Durian Securities, Energy Management Corporation,
and Mr. John Adams, certain of the Company's shareholders. These shareholders
may increase their aggregate holdings of the Company's Common Stock up to a
total of 25% of the Company's outstanding Common Stock, without triggering the
disenfranchisement of the voting rights of such shares pursuant to the FBCA.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years, or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An "interested shareholder" is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
The above-described provisions may have certain anti-takeover effects. Such
provisions may make it more difficult for other persons, without the approval of
the Company's Board of Directors, to make a tender offer or acquisitions of
substantial amounts of the Common Stock or to launch other takeover attempts
that might result in the payment of a premium over market price for the Common
Stock held by such shareholder. See "Item 11. Executive Compensation Severance
Agreements and Retention Bonuses".
PBGC SETTLEMENT AGREEMENT
On July 26, 1994, the Company entered into a Settlement Agreement (the
"PBGC Settlement Agreement") with the Pension Benefit Guaranty Corporation
("PBGC") pursuant to which it is obligated to make contributions to certain of
its underfunded pension plans. These contributions will be in addition to the
minimum statutory funding requirements with regard to such plans. Pursuant to
the PBGC Settlement Agreement, the Company made additional contributions of $6.0
million on August 2, 1994, $1.5 million quarterly thereafter through September
30, 1996, and is obligated to make quarterly payments of $1.5 million through
September 30, 1997.
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In addition, the PBGC Settlement Agreement restricts the Company's ability
to redeem the PIK Preferred Stock and contains certain other restrictive
covenants. Upon an event of default thereunder, the PBGC will have certain
rights, including the right to declare all additional contributions immediately
due and payable. The PBGC may also create a lien to secure any unpaid additional
contributions (regardless of whether the unpaid additional contributions were
accelerated) similar to the lien to which a plan is entitled under Section
412(n) of the Internal Revenue Code with respect to unpaid minimum statutory
contributions.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased space at
2502 North Rocky Point Drive, Suite 960, Tampa, Florida 33607. See "Item 13.
Certain Relationships and Related Transactions" for information concerning the
terms of the lease covering such premises. The principal properties of the
Company include its production facilities, all of which are owned by the Company
and its subsidiaries except for its real property in Ripley, Tennessee. The
Company also leases certain warehouse and distribution facilities and regional
sales offices that are not included among the Company's principal properties.
None of the leases is material to the Company's business as a whole or provides
any unique advantage. The Company believes that its facilities are suitable for
their current and foreseeable purposes. Capacity at any plant depends, among
other things, on the product mix, the processes and equipment used and tooling.
Capacity varies periodically, depending on customer demand. The Company
currently estimates that its automotive business plants generally operate at
between 60.0% and 100.0% of capacity on a five-day week basis, except for
certain Doehler-Jarvis facilities that operated during the 1996 fiscal year at
100.0% of capacity on a seven-day week basis. The Company has taken steps,
including cost reduction and capital investments to return its Doehler-Jarvis
facilities to operating on a five-day week basis. The Company believes that its
existing facilities are sufficient to meet its existing needs and its
anticipated growth requirements.
The following table sets forth certain information with respect to the
Company's principal properties:
<TABLE>
<CAPTION>
SUBSIDIARY OR
DIVISION LOCATION TYPE OF FACILITY SQ. FT.
- -------- -------- ---------------- -------
<S> <C> <C> <C>
Harvard Industries Farmington Hills, Michigan Automotive headquarters 70,000
Kingston-Warren Newfields, New Hampshire Manufacturing plant, office and warehouse 302,200
Kingston-Warren Wytheville, Virginia Manufacturing plant, office and warehouse 86,000
Kingston-Warren Church Hill, Tennessee Manufacturing plant, office and warehouse (1) 162,900
Harman Bolivar, Tennessee Manufacturing plant, warehouse and office 294,400
Hayes-Albion Albion, Michigan Manufacturing plant 458,300
Hayes-Albion Bridgeton, Missouri Manufacturing plant 128,300
Hayes-Albion Jackson, Michigan Manufacturing plant 218,600
Hayes-Albion Jackson, Michigan Administrative offices 15,600
Hayes-Albion Rock Valley, Iowa Manufacturing plant 86,000
Hayes-Albion Ripley, Tennessee Manufacturing plant (2) 100,000
Hayes-Albion Tiffin, Ohio Manufacturing plant 467,400
Trim Trends Division Kingston, Michigan Rental property 12,000
Trim Trends Division Deckerville, Michigan Manufacturing plant 74,900
Trim Trends Division Snover, Michigan Manufacturing plant 75,500
Trim Trends, Canada Dundalk, Ontario, Canada Manufacturing plant 80,000
Trim Trends Division Bryan, Ohio Manufacturing plant 141,500
Trim Trends Division Spencerville, Ohio Manufacturing plant 159,000
Doehler-Jarvis Toledo, Ohio Manufacturing plant and office building 542,000
Doehler-Jarvis Pottstown, Pennsylvania Manufacturing plant 470,000
Doehler-Jarvis Greeneville, Tennessee Manufacturing plant 256,000
Harvard Interiors St. Louis, Missouri Manufacturing plant, warehouse facility, and 349,800
office building
Harvard Interiors Arnold, Missouri Assembly plant 31,400
</TABLE>
(1) A portion of this facility is owned by a municipality pursuant to
industrial revenue bond financing.
(2) The land underlying this facility is leased through August 30,
1999.
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ITEM 3. LEGAL PROCEEDINGS
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against the
Company and its subsidiaries. Included among the foregoing matters are the
following:
ESNA - Specialty Fasteners
As part of an overall restructuring of the Company, and the decision of
management to concentrate its resources on the Company's core automotive
businesses, the Company sold certain assets related to its then Elastic Stop
Nut Division ("ESNA") located in Union, New Jersey in March 1995, after having
sold ESNA's Pocahontas, Arkansas operations in December 1994. ESNA, which had
conducted business since 1934, was engaged primarily in the engineering, design
and manufacture of specialty fasteners for the aerospace, industrial and
commercial markets until manufacturing operations ceased in July 1995. Until
completion of such sales and cessation of ESNA's operations the Company
continued to operate ESNA in the ordinary course and reflected ESNA's operating
results as discontinued operations. After considering the length of time,
current market conditions and environmental cleanup costs to dispose of the
facility for residential and industrial use, the Company determined that it was
appropriate to reflect the value of the ESNA facility to the Company at a
nominal net realizable value, including cleanup costs, as of September 30,
1996. As a result, in the fourth quarter of 1996, the Company reflected a
$7,500,000 charge to discontinued operations, representing the write-down of
the ESNA facility, continuing carrying costs of the Union, N.J. facility and
the continuing costs associated with the Company's ongoing participation in the
Department of Defense Voluntary Disclosure Program. The Company anticipates
the receipt of certain royalties from the purchaser of its Union, New Jersey
aerospace operations over the next four years.
The Company determined in September 1993 that certain plated and non-plated
self-locking fasteners sold to the United States Government and other customers
for application in the construction of aircraft engines and airframes
manufactured at the Union, New Jersey facility of ESNA were not manufactured
and/or tested in accordance with applicable specifications. In connection
therewith, in September 1993, the Company notified the Department of Defense
(the "DoD") Office of Inspector General ("OIG") and, upon request, was admitted
into the Voluntary Disclosure Program (the "Program") of the DoD. The Company
also notified ESNA's customers, including the Defense Industrial Supply Center
("DISC"), of these matters and offered to retest and/or reprocess affected
parts. After disclosure was made, DISC indicated that it intended to scrap
flight safety critical parts which were in its inventory and also it suspended
ESNA's Union, New Jersey facility from two Qualified Products Lists ("QPLs"),
QPL-25027 and QPL-7873, in November and December 1993. This required ESNA to
suspend sales of parts covered by such QPLs to the United States Government
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and its contractors and undergo procedures to requalify for those QPLs. The
Company was notified by DISC in early May 1994 that it had requalified for those
QPLs and could resume shipments.
On February 23, 1994, the Company ascertained that certain fasteners
manufactured at ESNA's Pocahontas, Arkansas facility and sold to the United
States Government and other customers for applications in the manufacture of
automotive, marine and farm equipment products, as well as heavy trucks and
general commercial products, were not being tested in accordance with applicable
government and other customer specifications. The Company notified the DoD
OIG and DISC of the testing samples from the affected lots identified at the
Pocahontas facility.
The Company also learned in 1994 that an additional test regarding the
measurement of fastener threads had not been performed at the Union and
Pocahontas facilities on every lot for which it was required by applicable
specifications since April 1993. The Company notified the DoD OIG of this
matter in accordance with its participation in the Program. The Company
identified the lots affected by this deficiency, and notified, in December 1994
and January 1995, customers who purchased these lots and has taken other
appropriate corrective actions.
If it is ultimately determined that the deviations from specifications, and
certifications made in connection therewith, constitute violations of statutory
and regulatory provisions, the Company may, among other things, be subject to
criminal prosecution, treble damages and penalties under the Civil False Claims
Act as well as administrative sanctions such as debarment from future government
contracting. The Company may also be subject to civil damages which could result
from claims that have been or may be made by ESNA's other customers.
As a result of its admission into the Program based on its disclosures
regarding the Union facility, the Company expects to receive favorable
consideration from the Government with respect to whether or not criminal
charges should be brought, administrative sanctions should be imposed and civil
penalties should be sought in connection with the sales of affected parts to the
Government. The Company also expects to receive such treatment with respect to
its subsequent disclosures regarding the Pocahontas facility. In particular, the
Company believes that, in accordance with past practice under the Program, if
the Company maintains its status in the Program and complies fully with the
terms and conditions of the agreement entered into in connection with the
Company's admittance into the Program (i) the government probably will not seek
criminal sanctions against the Company, (ii) the Company probably will not be
suspended or debarred from government contracting, (iii) the government probably
will not seek Civil False Claims Act penalties against the Company and (iv) the
government probably will seek to resolve claims against the Company under the
Civil False Claims Act based upon double rather than treble damages. There is no
assurance, however, the Company will receive such treatment with respect to any
or all of these disclosures.
In carrying out its offer to retest and/or reprocess affected parts, the
Company engaged in such activities, including retesting, and/or reprocessing its
own parts inventory, from September 1993 until July 31, 1995, when such
activities terminated with respect to those parts which were returned by
customers. For those fasteners which had been
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<PAGE> 31
destroyed during retesting, credits were issued to affected customers' accounts.
At September 30, 1996, the accrued costs totaled $6,830,000. which represented
costs such as severance pay, relating to this discontinued operation as well as
costs attributable to the Company's participation in the Program and related
matters which, in turn, cover, among other things, legal costs, fines and
penalties. However, ultimate costs are dependent upon future events, the
outcomes of which are not determinable at the present time. Such ultimate costs
could have a material effect on the Company's financial condition, results of
operations or liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - The Company-Liquidity and Capital
Resources - ESNA" and Note 4 to the Consolidated Financial Statements.
Environmental Matters
The Company may incur liability for alleged environmental damage associated
with past waste disposal practices. Generators of hazardous substances placed in
disposal sites at which environmental problems are alleged to exist, as well as
the owners of those sites and certain other classes of persons, are subject to
claims brought by state and federal regulatory agencies pursuant to statutory
authority. Since 1981, EPA has sought compensation and remedial action from
waste generators, site owners and operators, and others under CERCLA, which
authorizes such action by EPA regardless of fault or the legality of original
disposal. The Company's most significant involvement in CERCLA proceedings
relates to the Vega Alta and Alsco-Anaconda Superfund sites.
Vega Alta Site. The Company's Harman subsidiary was named as one of several
PRPs by EPA pursuant to CERCLA concerning environmental contamination at the
Vega Alta, Puerto Rico Superfund site (the "Vega Alta Site"). Other named PRPs
include subsidiaries of General Electric Company ("General Electric"), Motorola,
Inc. ("Motorola"), and The West Company, Inc. ("West Company") and the Puerto
Rico Industrial Development Corporation ("PRIDCO"). PRIDCO owns the industrial
park where the PRPs were operating facilities at the time of alleged discharges.
Another party, Unisys Corporation, was identified by General Electric as an
additional PRP at the Superfund Site as the successor to the prior operator at
one of the General Electric facilities. Unisys Corporation was not initially
designated as a PRP by EPA, although it was named as a PRP in conjunction with
settlement proceedings and consent decree.
There are currently two phases of administrative proceedings in progress.
The first phase, known as Operable Unit I ("OUI"), involves a Unilateral Order
by EPA that the named PRPs implement the Vega Alta Site remedy chosen by EPA,
consisting of the replacement of the drinking water supply to local residents
and installation and operation of a groundwater treatment system to remediate
groundwater contamination. In addition, EPA sought recovery of costs it had
expended at the Vega Alta Site.
Motorola, West Company and Harman completed construction of the OUI remedy
pursuant to a cost-sharing arrangement. As of September 30, 1996, Harman's
remaining share of costs pursuant to this cost sharing arrangement is
approximately $360,000 including reimbursement of the other two PRP's for
the construction cost of the OUI
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<PAGE> 32
treatment system. Pursuant to the Company's Plan, Harman began payment against
these obligations (the "Plan Amounts") in 1995.
Effective June 30, 1993, the PRPs reached a settlement among themselves.
Harman, together with Motorola and West Company, have completed the agreed upon
work for the first phase of administrative proceedings, as outlined above, which
included final construction and initial testing of the cleanup system. In
addition, Harman, Motorola and West Company each agreed to pay General Electric
the sum of $800,000 in return for General Electric's agreement to assume
liability for, and indemnify and hold Harman and the others harmless against,
EPA's cost recovery claim, to undertake operation and maintenance of the OUI
cleanup system and to construct, operate and maintain any other proposed system
that may be required by EPA under OUII, and to conduct any further work required
under OUII investigatory and cleanup requirements concerning further phases of
work at the Vega Alta Site. Harman's settlement payment to General Electric is
being made in 20 equal quarterly installments, which commenced in January 1995,
with 9% interest per annum. Harman, West Company and Motorola retained liability
for any cleanup activities that may in the future be required by EPA at their
respective facilities due to their own actions, for toxic tort claims and for
natural resource damage claims. In light of the settlement, Harman, Motorola and
West Company have stipulated with the EPA to liability at the Vega Alta Site. In
the suit by the United States, a consent decree among all of the PRPs and the
United States was fully executed by all parties, and was entered by the federal
district court, finally resolving the cost recovery litigation.
Pursuant to a letter dated January 31, 1994 and subsequent notices since
that date, Harman and the other PRPs have been put on notice of potential claims
for damages, allegedly suffered by the owners and operators of farms located in
the vicinity of the Vega Alta Site. If Harman were to be found liable in any
future lawsuit, some of the alleged damages (e.g., personal injury, property and
punitive damages) would not be covered by the settlement agreement with General
Electric. In a letter to General Electric's counsel, counsel for the owners and
operators alleged estimated losses of approximately $400 million "based
primarily on lost income stream," purportedly based on certain assumptions
concerning the value of the property, its potential for development and
groundwater contamination issues. At this time, however, Harman, has no
information which would support such unindemnified claims, and believes the
claims to be speculative.
Alsco-Anaconda Site. Alsco Company, a predecessor of the Company, was the
former owner and operator of a manufacturing facility located in Gnadenhutten,
Ohio. The Alsco division of the Company was sold in August 1971 to the Anaconda
Company. Subsequently, Alsco became Alsco-Anaconda, Inc., a subsidiary of the
Anaconda Company. In January 1977, when the Atlantic Richfield Company ("ARCO")
purchased the Anaconda Company, the Gnadenhutten facility became a part of ARCO
Metals Company and was renamed Alsco. The facility, when acquired by ARCO,
consisted of an architectural manufacturing plant, office buildings, a
wastewater treatment plant, two sludge settling basins and a sludge pit. The
basins and pit were used for treatment and disposal of substances generated from
the manufacturing processes; they were proposed for inclusion on EPA's National
Priorities List in October 1984. The
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<PAGE> 33
basins and pit were formally listed as the "Alsco-Anaconda Superfund Site" in
June 1986. ARCO sold the facility in 1986 to Pony Industries but retained
ownership of a 4.8 acre Superfund Site.
Under arrangements between the Company and ARCO, each has accepted that it
is a PRP with respect to the Site. The Company, however, maintained that under
the CERCLA statute its responsibility was limited to waste actually produced and
deposited on the Site during its period of ownership (1965-1971). Although it is
not possible to determine definitively the Company's ultimate exposure,
management believes that the Company's obligations will likely be limited to
those accepted under the settlement agreement with ARCO described in the next
sentence, which settlement was based upon an allocated percentage of total
anticipated remediation costs, which as alleged by ARCO, will aggregate $19.0
million to $21.5 million. The Company and ARCO reached a settlement in January
1995 whereby the Company has agreed to pay ARCO $6.25 million (as its share of
up to $25.0 million of the cleanup and environmental costs at the Site) in
twenty equal quarterly installments with accrued interest at the rate of 9% per
annum, of which seven installments have been paid through September 30, 1996. In
return, ARCO has assumed responsibility for cleanup activities at the Site and
is obligated to indemnify the Company from any environmental claims below the
cap. If cleanup costs should exceed $25.0 million, the parties will be in the
same position as if the litigation was not settled. Upon execution of the
Settlement Agreement, the matter was approved by the Delaware Bankruptcy Court.
American Littoral Society. By letter dated June 4, 1996, the American
Littoral Society, a public interest group operated through the Environmental Law
Clinic of the Widener University School of Law, sent a notice letter pursuant to
the Clean Water Act to the Company threatening suit based upon past and
anticipated future discharges to the Schuykill River in excess of the limits
established in the National Pollutant Discharge Elimination System permit
("NPDES") for the Pottstown, Pennsylvania plant. The Pottstown plant has been
and is currently operating under an expired but still effective NPDES permit.
The plant's wastewater treatment system (or use "equipment") is not capable of
achieving routine compliance with certain discharge limitations, including
limits for phenol, oil and grease and total dissolved solids. The Pottstown
plant has been attempting to solve this problem by arranging to convey its
effluent to the Pottstown Publicly Owned Treatment Works ("Pottstown POTW").
This effort has been hampered by West Pottsgrove township, since the plant's
effluent must flow through a short section of the township's sewer lines in
order to be conveyed onto the Pottstown POTW. The township has been withholding
permission to send the plant's effluent through this short section of its sewer
line even though the Pottstown POTW is willing to accept the effluent. Potential
penalties under the Clean Water Act could be several million dollars. The
Company is holding discussions with the American Littoral Society in hopes of
settling this matter short of litigation.
Other Environmental Matters. As of September 30, 1996, and in addition to
the Vega Alta and Alsco-Anaconda Sites, and the notice from the American
Littoral Society, the Company has received information requests or notifications
alleging that the Company is a PRP pursuant to the provisions of CERCLA or
analogous state laws from EPA, state agencies, and private parties; or is
currently participating in the remedial investigation or closure activities at
23 other sites (including eight sites with respect to Doehler-Jarvis).
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In accordance with the Company's policies and based upon consultation with
legal counsel regarding pending environmental suits and claims, management of
the Company has provided accruals for environmental matters of $9,437,000 as of
September 30, 1996. The accrued amount includes approximately $313,000, with a
corresponding receivable, that the Company believes that it will be entitled to
from proceeds of insurance. See Note 15 to the Consolidated Financial
Statements.
While it is not feasible to predict the outcome of pending environmental
suits and claims, based upon the most recent review by management of these
matters and after consultation with legal counsel, management is of the opinion
that the ultimate disposition of these matters will not have a material effect
on the financial position or results of operations of the Company.
Other. In June 1995, a group of former employees of the Company's
subsidiary, Harman Automotive-Puerto Rico, Inc., commenced an action against the
Company and individual members of management in the Superior Court of the
Commonwealth of Puerto Rico seeking approximately $48.0 million in monetary
damages and unearned wages relating to the closure by the Company of the Vega
Alta, Puerto Rico plant previously operated by such subsidiary. Claims made by
the plaintiffs in such action include the following allegations: (i) such
employees were discriminated against on the basis of the national origin in
violation of the laws of Puerto Rico in connection with the plant closure and
that, as a result thereof, the Company is alleged to be obligated to pay
unearned wages until reinstatement occurs, or in lieu thereof, damages,
including damages for mental pain and anguish; (ii) during the years of service,
plaintiffs were provided with a one-half hour unpaid meal break, which is
alleged to violate the laws of Puerto Rico, providing for a one-hour unpaid meal
break and demand to be paid damages and penalties and request seniority which
they claim was suspended without jurisdiction; and (iii) plaintiffs were paid
pursuant to a severance formula that was not in accordance with the laws of
Puerto Rico, which payments were conditioned upon the plaintiff's executive
releases in favor of the Company, and that, as a result thereof, they allege
that they were discharged without just cause and are entitled to a statutory
severance formula.
Management believes that it has meritorious defenses to the action and is
vigorously defending its position. Although there can be no assurance as to the
ultimate outcome, based on advice by its local counsel in Puerto Rico, the
Company does not believe that the ultimate disposition of this matter will have
a material adverse effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1996, covered by this Annual
Report on Form 10-K.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol "HAVA." The table below sets forth the high and low bid quotations
for the Company's Common Stock from October 1, 1994 through September 30, 1996.
These bid prices represent prices between dealers without adjustment for retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
COMMON STOCK PRICE RANGE
FISCAL YEAR HIGH LOW
1995:
First Quarter $ 18.00 $13.875
Second Quarter $ 18.00 $ 15.00
Third Quarter $20.375 $16.625
Fourth Quarter $27.625 $ 18.00
1996:
First Quarter $ 29.25 $24.875
Second Quarter $29.625 $19.625
Third Quarter $23.250 $11.625
Fourth Quarter $16.375 $ 6.625
On December 15, 1996, the closing bid and asked prices for the Common Stock
were $4.25 and $4.50 respectively. On December 15, 1996 there were approximately
126 holders of record.
The Company has paid no cash dividends in its last two fiscal years. The
Company is restricted under the terms of its borrowings, including its debt
instruments and Financing Agreement, from paying cash dividends on its
Common Stock.
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<PAGE> 36
ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars except share and per share data)
<TABLE>
<CAPTION> Pre-Confirm-
Post-Confirmation(1)(2) ation(1)(2)
---------------------- -----------
One Eleven
Year Year Year Year Month Months
Ended Ended Ended Ended Ended Ended
9/30/96 9/30/95 (3) 9/30/94 9/30/93 9/30/92 8/23/92
-------- ----------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales .......................................... $ 824,837 $ 631,832 $ 614,952 $ 583,063 $ 64,513 $ 553,163
Cost of sales................................... 776,141 557,340 543,532 553,465 58,148 496,504
========== ========= ========= ========= ========= =========
Gross profit ................................... 48,696 74,492 71,420 29,598 6,365 56,659
Selling, general and administrative
expenses.................................... 42,858 33,037 32,217 36,381 2,647 29,883
Interest expense (4)............................ 47,004 19,579 11,947 15,450 1,811 11,588
Restructuring and other charges (5) ............ --- --- --- 40,711 --- ---
Amortization of goodwill........................ 15,312 2,986 1,584 2,592 94 1,507
Other (income) expense, net (6)................. 1,538 (1,789) (532) 8,649 (687) 3,007
Income (loss) from continuing operations
before reorganization items, income taxes,
extraordinary items and cumulative effect
of a change in accounting principle......... (58,016) 20,679 26,204 (74,185) 2,500 10,674
Reorganization items............................ --- --- --- --- --- 57,972
Income (loss) from continuing operations before ========== ========= ========= ========= ========= =========
income taxes, extraordinary items and
cumulative effective of a change in
accounting principle........................ (58,016) 20,679 26,204 (74,185) 2,500 68,646
Provision (benefit) for income taxes............ 3,196 11,566 9,536 1,955 335 907
Income (loss) from continuing operations ========== ========= ========= ========= ========= =========
before extraordinary items and cumulative
effect of a change in accounting principle.. (61,212) 9,113 16,668 (76,140) 2,165 67,739
Loss from discontinued operations,
net of tax (2).............................. (7,500) --- (9,038) (54,409) (858) (291)
Income (loss) before extraordinary items and ========== ========= ========= ========= ========= =========
cumulative effect of a change in accounting
principle................................... (68,712) 9,113 7,630 (130,549) 1,307 67,448
Extraordinary items............................. --- (2,192) --- --- --- 66,511
Cumulative effect of change in accounting for
postretirement benefits other than pensions --- --- --- --- --- (52,214)
========== ========= ========= ========= ========= =========
Net income (loss)............................... $ (68,712) $ 6,921 $ 7,630 $(130,549) $ 1,307 $ 81,745
========== ========= ========= ========= ========= =========
PIK preferred dividends and accretion........... $ 14,844 $ 14,809 $ 14,767 $ 12,769 $ 1,032 n/a
Net loss attributable to common stockholders $ (83,556) $ (7,888) $ (7,137) $(143,318) $ 275 n/a
========== ========= ========= ========= ========= =========
Ratio of earnings to fixed charges (7).......... n/a 1.17x 1.42x n/a 1.48x n/a
Share Data: (8)
Earnings (loss) per share of common shares and common equivalent shares:
Primary
Income (loss) from continuing operations........ $ (10.87) $ (0.82) $ 0.28 $ (13.48)
Loss from discontinued operations............... (1.07) --- (1.31) (8.26)
Extraordinary item.............................. --- (0.32) --- ---
========== ========= ========= =========
Net loss........................................ $ (11.94) $ (1.14) $ (1.03) $ (21.74)
========== ========= ========= =========
Weighted average number of shares and
equivalents................................ 6,999,279 6,894,093 6,875,267 6,593,407
========== ========= ========= =========
Fully diluted
Income (loss) from continuing operations........ $ (10.87) $ (0.82) $ 0.27 $ (13.48)
Loss from discontinued operations............... (1.07) --- (1.28) (8.26)
Extraordinary item.............................. --- (0.32) --- ---
========== ========= ========= =========
Net loss........................................ $ (11.94) $ (1.14) $ (1.01) $ (21.74)
========== ========= ========= =========
Weighted average number of shares and
equivalents................................ 6,999,279 6,894,093 7,041,324 6,593,407
========== ========= ========= =========
Financial Ratios and Other Data:
Depreciation and amortization................... $ 65,658 $ 34,856 $ 29,855 $ 34,280 $ 2,738 $ 18,988
Cash flows from continuing operations........... 2,090 25,051 87,324 54,749 5,146 28,095
EBITDA (9)...................................... 56,385 78,241 72,451 (16,725) 7,080 166,732
Capital expenditures............................ 40,578 22,080 10,141 13,918 2,000 6,737
Cash flows (used) provided by investing
activities.................................. (48,224) (226,769) (12,207) (14,310) (2,937) (1,179)
Cash flows (used) provided by financing
activities................................. 27,316 161,283 (30,348) (35,589) (13,421) (18,677)
Balance Sheet Data (at end of period) (10):
Working capital (deficiency) (11).............. $ (7,158) $ 19,417 $ 30,333 $ (59,138) $ 64,029 n/a
Total assets.................................... 617,705 662,262 387,942 364,853 471,584 n/a
Long-term debt and prepetition trade payables,
including current portion (12).............. 360,603 324,801 113,381 117,494 153,083 n/a
PIK preferred stock............................. 114,495 99,651 99,841 95,074 82,305 n/a
Shareholders' equity (deficiency)............... $ (145,724) $ (62,206) $ (59,032) $ (60,813) $ 95,181 n/a
- -----------------
</TABLE>
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<PAGE> 37
(1) For accounting purposes, the Company emerged from reorganization
proceedings, effective August 23, 1992. Pursuant to the Plan, the
Company adopted "Fresh Start Reporting" in accordance with generally
accepted accounting principles. Accordingly, neither the Company's
results of operations data and balance sheet data for periods following
the effective date (Post-Confirmation). The Company also adopted FASB
106 and FASB 109 effective August 23, 1992.
(2) The Company, in the first quarter of fiscal 1994, decided to
discontinue its then specialty fastener segment (ESNA) and therefore
has applied the accounting guidelines for discontinued operations.
Accordingly, all prior period financial statements have been
reclassified to reflect the results of ESNA as a discontinued
operation. In fiscal 1993, the Company recorded certain restructuring
and other charges aggregating $40,667 relating to ESNA and included
such charges in loss from discontinued operations. See Note 4 to
Consolidated Financial Statements.
(3) Includes the results of operations of Doehler-Jarvis, Inc. from July
28, 1995, the effective date of acquisition.
(4) Interest expense for the Post-Confirmation periods includes interest on
prepetition trade payables; interest expense during the eleven months
ended August 23, 1992, does not include interest on the 14 1/4% senior
subordinated debentures which were issued in November 1988
(pre-confirmation contractual interest amounted to $42,924 in 1992).
(5) The Company recorded restructuring and other charges in the fourth
quarter of fiscal 1993 aggregating $40,711, for which no tax benefit is
currently available.
(6) For the Year ended September 30, 1993, other (income) expense, net
includes a charge for the write-down and disposition of assets no
longer required in operations amounting to $4,434 and provision for
estimated settlements of various litigation matters amounting to
$4,850.
(7) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations before
provision for income taxes, extraordinary items and cumulative effect
of a change in accounting principle plus fixed charges. Fixed charges
consist of interest expense and one-third of rental expense, which is
deemed to be representative of the interest factor thereon, plus
preferred dividends and accretion. Earnings were insufficient to
cover fixed charges for the years ended September 30, 1996 and 1993
and the eleven months ended August 23, 1992 by $53,062, $86,954 and
$20,662, respectively. Earnings were sufficient to cover fixed
charges for the years ended September 30, 1995 and 1994 and the
one month ended September 30, 1992 by $5,870, $11,437 and $1,468,
respectively.
(8) Earnings (loss) per common share are not presented for periods prior
to the Company emergence from Chapter 11 proceedings because there
were no public shares outstanding and reporting earnings (loss) per
common share for the one month ended September 30, 1992 would not be
meaningful. See also Note 2 to the Consolidated Financial
Statements.
(9) EBITDA has the same meaning as defined in the Company's Note
Identures, namely Consolidated Net Income (as defined in the
Indenture) before income taxes, interest expense, depreciation,
amortization and the non-cash portion of charges related to the
recognition of postretirement benefits other than pensions.
Consolidated Net Income excludes income (loss) from discontinued
operations. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by an investor as an alternative to net
income, as an indicator of the Company's operating performance or as an
alternative cash flows as a measure of liquidity.
(10) Balance sheet data for the period ended August 23, 1992 is not
presented because such date is not a year end.
(11) At September 30, 1993, bank and other debt of $66,517 and prepetition
trade payables of $11,122, were classified as current liabilities in
accordance with their terms.
(12) Pre-confirmation balance sheet data relating to long-term liabilities,
which were classified as current because of defaults thereon, have
been reclassified herein for comparative purposes. Long-term debt
includes prepetition trade payables of $38,715 and $49,138 as of
September 30, 1993 and 1992, respectively.
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<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (In thousands of dollars)
GENERAL
The volume of the Company's business has changed significantly due
principally to the acquisition of Doehler-Jarvis on July 28, 1995. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, this operation is reflected in the consolidated financial results
of the Company only since the date of acquisition. For this reason, comparison
of financial results may not be meaningful. The Company's results of operations
have been adversely impacted in 1996 by the following conditions: decline in
large passenger car sales; losses related to a Manifold Program and a Bell
Housing Program between Doehler-Jarvis and a major customer which were launched
in fiscal 1995; operational inefficiencies at Doehler-Jarvis' Toledo and
Pottstown plants, including the impact of significant overtime resulting from
operating the Toledo plant on a seven day week basis; the effects of the March
1996 General Motors "GM" strike; adverse weather conditions in January and
February 1996 and increased launch costs related to new and replacement
business. In 1996, the cost of sales exceeded revenues (negative gross margin)
under the Doehler-Jarvis Manifold Program and a program for Bell Housings (the
"Programs").
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<PAGE> 39
On July 25, 1996, the Company reached an agreement in principle with a
major customer to program modifications to the Manifold Program discussed above.
The Company and the customer have gone forward with certain major elements of
the agreement. The Company and the customer are in the process of negotiating
definitive documents concerning the program modifications for the Manifold
Program and will complete the effects of resourcing of the Bell Housing program
to another supplier by December 31, 1996.
It is currently expected that the negative gross margin effect with respect
to the programs will not be completely reduced or eliminated until the end of
March or April 1997.
RESULTS OF OPERATIONS
1996 Compared to 1995
Sales. Excluding the 1996 and 1995 Doehler-Jarvis sales, consolidated sales
decreased $57,388, substantially all of which occurred during the first six
months. The automotive accessories segment sales accounted for 96% and 95%,
respectively, of consolidated sales for the years 1996 and 1995. Automotive
sales, excluding such sales by Doehler-Jarvis, decreased $59,000, of which
$41,000 was due mainly to the lower volumes for existing light vehicle
platforms, principally for large passenger cars and somewhat to the effects of
the March 1996 strike at GM, and $18,000 was attributable to the inclusion in
1995 of sales to Ford phased out in June 1995, as previously disclosed.
Non-automotive sales increased $1,600 due to an increase in furniture sales.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales (the "gross profit margin") decreased from 11.8% to 5.9%. The gross profit
margin of the automotive segment decreased from 11.9% to 6.0%. The decrease in
the gross profit was due principally to the lower passenger car sales mentioned
above and somewhat to the effects of the adverse weather conditions, the GM
strike, and excess launch costs for new and replacement products in 1996. In
1996, sales of the Programs aggregated $50,000 for which a negative gross margin
of $7,800 was incurred. More than half of the decrease in the gross profit
margin was attributable to the fact that Doehler-Jarvis contributed no gross
profit on over $296,000 of sales, which was caused mainly by operational
inefficiencies at the Toledo and Pottstown plants, including the impact of
increased overtime resulting from operating the Toledo plant on a seven day
week basis and the negative margins incurred from sales of the Programs. The
remaining gross profit margin decrease was caused by decreases in the other
automotive operations due to the reasons mentioned, in particular excess launch
costs and the GM strike. The non-automotive segment had a decrease in gross
profit of $1,600 due principally to the fact that the prior year's gross profit
included a one-time favorable settlement with a supplier amounting to $475, as
well as lower margins on increased sales to major retailers in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3,700, or 13.8%, after excluding such
expenses of Doehler-Jarvis, and after considering the fact that 1996 does not
include any bonus provision with respect to the Company's key management and
operating personnel, as compared to $3,700 in
38
<PAGE> 40
1995. The current year includes salary increases and additional non-automotive
selling costs incurred to penetrate the mass merchandising furniture market. As
a percentage of sales, such consolidated expenses were 5.2% for both 1996 and
1995.
Interest Expense. Interest expense increased from $19,579 in 1995 to
$47,004 in 1996. The increase in interest expense was the result of the issuance
in July 1995 of the 11 1/8 % Senior Notes, capital leases (which were assumed
in the Doehler-Jarvis acquisition), the revolving working capital loans under
the Credit Agreement, dated as of July 28, 1995, among the Company, the
Guarantors and Chemical Bank, as Agent (the "Chemical Agreement") and the $7,000
short term credit facility utilized from August 2, 1996 to September 27, 1996.
The effective rate of interest was 13.6% in 1996 and 12.1% in 1995.
Amortization of Goodwill. Amortization of goodwill increased $12,326 due to
the additional goodwill resulting from the acquisition of Doehler-Jarvis. In the
fourth quarter of 1996, based upon Doehler-Jarvis' unprofitable operating
results since acquisition and projected operating results for 1997, the life of
such goodwill was changed from 15 years to 10 years effective October 1, 1995.
Other (income) Expense, Net. The change was due, principally, to the
reduction in interest income due to the use of approximately $26,300 of cash on
hand in the acquisition of Doehler-Jarvis.
Provision for Income Taxes. The differences between the statutory federal
income tax rate and the Company's effective income tax rates result,
principally, from generating an operating profit in Canada and an operating loss
in the U.S. for which no tax benefit has been recognized.
Loss from Discontinued Operations. Discontinued operations was charged
$7,500 representing the write-down of the ESNA facility, continuIing costs
associated with the Company's ongoing participation in the Department of Defense
Voluntary Disclosure Program and carrying costs of the Union, N.J. facility. See
Note 4 to the Consolidated Financial Statements.
Net Income (Loss). Net loss for 1996 was $68,712 compared to a net income
of $6,921 in 1995. The change is because operating results (as described above)
were insufficient to cover increases of $27,425 in interest expense, $12,326 in
amortization of goodwill and the $7,500 loss from discontinued operations.
1995 Compared to 1994
Sales. Excluding $45,622 of Doehler-Jarvis' sales, consolidated sales
decreased $28,742. The automotive accessories segment sales accounted for 95.0%
and 96.3%, respectively, of consolidated sales for 1995 and 1994. Automotive
components sales, after adjusting for $44,114 of such sales by Doehler-Jarvis,
decreased $52,139 mainly due to the continuing decline in sales of $48,863 at
two automotive operations, reflecting Ford platforms being sourced to
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<PAGE> 41
competitors. Automotive component sales also decreased $9,531 due to lower
volumes for existing light vehicle platforms; however, this decrease was offset
by $6,255 for recovery of material cost increases and other pricing adjustments.
Tooling sales, after adjusting for $1,308 of such sales by Doehler-Jarvis,
increased $14,316. Non-automotive sales reflected an increase of $9,081 due,
mainly, to an increase in furniture sales.
Gross Profit. The consolidated gross profit margin increased from 11.6% to
11.8%. The gross profit margin of the automotive segment increased from 11.7% to
11.9%. The improvement in the gross profit margin was due principally to a
favorable product sales mix. Additionally, the non-automotive segment had an
increase in gross profit of $1,383, of which $475 represented a one-time
settlement with a supplier.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, after adjusting for $2,576 of such expenses of
Doehler-Jarvis, decreased $1,756, or 5.5%. The decrease in selling, general and
administrative expenses resulted primarily from a decrease in the provision for
bonuses to the Company's key management and operating personnel of approximately
$1,600 and continued improvement from the Company's cost reduction programs. The
decrease was offset by the addition of personnel and related expenses at the
Company's new executive offices. As a percentage of sales, such consolidated
expenses were 5.3% and 5.2% for 1995 and 1994, respectively.
Interest Expense. Interest expense increased from $11,947 in 1994 to
$19,579 in 1995. The increase in interest expense was the result of an increase
in the effective interest rates on the Company's current debt structure, the 12%
Senior Notes in July 1994 and the issuance in July 1995 of the 11 1/8 % Senior
Notes as compared with the lower effective interest paid in 1994 on bank debt
and prepetition liabilities.
Amortization of Goodwill. The increase in amortization of goodwill was due
to the acquisition of Doehler-Jarvis.
Other (Income) Expense, Net. The change in this caption was due,
principally, to the increase of approximately $1,100 in interest income as a
result of having higher cash balances and approximately $200 for miscellaneous
non-recurring income.
Provision for Income Taxes. The provision for income taxes increased by
$2,226 due to increases in income in jurisdictions with higher tax rates,
resulting principally from the closing of Harman's Puerto Rico operation and
permanent differences in connection with the Company's acquisition of
Doehler-Jarvis.
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Income from Continuing Operations. Income from continuing operations
decreased by $7,555, primarily because operations were insufficient to cover
increases in interest expense.
Extraordinary Item. The Company terminated its then existing revolving
credit facility dated as of July 26, 1994, resulting in an extraordinary charge
of $2,192.
Net Income (Loss). Net income for 1995 was $6,921 compared to a net income
of $7,630 for 1994. The change is due to the reasons cited above.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended Sepitember 30, 1996 and 1995, the Company had cash
flows from continuing operations of $2,090 and $25,051, respectively.
Discontinued operations on a net basis generated a negative cash flow of $3,332
in 1996 as compared with a positive cash flow of $5,029 in 1995. Reflected in
1996 are the costs associated with the Company's ongoing participation in the
Department of Defense Voluntary Disclosure Program and carrying costs of the
Union, N.J. facility. The cash flow from operations in 1996 was used primarily
to fund working capital needs and to meet debt service obligations (principal
and interest) of $44,900. Cash on hand at September 30, 1995 and borrowings
under a credit agreement, dated as of July 28, 1995 ("Chemical Agreement")
during 1996 were used to fund other investing activities (deferred tooling), to
fund pension payments of $6,000 pursuant to the PBGC settlement agreement and
EPA payments of $2,676, to fund $40,578 of property, plant and equipment
expenditures and discontinued operation of $3,332. Borrowings under the
Chemical Agreement began in February 1996, continued during 1996, and the
Company will be required to borrow for working capital under the Financing
Agreement (as defined below) during 1997. The Company expects to use the
revolver to fund up to $30,000 of property, plant and equipment expenditures in
1997. At September 30, 1996, such revolving loans amounted to $38,834 and are
classified as long-term based upon the refinancing mentioned below. The Company
had a deficiency of earnings over fixed charges and dividends on preferred
stock of $53,062 in 1996. Earnings exceeded fixed charges by $5,870 in 1995.
DEBT SERVICE
The Company issued Senior Notes in the amount of $100,000 (12%) in 1994 and
$200,000 (11 1/8 %) in 1995. Both series of Notes were issued pursuant to
indentures by and among the Company and the Guarantors, which are subsidiaries
of the Company, and First Union National Bank of North Carolina, as Trustee. See
Note 24 to the Consolidated Financial Statements for information concerning the
Guarantors. The $100,000 Notes mature on July 15, 2004 and the $200,000 Notes
mature on August 1, 2005 and do not require any principal payments until such
dates.
The net proceeds from the 1994 sale of the 12% Notes were used to (i)
prepay all indebtedness outstanding under the Company's then existing bank
credit agreement (approximately $51,000); (ii) pay certain trade payables that
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<PAGE> 43
were incurred by the Company prior to its Chapter 11 proceedings (approximately
$31,000) and for general corporate purposes. The net proceeds from the 1995 sale
of the 11 1/8 % Notes, together with cash on hand, were used to finance the
July 28, 1995 acquisition of Doehler-Jarvis. Contemporaneously with the sale of
the 1994 and 1995 Notes, the Company entered into the Chemical Agreement
providing for revolving working capital loans and a letter of credit facility.
The Chemical Agreement terminated the 1994 credit agreement resulting in an
extraordinary charge of $2,192, net of $1,200 of tax penalty, or $.32 per share.
The Chemical Agreement was refinanced on October 4, 1996, as described below.
On August 2, 1996, the Company borrowed $7,000 under a $10,000 short term
credit facility maturing on December 31, 1996, with its then existing banks who
were lenders pursuant to the Chemical Agreement. The short term credit facility
was collateralized by the Company's machinery and equipment. The interest rate
was 4% over the alternate base rate as defined. The Company paid a $1,000
facility fee on August 2, 1996. The Company repaid this short term loan on
September 27, 1996.
The Company and certain of its subsidiaries entered into a financing
agreement dated as of October 4, 1996 and amended on December 20, 1996 with The
CIT Group/Business Credit, Inc. ("Financing Agreement"), as a lender and as
agent for a group of lenders. The Financing Agreement provides an aggregate
credit line of up to $120,000, consisting of revolving loans and letters of
credit of up to $90,000, of which up to $25,000 may be extended in the form of
letters of credit (principally standby), and a $30,000 term loan facility.
Revolving loans under the Financing Agreement are subject to the following
borrowing base formula: 85% of eligible accounts receivable and a percentage
varying from 25% to 50% of eligible inventory, limited to $20,000. The
commitments under the revolving credit line terminate, and all amounts of
revolving loans outstanding become due and payable on October 4, 1999. The term
loans mature on October 4, 1999. As security for payment of revolving loans,
letters of credit and other obligations, including the term loans and related
guarantees, the Company and certain of its subsidiaries have granted to the
lenders a security interest and general lien on present and future accounts
receivable, inventories, bank accounts and certain general intangibles, together
with proceeds thereof. As additional security for payment of the term loan and
the guarantee thereof by the Company and each of its certain subsidiaries, a
security interest and general lien on present and future acquired equipment and
other pledged collateral, including the issued and outstanding shares of capital
stock of certain of the Company's subsidiaries have been granted to the lenders.
The Company and each of its subsidiaries who are parties to the Financing
Agreement have unconditionally and irrevocably guaranteed the obligations of
each of the companies under the Financing Agreement. If the companies who are
parties to the Financing Agreement terminate the agreement prior to October 4,
1997, the companies must pay an early termination fee of approximately $900. The
revolving loan under the Financing Agreement has an interest rate equivalent to
prime plus 1.5% per annum or at the Company's option, LIBOR, as defined, plus
3.5% per annum. The term loan has an interest rate equivalent to prime plus
1.75% per annum, and there is a 2% per annum charge on the face amount of each
standby letter of credit. The Company also paid commitment and other fees which
will be included in deferred debt expense. The Financing Agreement also contains
quarterly covenants requiring the maintenance of a minimum amount of EBITDA and
restricts amounts to be expended for capital expenditures and
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<PAGE> 44
amounts of revolving loans available to finance capital expenditures. The
Financing Agreement contains, among other things, covenants restricting (subject
to the prior consent of the lenders) the ability of the Companies to sell or
otherwise dispose of assets or merge, incur debt, pay dividends, repurchase or
redeem capital stock and indebtedness, create liens, make certain investments or
acquisitions, enter into transactions with affiliates, and otherwise restricting
corporate activities. The Financing Agreement contains events of default which
are usual and customary in transactions of this type, including, among other
things, payment defaults in respect of the line of credit, cross-defaults to
certain other indebtedness, breach of covenants or representations and
warranties included in the Financing Agreement and related documents and the
institution of any bankruptcy proceedings, subject, in certain instances, to
specified grace and cure periods. Upon the occurrence and continuance of an
event of default under the Financing Agreement, the Lenders may terminate their
commitments to make loans and issue letters of credit thereunder, declare the
then outstanding loans due and payable and demand cash collateral in respect of
outstanding letters of credit. On October 4, 1996, the Company borrowed $38,273,
under the Financing Agreement of which $30,000 was borrowed as term loans and
$8,273 as revolving loans. In addition, an aggregate amount of $19,406 of
letters of credit (principally standby) were considered outstanding under the
revolving credit line. Proceeds from the new Financing Agreement were used to
repay all outstanding loans under the Chemical Agreement.
The Company's wholly-owned subsidiary, Kingston-Warren has an Industrial
Revenue Bonds outstanding in the amount of $6,200 due in 2009, at an annual
interest rate of 4.4%. In addition, the Company's wholly owned subsidiary,
Doehler-Jarvis, has capitalized leases outstanding of $15,569 maturing in
December 2002 and September 2003.
During 1997, the Company is required to make principal payments relating to
capitalized leases of $1,500. In addition, interest payments on all of the
Company's indebtedness is estimated to be approximately $46,200. The Company
expects that the funding of such payments will be principally from operating
cash flow.
CAPITAL EXPENDITURES AND OTHER USES OF FUNDS
Capital Expenditures. Company expenditures for property, plant and
equipment during 1996 and 1995 were $40,578 and $22,080, respectively,
principally for machinery and equipment required in the ordinary course of
operating the Company's business. Approximately $12,100 of the increase in
capital expenditures was attributable to Doehler-Jarvis. The Company is
currently projecting to spend approximately $52,000 principally for machinery
and equipment in 1997. Of this amount, approximately $37,000 is attributable to
new business, including $15,000 required for the V-6 aluminum block program
which will not generate revenues until 1998 fiscal year, $10,000 for on-going
cost saving programs necessary to maintain competitive benefits and the balance
for normal replacement. The actual timing of capital expenditures for new
business may be impacted by customer delays and acceleration of program launches
and the Company's continual review of priority of the timing of capital
expenditures.
The Company intends to use $30,000 of its revolving loan for the
acquisition of capital equipment (maximum permitted under Financing
Agreement). The Company is currently in discussions with The CIT Group/Business
Credit, Inc. to provide an equipment term loan
43
<PAGE> 45
facility of $25,000 to be available, if needed, to finance the remaining 1997
capital expenditure programs. The Company also intends, if necessary, to use the
net proceeds from any possible sale of Harman to reduce the Revolving Loans
allowing additional flexibility to fund capital expenditures. There is no
assurance that such financing or sale of Harman will occur, in which case the
Company will pursue operating leases and/or delay capital expenditures to the
extent practical. The Company is also in the process of investigating other
short-term strategic alternatives including, among other things, the sale of
certain assets and businesses.
General. In addition, to the debt service and capital expenditure
requirements described above, the Company will have significant requirements
during 1997 to fund (i) costs associated with the ESNA matter, exclusive of
possible fines, damages and penalties, if any, (ii) the costs associated with
legal proceedings and claims relating to environmental matters of approximately
$4,000; and (iii) contributions of $6,000 to be made to certain pension plans
(in addition to the Company's minimum funding requirements with respect to each
such plan).
PIK Preferred Stock. The Company's PIK Preferred Stock accrues dividends at
the rate of 14 1/4 % per annum until redeemed and is mandatorily redeemable on
November 16, 1998. Based on 1996 operating results and projected operating
results for the six months ended March 31, 1997, it appears highly unlikely that
the Company will be able to obtain capital market alternatives with respect to
the redemption of the PIK Preferred Stock. If the Company fails to redeem the
PIK Preferred Stock on the mandatory redemption date, or otherwise fails to make
a dividend payment, then the number of directors constituting the Board of
Directors will be increased by two and the outstanding shares of PIK Preferred
Stock shall vote as a class, with each share entitled to one vote, to elect two
Directors to fill such newly created directorships so long as such failure
continues. On September 30, 1994, the Company redeemed an aggregate of $10,000
of the PIK Preferred Stock and redeemed an additional $15,000 in June 1995. See
Note 19 to the Consolidated Financial Statements.
Tax Loss Carryforwards. At September 30, 1996, the Company had available
net operating loss carryforwards and general business tax credits of
approximately $180,000 and $1,300, respectively, for federal income tax
purposes. These carryforwards expire in the years 2002 through 2011 and are
subject to annual utilization limitations under Internal Revenue Code Section
382 due to the change in ownership arising from the conversion of the 14 1/4%
senior subordinated debentures into stock of the postconfirmation Company and
the acquisition of Doehler-Jarvis. The utilization of the above described
carryforwards is limited to approximately $11,000 and $6,000 per tax year,
respectively, until fully utilized. Unused portions of such annual limitations
may be carried forward and utilized in subsequent years. The unused portion of
the Company and Doehler-Jarvis annual limitations at September 30, 1996 is
approximately $26,000 and $7,000 which may be carried forward and utilized in
subsequent years.
ESNA. The Company believes that the 1997 estimated costs of the ESNA
matter, exclusive of possible fines, damages and penalties, if any, will not be
material. Such costs relate to carrying costs of the Union, N.J. facility,
severance payments, subcontract costs and costs associated with the Company's
ongoing participation in the Department
44
<PAGE> 46
of Defense Voluntary Disclosure Program. However, the ultimate cost of
disposition of this matter, as well as the required funding of such costs,
depends upon future events, the outcomes of which are not determinable at the
present time, including the Company receiving favorable consideration from the
government as a result of its admission into the Voluntary Disclosure Program.
Such outcomes could have a material effect on the Company's financial condition,
results of operations and/or liquidity. If it is ultimately determined that the
deviations from specifications and certifications made in connection therewith,
constitute violations of various statutory and regulatory provisions, the
Company may, among other things, be subject to criminal prosecution, treble
damages and penalties under the Civil False Claims Act or Racketeer Influenced
and Corrupt Organization Act, as well as administrative sanctions, such as
debarment from future government contracting.
Outlook for Next Six Months. The Company currently projects that for the
first quarter ending December 31, 1996 consolidated sales will be
approximately $20,000 to $25,000 less than the comparable quarter last year, and
that the second quarter sales will be comparable or slightly higher than the
comparable period of the prior year, which quarter was also impacted by a GM
strike. The Company currently anticipates generating operating losses (losses
before interest expense and goodwill amortization) for the first and second
quarter of 1997 fiscal year.
The first quarter projected operating loss results from the GM strike,
softness in passenger car sales and continued operational inefficiencies at
Doehler-Jarvis, in particular at its Toledo and Pottstown plants, while the
second quarter projected operating loss is principally related to Doehler-Jarvis
continued operational inefficiencies.
The Company has engaged a manufacturing consulting firm to enhance
productivity, operating procedures, and results at the Doehler-Jarvis Toledo
plant. The Company continues to install new capital equipment and refurbish
existing capital equipment in an attempt to relieve the overcapacity at the
Toledo plant.
As a result of the projected operating losses, the Company does not expect
to be able to meet its quarterly EBITDA covenant under the Financing Agreement
for 1997, and, therefore obtained an amendment to the Financing Agreement on
December 20, 1996, whereby the required EBITDA was changed from the cumulative
quarterly requirements of $12,092; $26,177; $48,042; and $63,607 for the year
ending September 30, 1997 to $1,000; $11,000; $32,000; and $48,000. The Company
expects that it will be able to meet these new quarterly EBITDA covenants.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a)(1)(2) are
included in this Annual Report on Form 10-K beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
45
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors
and executive officers of the Company at December 15, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Vincent J. Naimoli 59 Chairman of the Board, President and Chief Executive Officer
Michael Hoffman 46 Director
Craig Scott Bartlett, Jr. 63 Director
General Joseph P. Hoar 61 Director
John W. Adams 53 Director
Roger L. Burtraw 56 Executive Vice President
Brian D. Benninger 49 Senior Vice President
Michael L. Polich 50 Senior Vice President
David L. Kuta 52 Senior Vice President
David C. Stegemoller 55 Senior Vice President
Joseph J. Gagliardi 57 Vice President - Finance and Chief Financial Officer
James S. Luci 59 Vice President - Administration
Richard T. Dawson 51 Vice President, General Counsel and Secretary
William J. Warren 59 Vice President, and Chief Accounting Officer
Arnold M. Sheidlower 62 Vice President, Associate General Counsel and Assistant Secretary
Marston J. Fortress 53 Vice President and Controller
Douglas D. Rossman 46 Vice President - Purchasing
</TABLE>
Mr. Vincent J. Naimoli is the Chairman of the Board, President and Chief
Executive Officer of Anchor Industries International, Inc. ("Anchor"), an
operating and personal holding company. He has served in such capacities from
January 1, 1990. Mr. Naimoli was Chairman, President and Chief Executive Officer
of Anchor Glass Container Corporation ("Anchor Glass") from 1983 through 1989.
In connection with the business activities of Anchor, Mr. Naimoli had served as
Chairman or Chairman and Chief Executive Officer of Doehler-Jarvis from October
1991 to July 1995. He is also a director of Florida Progress Corporation, a
utility holding company; and Simplicity Pattern Company, a maker of sewing
patterns. He is also Managing General Partner of Tampa Bay Devil Rays, Ltd. and
a Trustee of the University of Tampa. Mr. Naimoli has been a Director of the
Company since August 1992. See "Item 11. Executive Compensation-Management and
Option Agreement" below and "Item 13. Certain Relationships and Related
Transactions" for additional information, including his election in August 1993
as Chairman of the Board, President and Chief Executive Officer of the Company.
46
<PAGE> 48
Mr. Michael Hoffman has been a Director of the Company since August 1992
and has been a general partner of The Blackstone Group, L.P., an investment
banking firm, since January 1989. For more than five years prior thereto, Mr.
Hoffman was a partner in Smith Barney, Harris, Upham & Co., investment bankers.
Mr. Hoffman is also a Director of Unilab Corporation, a chain of medical
laboratories. See "Item 13. Certain Relationships and Related Transactions" for
additional information.
Mr. Craig Scott Bartlett, Jr. has been a Director of the Company since
August 1992. He is a consultant on banking matters and served as Senior Vice
President and Chief Credit Officer of MTB Bank, a private banking firm from 1992
to 1994. From 1984 to 1990, he was Executive Vice President, Senior Lending
Officer and Chairman, Credit Policy Committee, of National Westminster Bank,
USA. He is a director of The Western Transmedia Company Inc., a distributor of
Transmedia cards, NVR Inc., a home builder, MTB Bank, Darling International,
Inc., a recycler of animal by-products, Bucyrus International Company, a
manufacturer of mining and large excavation equipment, Ocean View Capital,
formerly Triangle Wire & Cable, Inc., a holding company, Janus, Inc., the
successor to United States Lines, and The Bibb Company, a manufacturer of
bedding, linens and napery.
General Joseph P. Hoar USMC (Ret.) was elected a Director in September
1994. He was Commander-in-Chief of the United States Central Command, a joint
headquarters responsible for military planning and operations in 19 countries
located in Africa, the Middle East and South Asia, from August 1991 to August
1994. Prior thereto, he served as Assistant Chief of Staff for Plans, Programs
and Operations for the U.S. Marine Corps from June 1990 to August 1991. He was
Chief of Staff of the United States Central Command from October 1988 to June
1990. He is the President and Chief Executive Officer of J.P. Hoar and
Associates, Inc., a consulting firm engaged in business development in the
Middle East and Africa. General Hoar serves as Co-Chairman of the Middle East
Panel of the Council on Foreign Relations and is a Fellow of the World Economic
Forum.
Mr. John W. Adams was elected a Director in October 1994. Mr. Adams is
Chairman of the Board of Regency Health Services, Inc., a national chain of
nursing homes and provider of long-term health services. He also serves as
Chairman of the Board of Servico, Inc., an owner and manager of hotel
facilities, and Hawaii Airlines, Inc., a Honolulu based airline. He has been
President of Smith Management Company, an investment firm, since 1984. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management."
Mr. Roger L. Burtraw has been an Executive Vice President of the Company
since August 1995. Prior thereto, he was Senior Vice President of the Company
from January 1993 to August 1995 and President of the Company's subsidiary,
Kingston-Warren, from April 1991 to January 1993. He was President of Standard
Products (Canada) from December 1989 to April 1991. Prior thereto, he was Group
Vice President and General Manager for the Exterior Plastic and Sealing Systems
Division of Sheller-Globe Corporation for more than 20 years. He is a director
of Heartland Packaging Corporation.
47
<PAGE> 49
Mr. Brian D. Benninger has been a Senior Vice President of the Company
since August 1995. Between February 1992 and July 1995, Mr. Benninger was an
executive of the Company's subsidiary, Kingston-Warren. In addition, from
October 1993 to the time he became an officer of the Company, Mr. Benninger
served as Vice President, Sales, Marketing and Product Design for both Harman
Automotive Sales, Marketing and Project Design and Corporate CAE. Prior thereto
he was employed by Clevite Elastometers as a Vice President of Sales and
Marketing.
Mr. Michael L. Polich has been a Senior Vice President of the Company since
August 1995. Mr. Polich served as Vice President, Sales and Marketing for
Doehler-Jarvis from May 1993 to July 1995, and prior thereto he was Director of
Sales and Marketing at Hayes Wheels, an aluminum fabricator of automobile
wheels, from June 1989 to April 1993. Previously employed by Ford Motor Company
for approximately thirteen years, Mr. Polich has twenty-eight years experience
in the automotive industry.
Mr. David L. Kuta has been a Senior Vice President of the Company since
July of 1996. Prior to joining the Company in 1996, Mr. Kuta was Vice President
of Operations for United Technologies Automotive - Interiors Division since 1994
and from 1990 to 1994, Vice President and General Manager of the Padded Products
Division - Interiors Division.
Mr. David C. Stegemoller has been a Senior Vice President of the Company
since August 1995. For the past five years, Mr. Stegemoller served in various
positions with Hayes-Albion and its Trim Trends Division (which was then a
subsidiary of the Company).
Mr. Joseph J. Gagliardi has been Vice President, Finance and Chief
Financial Officer of the Company since 1980 and was a Director from 1988 to
1992.
Mr. James S. Luci has been an officer of the Company since September 1994.
From August 1993 to September 1994 he was an independent consultant to the
Company. Prior thereto, Mr. Luci was Vice President, Administration and
Purchasing, with Anchor Glass from 1985 to 1993.
Mr. Richard T. Dawson has been an officer of the Company since 1994 and was
Special Counsel to the Company from July 1994 to September 1994. Mr. Dawson is
an attorney, who was a partner in the law firm of Holland & Knight from August
1993 to July 1994. Prior thereto, from July 1988 to July 1993, Mr. Dawson was
Vice President, General Counsel and Secretary of Anchor Glass.
Mr. William J. Warren has been an officer of the Company since May 1989. He
was a partner with KPMG Peat Marwick, and a predecessor firm since 1972.
48
<PAGE> 50
Mr. Arnold M. Sheidlower has been an officer of the Company since August
1992. He was a practicing attorney in New York, New York, for more than 30
years.
Mr. Marston J. Fortress has been an officer of the Company since December
1996. He has been controller and employee of Hayes-Albion for more than 30
years.
Mr. Douglas D. Rossman has been an officer of the Company since December
1996. He was Purchasing Manager of Federal Mogul Corp., an automobile parts
manufacturer, for more than eight years.
All directors of the Company serve terms of one year, or until election of
their respective successors. The Audit Committee of the Board of Directors
consists of Messrs. Bartlett, Hoffman and Adams and the Compensation Committee
of the Board of Directors consists of Messrs. Hoffman, Hoar and Bartlett.
Officers of the Company are elected for a one-year term by the Board of
Directors at its annual meeting.
The Board of Directors of the Company elects the executive officers of the
Company who hold their offices for such terms and exercise such powers and
perform such duties as determined from time-to-time by the Board of Directors;
and all executive officers of the Company hold office until their successors are
chosen and qualified, or until their earlier resignation or removal. Any
executive officer elected by the Board of Directors may be removed at any time
by the affirmative vote of a majority of the Board of Directors. No executive
officer has been elected pursuant to any arrangement or understanding between
such person and anyone other than the Company. There are no family relationships
among the Company's directors and executive officers.
The Company is unaware of any person who has not filed on a timely basis
reports required by Section 16(a) of the Securities Exchange Act of 1934.
Meetings of the Audit Committee during the fiscal year ended September 30,
1996 were held on November 20, 1995, January 30, 1996 and August 29, 1996. The
Audit Committee is responsible for meeting with the Company's auditors and
reviewing recommendations. Meetings of the Compensation Committee during the
fiscal year ended September 30, 1996 were held on October 16, 1995, January
30, 1996 and August 29, 1996. The Compensation Committee is responsible for
reviewing salaries and bonuses of the Company and its subsidiaries and all
bonus and incentive plans.
See "Item 11. Executive Compensation" and "Item 13. Certain Relationships
and Related Transactions" for information regarding fees paid to directors and
the members of the Compensation and Audit Committee of the Board of Directors.
49
<PAGE> 51
ITEM 11. EXECUTIVE COMPENSATION
Shown below is information concerning the cash and noncash compensation for
the fiscal years ended September 30, 1996, 1995 and 1994 awarded to or earned by
the Chief Executive Officer of the Company, and the four other most highly
compensated executive officers of the Company (the "Named Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NUMBER OF
SECURITIES ALL OTHER
NAME AND UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS OPTIONS (#) ($)(1)
- ------------------ ---- ---------- ----- ----------- ------
<S> <C> <C> <C> <C> -- <C>
Vincent J. Naimoli 1996 $ 1,202,807 (2) $ $
Chairman of the Board, 1995 1,286,778 (2) -- -- --
President and Chief 1994 900,000 (2) 1,100,000 (2) -- --
Executive Officer 2,949,000 (2) 317,000 (3) --
Ronald L. Stewart 1996 135,137 (4) -- -- 1,494
Executive Vice President (4) 1995 1,218,859 (4) 47,172 -- 2,233 (4)
1994 -- -- -- --
Roger L. Burtraw 1996 350,000 (5) -- 8,000 (5) 3,167
Executive Vice President (5) 1995 244,616 205,425 -- 3,122
1994 193,750 160,414 32,400 (5) 3,058
Joseph J. Gagliardi 1996 220,000 (6) -- -- 3,300
Vice President 1995 220,000 198,500 -- 3,088
Finance and Chief 1994 220,000 165,000 19,900 (6) 3,385
Financial Officer
Robert Snyder 1996 163,522 -- -- 2,737
Senior Vice President (7) 1995 162,077 125,400 -- 2,725
1994 152,000 110,567 19,900 (7) 2,948
David C. Stegemoller 1996 164,300 -- 2,000 (8) 3,286
Senior Vice President 1995 158,303 95,886 -- 3,174
1994 147,672 110,668 19,900 (8) 2,962
Michael L. Polich 1996 195,824 (9) -- 7,500 (9) 7,600
Senior Vice President 1995 54,889 33,504 -- 1,267
1994 -- -- -- --
</TABLE>
(1) All Other Compensation represents amounts contributed or accrued for fiscal
1994, 1995, and 1996 for the Named Officers under the Company's 401(k) savings
plan, except that in the case of Mr. Naimoli information with respect to
additional compensation is set forth below in footnote (2).
(2) Compensation for the fiscal year ended September 30, 1996, includes (i)
$172,280 in insurance premiums paid by the Company by reason of the maintenance
by the Company of a life insurance policy in the face amount of $2,000,000 on
Mr. Naimoli's life, of which Mr. Naimoli's beneficiaries are entitled to
receive the benefit proceeds and (ii) $30,527 in connection with the
maintenance of a separate office. Included in the above compensation for
the fiscal year ended September 30, 1995, the amount of $250,000 paid to
Anchor by Doehler-Jarvis for the period from October 1, 1994 through July 28,
1995 based on an annual rate of compensation of $300,000 plus bonus pursuant
to a Management Agreement between Anchor and Doehler-Jarvis dated as of June
13, 1994. In addition, Anchor received
50
<PAGE> 52
during the same period, consulting fees at the rate of $300,000 per annum for
financial advisory services pursuant to a Consulting Fee Agreement, dated as of
June 13, 1994 with Doehler-Jarvis. The Company paid $100,000 during the fiscal
year ended September 30, 1995 in insurance premiums on the aforementioned
insurance policy. Moreover, effective as of January 1, 1995, Mr. Naimoli
received benefits through September 30, 1995 in the amount of $95,758 under the
Harvard Retirement Plan, the Harvard Nonqualified Additional Credited Service
Plan and the Harvard Nonqualified ERISA Excess Benefit Plan. For the periods
from October 1, 1994 to July 28, 1995 and from July 28, 1995 to September 30,
1995, Doehler-Jarvis carried $600,000 of "key man" life insurance on Mr.
Naimoli's life at a cost of $24,278 to Doehler-Jarvis. See "Management and
Option Agreement".
3) Stock options were granted to Anchor in August 1993 pursuant to the
"Management and Option Agreement" described below for 652,096 shares of Common
Stock (as defined), or 9% of the then total outstanding shares of Common Stock
(excluding the PIK Preferred Stock), including the shares of Common Stock
issuable upon the exercise of such options. Additional stock options were
granted to Anchor in August 1994 for 17,000 shares of Common Stock as an
anti-dilution measure and stock options for 300,000 shares of Common Stock were
granted, subject to stockholder approval which was obtained, pursuant to an
amendment to such Management and Option Agreement. See "Management and Option
Agreement" below and "Item 13. Certain Relationships and Related Transactions".
(4) Reflects compensation paid by the Company to Mr. Stewart through January 31,
1996, when Mr. Stewart resigned his positions with the Company. For the period
from October 1, 1995 through January 31, 1996, Mr. Stewart received $4,800 as an
automobile allowance benefit. For the period from July 28, 1995 through
September 30, 1995, compensation includes the following benefits: country club -
$750, automobile allowance - $2,133; and "key man" life insurance on Mr.
Stewart's life at an aggregate cost of $2,439. In addition, there is included in
the above compensation for the fiscal year ended September 30, 1995 the amount
of $278,707 paid to Mr. Stewart by Doehler-Jarvis for the period from October 1,
1994 through July 28, 1995, for compensation plus bonus ($80,324) as well as a
lump sum payment of $770,600 paid to Mr. Stewart upon termination of his
employment agreement with Doehler-Jarvis. Moreover, it also includes for the
period from October 1, 1994 through July 28, 1995, the following benefits:
country club - $4,118; automobile allowance - $10,677 and "key man" life
insurance on Mr. Stewart's life at an aggregate cost of $12,196. Included in
other compensation are benefits received by Mr. Stewart under the Doehler-Jarvis
401(k) plan and the defined contribution plan for the period July 28, 1995
through September 30, 1995. Under his former employment agreement with the
Company, Mr. Stewart receives as a result of termination of such agreement on
January 31, 1996 certain weekly payments as well as medical aggregating $524,126
over 104 weeks, life and disability payments for a period of three years after
date of termination, which amounts are excluded from the above table.
(5) During the periods presented, Mr. Burtraw served as Senior Vice President of
the Company and President of the Company's subsidiary, Kingston-Warren. Of the
reflected options, options for 32,400 shares were granted in January 1994,
pursuant to the Company's Employee Stock Option Plan at an exercise price of
$8.00 per share and options for 8,000 shares were granted in October, 1995 at an
exercise price of $28.00 per share.
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<PAGE> 53
(6) Each of the reflected options was granted in January, 1994 at an exercise
price of $8.00 per share.
(7) During the periods presented, Mr. Snyder served as President of the
Company's subsidiary, Kingston-Warren, until August 1995, when he was elected a
Senior Vice President. Each of the reflected options was granted in January,
1994 at an exercise price of $8.00 per share.
(8) The 1994 stock options were granted in January 1994 at an exercise price of
$8.00 per share and options for 2,000 shares were granted in October, 1995 at an
exercise price of $28.00 per share.
(9) In 1996, compensation includes $20,661 as an automobile allowance benefit
and $6,040 for country club dues. For the period from July 28, 1995 through
September 30, 1995, compensation includes $20,661 automobile allowance benefit
and $6,040 for country club dues.
OPTIONS
The following table presents information concerning grants of stock
options, net of options cancelled during the fiscal year ended September 30,
1996 to each of the Company's named executive officers. No stock appreciation
rights were granted during the fiscal year.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential
Realizable Value
At Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants For Option Term
--------------------------------------------------------- --------------------------------
Percent of
Total
Number of Options/SARs
Securities Granted to Exercise
Underlying Employees or Base
Options/SARs in Fiscal Price Expiration
Name Granted Year (1) ($/SH) Date 5% ($) 10% ($)
---- ------- -------- ------ ---- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Roger L. Burtraw........... 8,000 27.6% $28.00 10/16/05 $ 140,880 $ 357,040
Michael L. Polich.......... 7,500 25.9 28.00 10/16/05 132,075 334,725
David C. Stegemoller....... 2,000 6.9 28.00 10/16/05 35,220 89,260
</TABLE>
(1) Based on a total of 29,000 options granted, net of options cancelled
in the fiscal year to all employees.
(2) Options are exercisable to the extent of 33 1/3% on October 16, 1997
and 33 1/3% on each anniversary thereof.
52
<PAGE> 54
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FY END OPTION/SAR VALUES
The only options exercised by the Named Officers during the fiscal year
ended September 30, 1996 were by Robert Snyder. No SAR's are currently
outstanding. The following table presents information concerning such exercise
of options during such fiscal year as well as the value of unexercised options:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year End (#) at Fiscal Year End ($)
-------------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vincent J. Naimoli 369,096 (1) 200,000 $ 493,425 None
Joseph J. Gagliardi 9,950 9,950 $ 31,094 $ 31,094
Roger L. Burtraw 16,200 24,200 $ 50,625 $ 50,625
Robert Snyder 9,950 31,094 None None None None
David C. Stegemoller 9,950 11,250 $ 31,094 $ 31,094
Michael L. Polich None 7,500 None None
</TABLE>
(1) Anchor currently holds stock options exercisable at a price of $6.00 per
share in respect of 96,278 shares of Common Stock, $13.75 per share in respect
of 172,818 shares of Common Stock and $14.00 per share in respect of 100,000
shares of Common Stock. See "Management and Option Agreement" below for the
exercise price of the remaining 200,000 options currently unexercisable.
MANAGEMENT AND OPTION AGREEMENT
Pursuant to the Management and Option Agreement, dated as of August 16,
1993, as Amended and Restated as of August 16, 1994, August 16, 1995 and August
16, 1996, between the Company and Anchor (the "Agreement"), Anchor has agreed to
provide the management services and expertise of Mr. Vincent J. Naimoli to serve
the Company and manage its operations and business through the date that is the
third anniversary of the date that either the Company or Anchor shall have
notified the other in writing that the term of the Agreement shall terminate.
During such period, Mr. Naimoli will be nominated and appointed to serve as the
Company's Chairman of the Board of Directors, Chief Executive Officer and
President. The Agreement provides that Mr. Naimoli may devote his time to
businesses and affairs unrelated to the Company, so long as it does not
materially interfere with his performance thereunder.
For the term of the Agreement, Anchor will be paid $83,333 per month. In
addition, Anchor is to be paid certain bonus amounts based upon the Company's
operating performance for fiscal 1997 and thereafter. No bonus was paid by the
Company to Anchor for the fiscal year ended September 30, 1996. See "Item 11.
Executive Compensation." The bonus to be paid to Anchor for fiscal 1997 will be
triggered if for such 1997 fiscal year the Company's earnings before interest,
taxes, depreciation and amortization ("EBITDA") equals or exceeds $82.0 million,
and, in such event, the Company is to pay to Anchor a bonus in respect of such
1997 fiscal year equal to the sum of (a) $500,000 plus (b) 5% of
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<PAGE> 55
the amount, if any, by which EBITDA exceeds $82.0 million plus (c) an additional
5% of the amount, if any, by which such EBITDA exceeds the sum of (x) $82.0
million plus (y) $10.0 million. For the fiscal year ended September 30, 1997,
the total cash compensation and bonus paid by the Company to Anchor pursuant to
the Agreement is limited to a maximum of $2.4 million. Following fiscal 1997,
the parties are to negotiate with respect to a cap on the total compensation and
bonus to be paid by the Company to Anchor for Anchor's performance for each
fiscal year following the 1997 fiscal year commensurate with Mr. Naimoli's then
duties and responsibilities at the Company, provided, however, that the cap is
inapplicable in determining the amount, if any, that is to be paid under the
provisions of the Agreement relating to termination. Anchor and Mr. Naimoli will
be reimbursed for all reasonable out-of-pocket expenses incurred with respect to
Mr. Naimoli's performance under the Management and Option Agreement and for all
expenses incurred in connection with the defense or enforcement thereof. Anchor
and Mr. Naimoli are generally entitled to indemnification from the Company for
all activities related to the Management and Option Agreement.
Upon a sale by the Company of one or more of its operating units in a
transaction or series of transactions not constituting a Change in Control (as
defined), the Company is to pay to Anchor such additional compensation as the
Compensation Committee of the Company's Board of Directors may determine.
Pursuant to the Management and Option Agreement, and subject to
applicable law, Mr. Naimoli and his dependents are entitled to receive the same
benefits as are available to senior executive officers under the Company's
employee benefit plans. Effective January 1, 1995, Mr. Naimoli entered into a
Nonqualified Retirement Benefit Agreement with the Company which provides that
he is to receive benefits equal to the total monthly retirement income that
would be payable to him from the combination of the Harvard Retirement Plan,
the Harvard Nonqualified Additional Credited Service Plan and the Harvard
Nonqualified ERISA Excess Benefit Plan as if he were an employee eligible to
receive benefits under such Plans. For this purpose, the calculation of
benefits shall consider as service with the Company all periods during which
Mr. Naimoli rendered services to the Company under the Management and Option
Agreement. The period for which Mr. Naimoli rendered services to the Company is
defined as beginning on November 1, 1991, the date on which he commenced
providing services to Doehler-Jarvis, Inc. The benefits so payable are to be
paid in the form of a monthly retirement income under the payment options
available to Mr. Naimoli. The options that would be so available to him, would
be those available if he were a participant in such Plans, and may include
benefits to his selected beneficiaries. The Nonqualified Retirement Benefit
Agreement provides that if Mr. Naimoli's services terminate within two years
following a change in control of the Company (as defined in the Management and
Option Agreement), he is to receive the benefits thereunder within 30 days of
such termination in a lump sum cash payment equal to the "actuarial equivalent"
of the benefits he would have received under such Agreement. Under the
Management and Option Agreement, as restated as of August 16, 1995, Mr. Naimoli
is given during the term of the Agreement, medical and dental insurance
benefits for both his family and him on the terms and with the benefits as are
from time-to-time provided, to other senior executive officers, provided
however, that such benefits are without cost to Mr. Naimoli and his family.
Moreover, such Agreement requires the Company to purchase and maintain during
Mr. Naimoli's life, a life insurance policy or policies on his life in an amount
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<PAGE> 56
not less than $2 million. Anchor has elected to require that not less than $2
million payable under such policy or policies is to be payable to one or more
beneficiaries designated by Anchor. (See "Executive Compensation" above.)
In the event of voluntary termination of the Agreement by the Company, or
if Anchor provides notice, during the period beginning on the 30th day following
and ending on the 90th day following the occurrence of a Change in Control (as
defined), that it intends to terminate the Agreement, the Company is to pay to
Anchor a lump sum cash payment equal to (a) the number 3 multiplied by (b) the
sum of (1) the highest annual compensation in effect under the Agreement during
the one-year period preceding the occurrence of the Change in Control and (2)
the average amount earned under the Agreement's bonus provisions during the
three years preceding the occurrence of the Change in Control and continue to
provide Anchor and Mr. Naimoli with all of the other benefits that Anchor and
Mr. Naimoli would otherwise be entitled to pursuant to the terms of the
Agreement, including, without limitation, the stock options granted under the
Agreement.
Under the Management and Option Agreement, Anchor was granted options in
August 1993 to purchase 652,096 shares of Common Stock representing up to 9.0%
of the then outstanding shares of capital stock of the Company (excluding the
PIK Preferred Stock), including the shares issuable upon exercise of such
options. In August 1994, options were granted to Anchor covering 17,000 shares
of Common Stock. Such options are presently exercisable at $6 per share in
respect of 96,278 shares and $13.75 per shares in respect of 172,818 shares. On
January 9, 1995, Anchor exercised an option for 400,000 shares of Common Stock.
In connection with the amendment to the Management and Option Agreement in
August 1994, and in consideration for Anchor agreeing to place a cap on the
maximum cash compensation payable thereunder, Anchor was granted (subject to
stockholder approval which was obtained) options for an additional 300,000
shares of Common Stock. Of such options for 300,000 shares, options for 100,000
shares became exercisable in August 1995 at an exercise price of $14 per share.
The remaining options in respect of 200,000 shares are initially exercisable at
$14 per share as follows: options for 100,000 shares would be exercisable if the
closing price of the Company's Common Stock equals or exceeds $30 per share for
15 of 30 trading days prior to August 16, 1996, and options for 100,000 shares
would be exercisable if the closing price of the Company's Common Stock equals
or exceeds $40 per share of 30 trading days prior to August 16, 1997. By reason
of the amendment to the Agreement as of August 16, 1995, the aforementioned
exercise terms were modified to provide that options with respect to 100,000
shares would be exercisable if the market price of Common Stock equals or
exceeds $30 per share during any period of 30 days occurring subsequent to
August 16, 1995 and prior to August 16, 1996, and with respect to the balance of
the options covering 100,000 shares, such options would be exercisable if the
market price of the Common Stock equals or exceeds $40 during any period of 30
days occurring subsequent to August 15, 1996 and prior to August 15, 1997. No
options became exercisable during 1996. Notwithstanding the foregoing, all such
options become exercisable on August 16, 2002 if Anchor is continuing to provide
services to the Company on such date pursuant to the Management and Option
Agreement or any successor thereto.
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<PAGE> 57
The Management and Option Agreement may be terminated voluntarily by either
Anchor or the Company for "cause" (as defined in the Agreement) or upon Mr.
Naimoli's death or disability.
The Management and Option Agreement provides for severance benefits to be
payable to Anchor in the event of the termination of the Agreement under
specified circumstances.
The following table shows estimated annual benefits payable under the
Retirement Plan (which benefits are not subject to offset) on a straight life
annuity basis upon retirement to participants in specified years of service and
remuneration classes:
<TABLE>
<CAPTION>
Pension Plan Table
YEARS OF SERVICE (3)
REMUNERATION
(1)(2) 15 20 25 30 40
<S> <C> <C> <C> <C> <C>
$150,000 $33,075 $44,100 $ 55,125 $ 66,150 $ 88,200
200,000 44,325 59,100 73,875 88,650 118,200
250,000 55,575 74,100 92,625 111,150 148,200
300,000 58,073 85,862 111,375 133,650 178,200
400,000 59,197 86,870 120,724 162,091 238,200
500,000 60,320 87,877 121,625 162,893 274,814
800,000 63,691 90,899 124,326 165,300 276,709
</TABLE>
(1) Covered compensation is composed of base salary for the calendar year,
excluding bonuses, commissions and other special forms of compensation. The
maximum amount of compensation used to determine the benefits shown in the
Pension Table above has been limited by federal law. The limit on compensation
for 1996 is $150,000.
(2) Under applicable federal law, the annual benefit payable to any participant
under the Retirement Plan may not exceed a ceiling currently $120,000 a year
(subject to certain reductions based upon age and certain increases based upon
adjustments to the consumer price index).
(3) The Named Officers will have the following estimated credited years of
service under the Retirement Plan based on continued service to normal
retirement age: Mr. Gagliardi: 24; Mr. Burtraw: 15; Mr. Stegemoller: 16; and Mr.
Polich: 14. Under the Non-Qualified Retirement Benefit Agreement for Vincent J.
Naimoli, Mr. Naimoli will received an equivalent pension benefit based upon an
estimated 9 years of credited service.
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<PAGE> 58
The Company adopted, effective January 1, 1995, a Nonqualified Additional
Credited Service Plan for the benefit of certain key management employees
selected by the Chairman of the Board and affirmed by the Board of Directors
which is intended to provide retirement benefits to such employees over and
above the benefits provided under the Company's Retirement Plan. The Plan
provides supplemental benefits to the participant based upon the difference, if
any, between such participant's total monthly retirement income payable from the
combination of the Company's Retirement Plan and the Excess Benefit Plan and his
Adjusted Retirement Income representing the monthly retirement income that would
be payable to the participant on a combined basis from the Retirement Plan and
the Excess Benefit Plan. The Excess Benefit Plan provides for crediting the
participant with Credited Service and Continuous Service in excess of actual
service. Moreover, each participant is vested with ten years of Credited Service
and ten years of Continuous Service in the event of a change of control,
provided that he has been employed for more than five years. The benefits would
be paid in the same form as the monthly retirement income from the Company's
Retirement Plan, unless the Chairman designates otherwise. If the participant's
employment terminates within two years following change of control, the benefits
are to be paid in a lump sum cash payment within thirty days of such termination
of employment at the "actuarial equivalent" of the benefits that the participant
would have otherwise received. As of September 30, 1995, two officers of the
Company had been selected for participation in the Plan and are credited with
1 1/2 years and two years, respectively, of credited service and continuous
service for each year of actual service. The officers become vested with their
benefits after five years of continuous service. See "Management and Option"
Agreement above for information with respect to benefits furnished by the
Company to Mr. Naimoli under the Company's retirement plan.
The Company adopted, effective January 1, 1995, a Nonqualified ERISA Excess
Benefit Plan for the benefit of certain key management employees, which is
intended to provide retirement benefits to such employees over and above the
benefits provided those employees under the Company's Retirement Plan. All key
management employees are eligible to participate in the Plan which provides for
supplemental benefits equal to the difference, if any, between a participant's
monthly retirement income payable from the Company's Retirement Plan and his
adjusted retirement income calculated under the Agreement. Such calculation
would be the monthly retirement income that would be payable to the participant
under the Company's Retirement Plan without regard to certain benefit
limitations set forth in the Internal Revenue Code. Supplemental benefits
payable under this Plan are not to be reduced by benefits payable under the
Company's Nonqualified Additional Credited Service Plan. Benefits under the Plan
do not vest until five years of continuous service have been completed.
SEVERANCE AGREEMENTS AND RETENTION BONUSES
On September 17, 1996, the Company entered into severance agreements with
Roger L. Burtraw, Joseph J. Gagliardi, Michael L. Polich and two other officers
selected by the Company's Board of Directors (each individually referred to
herein as an "Executive"). The agreements provide for an initial term that
expires on September 30, 1998. On October 1, 1997 and each October 1 thereafter,
however, the term automatically renews for one additional year, unless the
Company or an Executive covered by such agreement gives notice not to extend the
term thereof. Furthermore, if the
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<PAGE> 59
Company experiences a "change in control" during the term of the agreement, then
the term shall continue at least 24 months beyond the month in which such
"change in control" occurs.
If an Executive's employment is terminated by the Company following a
"change in control" for any reason other than the Executive's death or
disability or for other cause (as defined in the agreements), the Company shall
pay such Executive (i) a one-time severance payment equal to two times the sum
of the Executive's annual base salary in effect at the time of such termination
(except for Roger Burtraw who shall receive three times the sum of his annual
base salary) or, if higher, the Executive's annual base salary in effect at the
time of the first occurrence of an event constituting good reason (as defined in
the agreement), (ii) any unpaid bonuses allocated to such Executive for a
completed fiscal year, (iii) a pro-rata portion to the date of termination for
bonuses during the fiscal year in which termination occurs, (iv) pension
benefits, (v) outplacement services for two years following termination (except
for Roger Burtraw who shall receive outplacement services for three years) or,
if earlier, until the first acceptance by such Executive of an offer of
employment, and (vi) insurance benefits for such Executive and his dependents
for 24 months after the Executive's termination (except for Roger Burtraw who
shall receive insurance benefits for 36 months), including life, disability,
accident, and health insurance.
A "change in control" shall be deemed to have occurred if (i) any person
beneficially owns 25% or more of the outstanding shares of voting capital stock,
(ii) there is a change, other than those changes authorized by the agreement, in
the composition of the Company's Board of Directors as constituted on the date
of the agreement, (iii) a merger or consolidation of the Company results in the
holders of the voting securities of the Company receiving less than 60% of the
combined voting power of the securities of the surviving entity, (iv) a
recapitalization of the Company results in a person becoming the beneficial
owner of 25% or more of the combined voting power of the Company's then
outstanding voting securities, (v) the Company's shareholders approve a plan of
liquidation or dissolution of the Company, or (vi) the Company sells
substantially all of its assets.
The Company also entered into agreements to pay David Stegemoller, Michael
Polich, and certain other key employees a retention bonus upon the sale of the
Company, or certain subsidiaries of the Company. Under these agreements, the
Company has agreed to pay to Mr. Polich and Mr. Stegemoller the sum of $250,000,
each, upon the sale of certain of the Company's subsidiaries. If the entire
Company is sold, Mr. Polich's retention bonus agreement will be void and his
severance agreement, as described above, will remain in effect. These
agreements will expire on October 4, 1997, unless renewed by the Company 30
days prior to such expiration.
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DIRECTORS' RENUMERATION
Directors who are not employees of the Company receive compensation at the
rate of $25,000 per annum, payable $6,250 quarterly, plus $1,000 for attendance
at each meeting of the Company's Board of Directors and $1,000 for each meeting
of the Audit Committee and Compensation Committee of which they are members.
Pursuant to the Company's Stock Plan for Non-Employee Directors, the
Non-Employee Directors have elected as of September 30, 1996 to acquire shares
of Common Stock of the Company in lieu of cash for a portion of such quarterly
compensation, as follows: Mr. Bartlett, 140 shares; Mr. Hoffman, 561 shares,
General Hoar, 140 shares; and Mr. Adams, 140 shares. See "Item 10. Directors and
Executive Officers of the Registrant" for Directors who serve as members of the
Audit Committee and the Compensation Committee of the Board of Directors.
Subsequent to August, 1993, Mr. Naimoli is not separately compensated for
serving as a Director of the Company.
In January 1994, Messrs. Bartlett and Hoffman, Directors of the Company
since 1992, were each granted options under the Company's Non-Employee Director
Stock Option Plan for 4,000 shares of Common Stock at an exercise price of $8
per share. In June 1994, Messrs. Bartlett and Hoffman were each granted options
thereunder for 6,000 shares of Common Stock at an exercise price of $13 per
share. Thereafter, such individuals are each to be granted options to purchase
2,000 shares of Common Stock on January 19, 1996 and on each anniversary
thereof. On January 19, 1996, Messrs. Bartlett and Hoffman were each granted
options thereunder for 2,000 shares of Common Stock at an exercise price of
$26.625 per share.
Under the Company's Non-Employee Director Stock Option Plan, Directors who
become such after June 7, 1994 are entitled to receive options to purchase 4,000
shares of Common Stock immediately following their election and 2,000 shares on
the second and each subsequent anniversary of such date prior to termination of
the Plan.
Messrs. Hoar and Adams were each granted options to purchase 4,000 shares
of Common Stock at the time of their election as Directors in September 1994 and
October 1994, respectively, at exercise prices of $16 and $16.875 per share,
respectively, and in September and October 1996, respectively, they each were
granted options to purchase 2,000 shares of Common Stock at exercise price of
$11.25 and $9.375, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Naimoli served as a member of the Compensation Committee of the Board
of Directors from the time of his election as a Director of the Company in
August 1992 until September 1994. He no longer serves as a member of such
Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists all shares of the Company's Common Stock as of
December 15, 1996 (unless otherwise noted below), beneficially owned by each
director of the Company, Named Officers of the Company, and each person known by
the Company to own beneficially more than 5% of such outstanding shares of
Common Stock at such date.
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<PAGE> 61
The table also reflects the percentage of the shares of Common Stock owned
beneficially by all executive officers and directors of the Company as a group.
As of December 15, 1996, there were 7,014,357 shares of the Company's Common
Stock outstanding.
<TABLE>
<CAPTION>
NO. OF SHARES OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK % OF CLASS
- ------------------------------------ ---------------- ----------
<S> <C> <C>
Pengo Securities Corp. (1) 1,207,200 17.2%
885 Third Avenue, 34th Floor
New York, New York 10022
Vincent J. Naimoli (2) 788,946 10.5%
Massachusetts Financial Services Company (3) 652,000 9.3%
500 Boylston Street
Boston, Massachusetts 02116
Bank America Corporation (4) 593,407 8.5%
555 California Street
San Francisco, California 94104
J O Hambro & Partners Limited (5) 588,000 8.4%
30 Queen Anne's Gate
London SW1H9AL England
ING (6) 491,300 7.0%
(U.S.) Capital Corporation
135 East 57th Street
New York, New York 10022
Michael Hoffman 12,561 *
Craig Scott Bartlett, Jr. 12,140 *
Joseph P. Hoar 6,140 *
John W. Adams (1)(7) 8,140 *
Joseph J. Gagliardi 14,925 *
Roger L. Burtraw 29,700 *
David C. Stegemoller 16,092 *
Michael L. Polich 2,500 *
All executive officers and directors as a group (17 persons) (8) 895,281 11.9%
* Less than one percent
</TABLE>
(1) Pengo Securities Corp. owns 568,900 shares of Common Stock and Durian
Securities owns 581,300 shares of Common Stock and Energy Management Corporation
owns 57,000 shares of Common Stock. Mr. John W. Adams, a Director of the
Company, is President of Pengo Securities Corp. and is Executive Vice President
of Energy Management Corporation. See "Item 10. Directors and Executive
Officers of the Registrant". The foregoing information is based upon a
Schedule 13D filed by such entities under date of January 10, 1995.
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<PAGE> 62
(2) These amounts reflect 5,700 shares owned of record by members of Mr.
Naimoli's immediate family, 14,150 shares owned of record and beneficially by
Mr. Naimoli either in his individual capacity or in his retirement account and
400,000 shares owned of record and beneficially by Anchor, an operating and
personal holding company. In addition 369,096 shares of Common Stock are
attributable to Mr. Naimoli pursuant to stock options granted to Anchor pursuant
to the Management and Option Agreement described in "Item 11. Executive
Compensation-Management and Option Agreement" above. The stock options are
presently exercisable at an exercise price of $6 per share in respect of 96,278
shares $13.75 per share in respect of 172,818 shares and $14.00 per share in
respect of 100,000 shares. The shares of Common Stock subject to such options
are deemed outstanding for purposes of calculating the percent of class
beneficially owned by Mr. Naimoli and by all officers and directors as a group.
Pursuant to the Management and Option Agreement, Anchor was granted, subject to
stockholder approval, stock options on August 4, 1994 to purchase 300,000 shares
of Common Stock at an exercise price $14 per share, of which options in respect
of 100,000 shares became exercisable on August 16, 1995 and the remaining
options are exercisable only in installments of 100,000 shares on each of August
16, 1996 and August 16, 1997 based upon the attainment of certain designated
market prices of the Common Stock and, in any event, on August 16, 2001 if
Anchor is then providing services to the Company under the Agreement. Neither
Mr. Naimoli nor Anchor is deemed the beneficial owner of such options in respect
of 200,000 shares since such options are not exercisable within 60 days. No
options became exercisable during 1996.
(3) Of the shares of Common Stock beneficially owned by Massachusetts Financial
Services Company ("MFS"), 360,000 shares are also beneficially owned by its
affiliate, MFS Series Trust VII - MFS Value Fund ("MVF") and 292,000 shares are
also beneficially owned by certain other non-reporting entities. The foregoing
information is based on a Schedule 13G dated February 12, 1996 filed by MFS and
MVF.
(4) These shares were received by BankAmerica Corporation (as successor by
merger with Continental Bank, N.A.) in August 1994 in exchange for 593,407
shares of Class A Common Stock of the Company.
(5) J O Hambro & Partners Limited has shared voting and investment power with
respect to 500,000 shares of Common Stock. It is a co-investment advisor for the
North American Smaller Companies Investment Trust, and is part of a group, which
owns an aggregate of 588,000, shares or 8.4%, of the shares of Common Stock
issued and outstanding at December 1, 1995, and which also consists of Growth
Financial Services, which provides the services of Christopher Mills to North
American Smaller Companies Investment Trust to serve as Chief Executive Officer,
and has shared voting and investment power with respect to 300,000 shares of
Common Stock; Leveraged Opportunity Trust PLC, which is a publicly held
investment Company, of which Christopher Mills serves as Executive Director, and
to which J O Hambro & Partner Limited acts as co-investment advisors, and has
shared voting and investment power with respect to 200,000 shares of Common
Stock; North American Smaller Companies Investment Trust, of which Christopher
Mills serves as Chief Executive Officer, and to which J O Hambro & Partners
Limited acts as co-investment advisor, and which has
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shared voting and investment power with respect to 300,000 shares of Common
Stock; Christopher H.B. Mills who has shared voting and investment power with
respect to 500,000 shares of Common Stock; J O Hambro and Company Limited, which
is an investment holding company and the ultimate holding company for J O Hambro
& Partners Limited, and has shared voting and investment power with respect to
588,000 shares of Common Stock; J O Hambro Investment Management Limited which
is an investment management company, and which has shared voting and investment
power with respect to 88,000 shares of Common Stock; and J O Hambro Asset
Management Limited, which is an intermediate holding company for J O Hambro &
Partners Limited, and has shared voting and investment power with respect to
588,000 shares of Common Stock. In addition, Mr. John Gildea is a Director of
Leveraged Opportunity Trust PLC. Mr. Gildea is the General Partner and Managing
Director of Gildea Management Company, LP, which serves as an investment advisor
to Network Group II Limited. The foregoing information is based upon a Schedule
13D filed by such entities under date of September 12, 1994, as amended.
(6) The foregoing information was reported in Schedule 13D under date of July
12, 1996 and amended on December 16, 1996, and the shares are beneficially owned
by such holder with sole voting and dispositive power.
(7) Mr. John W. Adams beneficially owns 2,140 shares of Common Stock. He is the
President of Pengo Securities Corp. which is part of the group described in
Footnote (1) above.
(8) The number of shares of Common Stock beneficially owned by all executive
officers and directors as a group includes options in respect of shares which
are exercisable as of December 15, 1996 or within 60 days thereafter.
As of December 15, 1996, the Retirement Plan owned 30,000 shares of the
Common Stock and 23,070 shares of the Company's PIK Preferred Stock. The
Committee administering the Retirement Plan, which consists of officers and
employees if the Company, has the power to vote and dispose of such securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ANCHOR AND NAIMOLI
See "Item 11. Executive Compensation-Management and Option Agreement" for
information concerning compensation arrangements between the Company and Anchor
in connection with providing the services of Mr. Naimoli to the Company. See
also "Item 11. Executive Compensation-Pension and Retirement Plans" for
information concerning pension and retirement benefits and other compensation
arrangements between the Company and Mr. Naimoli.
In November 1996, the Board of Directors authorized changes in the
Management and Option Agreement of Anchor, the details of which are set forth in
"Item 11. Executive Compensation-Management and Option Agreement".
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The Company, which relocated its principal executive offices from Union,
New Jersey to Tampa, Florida in September, 1994, leases executive office space
for a seven-year term from an unaffiliated party at a current annual rental of
approximately $208,000 (currently $17 per rentable square foot in 1996), with
such rental increasing on an annual basis over the lease term to a maximum of
$325,000 ($19.25 per rentable square foot). The Company has the option to
terminate its lease as of September 30, 1999 upon payment of approximately
$164,400 as a termination fee. Anchor rented office space, a portion of which
is occupied by Nice and Easy (the travel agency referred to below), from the
Company at an annual rental of $9,000 as Anchor's allocable portion of rent and
certain other related expenses. Commencing in August 1995, through the end of
the lease term, the Company has agreed that such space may be occupied by
Anchor on a rent-free basis so long as certain Company personnel occupy such
Anchor space.
Mr. Naimoli is a principal stockholder of Nice and Easy Travel & Co., Inc.
("Nice and Easy"), a travel agency, which has acted as exclusive travel agent to
arrange travel services for the Company and its employees and representatives,
beginning in December 1994. During the year ended September 30, 1996, Nice and
Easy billed the Company $1,130 for travel services and rebated $34 (3% of the
annual billings) to the Company.
In October 1995, the Board of Directors of the Company approved the lease
of a private suite at the Tropicana Field in St. Petersburg, Florida for Tampa
Bay Devil Rays baseball. It is contemplated that the Company will lease the
suite for the period of five years at an annual rental of $60,000, plus
increases provided by the Consumer Price Index without premium. In addition, a
license fee of $25,000 was paid upon execution of the License Agreement,
representing a security deposit is to be returned at the end of the lease term.
An additional $25,000 payment was made in June, 1996. Management has agreed
with two other partners to share in the cost of the suite, thereby reducing
the suite cost to $20,000 per annum. In connection with the transaction, the
Board determined that the transaction was fair and on terms comparable to
those which would be obtained from a third party in an arms-length
transaction. Mr. Naimoli is the Managing General Partner of Tampa Bay Devil
Rays, Ltd., a Florida limited partnership, which owns the Tampa Bay Devil Rays
baseball team.
ADVISORY FEES
The Company has agreed to pay fees to The Blackstone Group L.P. for
financial advice rendered in structuring strategic alternatives to enhance
shareholder value and to pay designated success fees in the event any such
alternatives are effected and consummated successfully. Michael Hoffman, a
director of the Company, is a general partner of The Blackstone Group L.P. See
"Item 11. Executive Compensation-Directors' Remuneration".
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<PAGE> 65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1)(2) Financial Statements and Schedules.
The following financial statements and schedules are filed as part of this
Annual Report on Form 10-K.
HARVARD INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
Reports of Independent Accountants
Years Ended September 30, 1996 and 1995................... F-2
Year Ended September 30, 1994............................. F-3
Consolidated Balance Sheets................................... F-4
September 30, 1996 and 1995
Consolidated Statements of Operations......................... F-5
Years Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Deficiency........... F-6
Years Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows......................... F-7
Years Ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements.................... F-8
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are either not applicable or the
required information is included in the Consolidated Financial Statements or
Notes thereto.
F-1
<PAGE> 66
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
Harvard Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' deficiency present fairly, in all material respects, the
financial position of Harvard Industries, Inc. and its subsidiaries (the
"Company") at September 30, 1996 and 1995, and the results of their operations
and their cash flows for the years ended September 30, 1996 and 1995, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Tampa, Florida
November 4, 1996
F-2
<PAGE> 67
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
Harvard Industries, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' deficiency and cash flows of Harvard Industries, Inc. and
subsidiaries (the "Company") for the year ended September 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and their
cash flows for the year ended September 30, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Tampa, Florida
November 11, 1994
F-3
<PAGE> 68
HARVARD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS 1996 1995
--------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 1,107 $ 19,925
Accounts receivable, net of allowance of $ 744 in 1996
and $ 1,087 in 1995............................................. 99,581 102,714
Inventories........................................................ 53,901 63,742
Prepaid expenses and other current assets.......................... 1,637 9,036
-------------- -----------------
Total current assets........................................ 156,226 195,417
Property, plant and equipment, net................................... 300,673 307,247
Intangible assets, net............................................... 127,250 132,537
Other assets, net.................................................... 33,556 27,061
-------------- -----------------
$ 617,705 $ 662,262
============== =================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt.................................. $ 1,487 $ 2,801
Accounts payable................................................... 89,073 79,702
Accrued expenses................................................... 66,949 85,232
Income taxes payable............................................... 5,875 8,265
-------------- -----------------
Total current liabilities................................... 163,384 176,000
Long-term debt....................................................... 359,116 322,000
Postretirement benefits other than pensions.......................... 101,464 95,642
Other ............................................................... 24,970 31,175
-------------- -----------------
Total liabilities........................................... 648,934 624,817
-------------- -----------------
14 1/4% Pay-In-Kind Exchangeable Preferred Stock,
($115,250 liquidation value at September 30, 1996)............... 114,495 99,651
-------------- -----------------
Shareholders' deficiency:
Common Stock, $.01 par value; 30,000,000 shares authorized;
shares issued and outstanding : 7,014,357 at September 30,
1996 and 6,994,907 at September 30, 1995....................... 70 70
Additional paid-in capital......................................... 42,245 56,899
Additional minimum pension liability.............................. (1,767) (1,836)
Foreign currency translation adjustment............................ (1,964) (1,743)
Accumulated deficit................................................ (184,308) (115,596)
------------- ------------------
Total shareholders' deficiency............................ (145,724) (62,206)
------------- ------------------
Commitments and contingent liabilities...............................
$ 617,705 $ 662,262
============= ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 69
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales .................................................................. $ 824,837 $ 631,832 $ 614,952
----------- ----------- -----------
Costs and expenses:
Cost of sales ....................................................... 776,141 557,340 543,532
Selling, general and administrative ................................. 42,858 33,037 32,217
Interest expense .................................................... 47,004 19,579 11,947
Amortization of goodwill ............................................ 15,312 2,986 1,584
Other (income) expense, net ......................................... 1,538 (1,789) (532)
----------- ----------- -----------
Total costs and expenses ........................................ 882,853 611,153 588,748
----------- ----------- -----------
Income (loss) from continuing operations before income
taxes and extraordinary item ........................................ (58,016) 20,679 26,204
Provision for income taxes ............................................. 3,196 11,566 9,536
----------- ----------- -----------
Income (loss) from continuing operations before
extraordinary item .................................................. (61,212) 9,113 16,668
Loss from discontinued operations (net of income tax benefit
of $4,962 in 1994)................................................... (7,500) -- (9,038)
----------- ----------- -----------
Income (loss) before extraordinary item ................................ (68,712) 9,113 7,630
Extraordinary item-early extinguishment of debt (net of
income tax benefit of $1,200) .................................. -- (2,192) --
----------- ----------- -----------
Net income (loss) ...................................................... $ (68,712) $ 6,921 $ 7,630
=========== =========== ===========
PIK preferred dividends and accretion .................................. $ 14,844 $ 14,809 $ 14,767
=========== =========== ===========
Net loss attributable to common shareholders ........................... $ (83,556) $ (7,888) $ (7,137)
=========== =========== ===========
Primary per common and common equivalent share:
Income (loss) from continuing operations before extraordinary item . $ (10.87) $ (0.82) $ 0.28
Loss from discontinued operations ................................... (1.07) -- (1.31)
Extraordinary item .................................................. -- (0.32) --
----------- ----------- -----------
Loss per common and common equivalent share ......................... $ (11.94) $ (1.14) $ (1.03)
=========== =========== ===========
Weighted average number of common and common equivalent
shares outstanding ................................................. 6,999,279 6,894,093 6,875,267
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 70
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(In thousands of dollars, except shares)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL MINIMUM ACCUMU- SHARE-
----------------------- PAID-IN FOREIGN PENSION LATED HOLDERS'
NO. OF SHARES AMOUNTS CAPITAL CURRENCY LIABILITY DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 ........... 6,593,407 $ 66 $ 82,539 $ (1,558) $ (11,713) $(130,147) $ (60,813)
Net income -- 1994 ................... -- -- -- -- -- 7,630 7,630
PIK preferred stock dividend ......... -- -- (13,950) -- -- -- (13,950)
Accretion of discount on PIK
preferred stock ..................... -- -- (817) -- -- -- (817)
Minimum pension liability ............. -- -- -- -- 9,080 -- 9,080
Foreign currency adjustment ........... -- -- -- (162) -- -- (162)
--------- ----- -------- -------- --------- --------- ---------
Balance, September 30, 1994 ........... 6,593,407 66 67,772 (1,720) (2,633) (122,517) (59,032)
Net income -- 1995 ................... -- -- -- -- -- 6,921 6,921
PIK preferred stock dividend ......... -- -- (14,026) -- -- -- (14,026)
Accretion of discount on PIK
preferred stock ..................... -- -- (783) -- -- -- (783)
Exercise of stock options including
related tax benefits ............... 401,500 4 3,936 -- -- -- 3,940
Minimum pension liability ............. -- -- -- -- 797 -- 797
Foreign currency adjustment ........... -- -- -- (23) -- -- (23)
--------- ----- -------- -------- --------- --------- ---------
Balance, September 30, 1995 ........... 6,994,907 70 56,899 (1,743) (1,836) (115,596) (62,206)
Net loss -- 1996 ..................... -- -- -- -- -- (68,712) (68,712)
PIK preferred stock dividend ......... -- -- (14,375) -- -- -- (14,375)
Accretion of discount on PIK
preferred stock ..................... -- -- (469) -- -- -- (469)
Exercise of stock options including
related tax benefits ............... 19,450 -- 190 -- -- -- 190
Minimum pension liability ............. -- -- -- -- 69 -- 69
Foreign currency adjustment ........... -- -- -- (221) -- -- (221)
--------- ----- -------- -------- --------- --------- ---------
Balance, September 30, 1996 ........... 7,014,357 $ 70 $ 42,245 $ (1,964) $ (1,767) $(184,308) $(145,724)
========= ===== ======== ======== ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 71
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- -----------
<S> <C> <C> <C>
Cash flows related to operating activities:
Income (loss) from continuing operations before extraordinary item................. $ (61,212) $ 9,113 $ 16,668
Add back (deduct) items not affecting cash and cash equivalents:
Income tax allocation charge related to reorganization value,exercise
of stock options and discontinued operations.................................... - 6,251 4,962
Depreciation and amortization.................................................... 65,658 34,856 29,855
Loss on disposition of property, plant and equipment
and property held for sale...................................................... 2,053 461 1,821
Other charges.................................................................... - - 300
Postretirement benefits.......................................................... 5,822 4,373 3,550
Changes in operating assets and liabilities of continuing operations,
net of effects from acquisitions and reorganization items:
Accounts receivable............................................................. 3,133 (9,865) 4,763
Inventories..................................................................... 7,112 880 (2,150)
Other current assets............................................................ (222) 1,712 27
Accounts payable................................................................ 9,371 1,696 16,544
Accrued expenses and income taxes payable....................................... (30,444) (21,954) 11,307
Other noncurrent liabilities.................................................... 819 (2,472) -
---------- ---------- ----------
Net cash provided by continuing operations before reorganization items............. 2,090 25,051 87,647
Cash flow used by reorganization items (principally professional fees)............... - - (323)
---------- ---------- ----------
Net cash provided by continuing operations......................................... 2,090 25,051 87,324
---------- ---------- ----------
Cash flows related to investing activities:
Acquisition of property, plant and equipment....................................... (40,578) (22,080) (10,141)
Cash flows related to discontinued operations...................................... (3,332) 5,029 (10,538)
Proceeds from disposition of property, plant and equipment......................... 909 1,259 6,725
Acquisition of Doehler-Jarvis,including debt refinancing,
net of cash acquired........................................................... - (210,231) -
Net change in other noncurrent accounts............................................ (5,223) (746) 1,747
---------- ---------- ----------
Net cash used in investing activities.............................................. (48,224) (226,769) (12,207)
---------- ---------- ----------
Cash flows related to financing activities:
Proceeds from Senior Notes Offering................................................ - 200,000 100,000
Issuance cost of Senior Notes and Revolving Credit Facility........................ - (11,804) (9,117)
Net borrowings under credit agreement.............................................. 38,834 - -
Redemption of PIK preferred stock.................................................. - (15,000) (10,000)
Proceeds from exercise of stock options............................................ 190 2,419 -
Repayments of long-term debt....................................................... (3,032) (5,820) (66,516)
Payment of prepetition trade payables.............................................. - - (38,715)
Pension fund payments pursuant to PBGC settlement agreement....................... (6,000) (6,000) (6,000)
Payment of EPA settlements......................................................... (2,676) (2,512) -
---------- ---------- ----------
Net cash provided by (used in) financing activities................................ 27,316 161,283 (30,348)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents................................. (18,818) (40,435) 44,769
Beginning of period................................................................ 19,925 60,360 15,591
---------- ---------- ----------
End of period....................................................................... $ 1,107 $ 19,925 $ 60,360
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid...................................................................... $ 41,868 $ 16,042 $ 9,842
========== ========== ==========
Income taxes paid.................................................................. $ 5,092 $ 4,782 $ 1,442
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE> 72
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(1) BASIS OF PRESENTATION
Harvard Industries, Inc., a Florida corporation and its subsidiaries (the
"Company") are primarily engaged in the business of designing, engineering and
manufacturing components for OEMs producing cars and light trucks. The
Company's principal customers are General Motors, Ford Motor Company and
Chrysler Corporation. The Company acquired the outstanding stock of
Doehler-Jarvis, Inc. ("Doehler-Jarvis") effective July 28, 1995.
On April 11, 1991, an involuntary petition for relief under Chapter 11 of
the Bankruptcy Code was filed against the Company in the United States
Bankruptcy Court for the District of Delaware. On May 2, 1991, the Court
converted the Company's case to a voluntary proceeding under Chapter 11
pursuant to which the Company continued to operate as a debtor-in-possession
under authority of the Court. The Company's Plan of Reorganization was
confirmed by the Court on August 10, 1992, and such Plan became effective on
August 30, 1992. In connection with its emergence from Chapter 11 bankruptcy
proceedings, the Company implemented "Fresh Start Reporting" as of August 23,
1992. Accordingly, all assets and liabilities were restated to reflect their
respective fair values at that date. The portion of the reorganization value
which could not be attributed to specific tangible or identifiable intangible
assets of the reorganized Company has been reported under the caption
"Intangible Assets."
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. Preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements. Actual results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
Investments of 50% or less in companies and/or joint ventures are accounted for
under the equity method. All material intercompany transactions and balances
have been eliminated in consolidation.
Cash and Cash Equivalents. The Company considers all investments in
highly liquid bank certificates of deposit to be cash equivalents. Cash
equivalents include only investments with purchased maturities of three months
or less.
F-8
<PAGE> 73
Trade Receivables. A substantial portion of the Company's trade
receivables are held by the automotive accessories segment and are mainly
concentrated with the three largest U.S. automotive companies. The Company
does not require collateral or other security to support credit sales.
Inventories. Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method. See Notes 5 and 26
regarding a change in the method of accounting for certain inventory.
Property, Plant and Equipment. All property, plant and equipment owned at
August 23, 1992 was restated to reflect fair value in accordance with fresh
start reporting. Additions after August 23, 1992 are recorded at cost.
Depreciation and amortization, which includes the amortization of machinery and
equipment under capital leases, is calculated using the straight-line method at
rates to depreciate assets over their estimated useful lives or remaining term
of leases. The rates used are as follows: buildings and building improvements,
2.5% to 20.0%; and machinery, equipment and furniture and fixtures, 5.0% to
33.3%. Replacements and betterments are capitalized. Major scheduled furnace
maintenance and die replacement programs are accrued based on units of
production; all other maintenance and repairs are expensed as incurred. Upon
sale or retirement of property, plant and equipment, the related cost and
accumulated depreciation are removed from the accounts and any resultant gain
or loss is recognized.
Intangible Assets. Intangible assets consist of goodwill and
reorganization value in excess of amounts allocable to identifiable assets.
Goodwill applicable to the acquisition of Doehler-Jarvis originally being
amortized over 15 years was changed to 10 years in the fourth quarter of 1996,
effective October 1, 1995, based upon Doehler-Jarvis' unprofitable operating
results since acquisition and projected future operating results.
Reorganization value in excess of amounts allocated to identifiable assets is
being amortized using the straight-line method over 10 years for the automotive
accessories segment. The Company assesses the recoverability of such
intangible assets by determining whether the amortization of each such
intangible over its remaining life can be recovered through projected
undiscounted future cash flows. The amount of impairment, if any, is measured
based on projected discounted future cash flows using a discount rate
reflecting the Company's average costs of funds.
Deferred Debt Expense. The Company amortizes its deferred debt issuance
costs over the term of the related debt using the effective interest method.
Revenue Recognition. Revenues are recognized as products are shipped.
Income Taxes. The Company accounts for income taxes in accordance with
Financial Accounting Standards Board (FASB) Statement No. 109. Such statement
requires the recognition of deferred tax liabilities and assets for
F-9
<PAGE> 74
the expected future tax consequences of temporary differences between tax basis
and financial reporting basis of other assets and liabilities.
Environmental Liabilities. It is the Company's policy to accrue and
charge against operations environmental remediation costs when it is probable
that a liability has been incurred and an amount is reasonably estimable. As
assessments and cleanups proceed, these accruals are reviewed periodically and
adjusted, if necessary, as additional information becomes available. These
liabilities can change substantially due to such factors as additional
information on the nature or extent of contamination, methods of remediation
required, and other actions by governmental agencies or private parties. Cash
expenditures often lag behind the period in which an accrual is recorded by a
number of years.
Foreign Currency Translation Adjustment. Exchange adjustments resulting
from foreign currency transactions are generally recognized in the results of
operations, whereas adjustments resulting from the translation of balance sheet
accounts are reflected as a separate component of shareholders' deficiency.
Net foreign currency transaction gains or losses are not material in any of the
years presented.
Net Loss Per Common Share. Primary net loss per common share is based on
the weighted average number of shares of common stock outstanding during each
year and common stock equivalents of dilutive stock options. Fully diluted net
loss per common share assumes the additional dilution of stock options based
upon ending market prices, unless such calculations are anti-dilutive.
(3) ACQUISITION
On July 28, 1995, the Company acquired Doehler-Jarvis for a purchase cost
aggregating approximately $107,000 including transaction costs of approximately
$3,000. The acquisition was accounted for under the purchase method of
accounting. The purchase costs and repayment of existing Doehler-Jarvis debt
aggregated approximately $218,000 and was financed through the proceeds from
the sale of $200,000 principal amount of 11 1/8% Senior Notes Due 2005 and cash
on hand.
In July 1995, Doehler-Jarvis initiated production of lower intake
manifolds for one of its major customers (hereinafter "the Manifold Program").
In fiscal 1996, the Company finalized its purchase accounting analysis and
determined that the estimated manufacturing costs of fulfilling the Manifold
Program would exceed estimated revenues to be generated by $10,000.
Accordingly, the Company adjusted the goodwill initially recorded at the July
28, 1995 date of acquisition of Doehler-Jarvis by $10,000 and established a
liability (accrued program costs) to reflect the operating loss under the
Manifold Program. Remaining accrued program costs at September 30, 1996 were
$1,640. The Manifold Program reflected an additional negative gross margin of
$5,500 for 1996 due to cost overruns in excess of the established liability.
F-10
<PAGE> 75
The Company reached an agreement in principle with this major customer for
program modifications for the Manifold Program discussed above. The Company
and the customer executed a term sheet which summarizes the points of
agreement. The customer and the Company have gone forward with certain major
elements of the agreement while negotiating definitive agreements to
memorialize a final settlement. The Company and the customer also agreed upon
a schedule whereby the customer will resource a bell housing program, currently
produced by the Company, to another supplier. The bell housing program
resulted in a negative gross margin loss of $2,300 for 1996. Effects of the
termination and resourcing of the bell housing program will be completed by
December 31, 1996.
Pro forma unaudited results of operations assuming the acquisition had
occurred on October 1, 1994 and 1993, respectively, are as follows:
<TABLE>
<CAPTION>
(In thousands of dollars except per share data)
1995 1994(a)
---- ----
<S> <C> <C>
Sales $855,446 $856,845
Income (loss) from continuing operations
before extraordinary item (8,466) 1,553
Net loss (10,658) (7,485)
Net loss attributable to common
shareholders (25,467) (22,252)
Net loss per share:
Loss from continuing operations (3.38) (1.92)
Net loss (3.69) (3.24)
</TABLE>
(a) Includes Doehler-Jarvis for the year ended December 31, 1994.
The summary pro forma financial data do not purport to represent what the
Company's results of operations would actually have been had the transaction,
in fact, occurred on such dates or to project the Company's results of
operations at any future date or for any future period.
(4) ESNA DISCONTINUED OPERATIONS AND MATERIAL UNCERTAINTIES
On three separate occasions in fiscal 1994, the Company became aware that
certain products of its ESNA division were not manufactured and/or tested in
accordance with required specifications at its Union, New Jersey and/or
Pocahontas, Arkansas facility. These fastener products were sold to the United
States Government and other customers for application in the construction of
aircraft engines and air frames.
In connection therewith, the Company notified the Department of Defense
Office of Inspector General ("DoD/OIG") and, upon request, was admitted into
the Voluntary Disclosure Program of the Department of Defense. The Company
also notified ESNA's customers, including the Defense Industrial Supply Center,
of these
F-11
<PAGE> 76
matters and has offered to retest and/or reprocess affected parts. The Company
retested and/or reprocessed affected parts, and engaged in such activities
including its own parts' inventory from September 1993 until July 31, 1995,
when such activities terminated with respect to those parts which were returned
by customers. For those fasteners which had been destroyed during retesting,
credits were issued to affected customers' accounts. As a result of its
admission into the Voluntary Disclosure Program, the Company expects that it
will receive favorable consideration from the government with respect to
whether or not criminal charges should be brought, administrative sanctions
should be imposed and civil penalties should be sought in connection with sales
of affected parts to the government. There is no assurance, however, that the
Company will receive such treatment with respect to any or all of these
disclosures.
The Company may also be subject to civil damages relating to the ESNA
matter from claims made by other customers. In May 1995, a major customer,
Harco Division of VSI Corporation ("Harco"), filed a complaint in United States
District Court seeking damages, including treble damages, in an amount to be
determined at trial. The Company has also received notification of possible
claims from other customers similar to Harco. In April 1996, the Company and
Harco negotiated a settlement ($800), whereby Harco dismissed its complaint
against the Company and the proceedings are now concluded. The Company has
agreed to indemnify Harco against any future claims relating to the ESNA
matter, if any, that may be asserted against Harco by its customers.
Additionally, the Company agreed to indemnify Harco for certain future costs,
if any, which may result from non-performance by the Company's subcontractor in
filling Harco's orders.
The ultimate cost of disposition of this matter, as well as the required
funding of such cost, is dependent upon future events, the outcomes of which
are not determinable at the present time. Such outcomes could have a material
effect on the Company's financial condition, results of operations and/or
liquidity. If it is ultimately determined that the deviations from
specifications and certifications made in connection therewith, constitute
violations of various statutory and regulatory provisions, the Company may,
among other things, be subject to criminal prosecution, treble damages and
penalties under the Civil False Claims Act or Racketeer Influenced and Corrupt
Organization Act, as well as administrative sanctions, such as debarment from
future government contracting.
In January 1994, the Company finalized its plan to dispose of ESNA and
presented ESNA as a discontinued operation and recorded an after tax provision
for ESNA's projected operating losses through the estimated date of disposition
in the amount of $7,228. In September 1996 the Company determined that it is
not likely that the agreement entered into in May 1996 with a developer to sell
the Company's ESNA facility in Union, N.J. would be successfully concluded,
due to EPA requirements necessary to bring the site up to residential
standards. After considering the length of time, current market conditions and
environmental cleanup costs to dispose of the facility for residential and/or
industrial use, the Company determined that it was appropriate to reflect the
value of the
F-12
<PAGE> 77
ESNA facility to the Company at a nominal net realizable value, including
cleanup costs, as of September 30, 1996. As a result, in the fourth quarter of
1996, the Company has reflected a $7,500 charge to discontinued operations,
representing the write-down of the ESNA facility, continuing carrying costs
associated with the Company's ongoing participation in the Department of
Defense Voluntary Disclosure Program and carrying costs of the Union, N.J.
facility. At September 30, 1996, the $6,830 accrued costs of discontinued
operations is primarily related to legal costs, fines and penalties,
subcontractor costs and severance pay.
Net assets of discontinued operations of $1,800 at September 30, 1996
reflect the estimated net realizable value of remaining assets consisting
primarily of royalty receivables and are included in other non-current assets.
(5) INVENTORIES
Inventories at September 30, consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods $ 3,735 $ 7,527
Work-in-process 19,051 17,495
Tooling 20,689 25,181
Raw materials 10,426 13,539
------- --------
$53,901 $ 63,742
======= ========
</TABLE>
As of October 1, 1995, the Company changed its method of accounting for
certain inventory (which comprised approximately 25% of the Company's total
reported inventory balance of $62,465 at September 30, 1995) from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. As a result
of changes in the Company's manufacturing and inventory management processes,
which are attributable to a continuing emphasis on cost reduction in the
automotive industry, the Company believes that the FIFO method provides for a
better matching of inventory costs with product sales for all of the Company's
inventory. These changes include an emphasis on cost reduction programs,
promotion of production efficiencies and the implementation of inventory
reduction programs. The change from the LIFO method to the FIFO method has been
applied retroactively by restating the financial statements of prior periods
which are summarized as follows:
<TABLE>
<CAPTION>
Decrease
In Beginning
Accumulated Reduction In Increase Decrease In Loss
Deficit Cost of Sales Net Income Per Share
------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
Fiscal 1995 $ 1,126 $ 151 $ 85 $.02
Fiscal 1994 471 655 655 .10
</TABLE>
F-13
<PAGE> 78
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 7,730 $ 7,897
Buildings and improvements 72,954 70,116
Machinery and equipment 312,650 277,318
Furniture and fixtures 1,961 2,138
Construction in progress 28,139 31,870
-------- --------
423,434 389,339
Less accumulated depreciation 122,761 82,092
-------- --------
$300,673 $307,247
======== ========
</TABLE>
Depreciation expense amounted to $42,632, $28,955 and $25,510 in 1996,
1995 and 1994, respectively.
(7) INTANGIBLE ASSETS
Intangible assets at September 30, consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Goodwill in connection with the
acquisition of Doehler-Jarvis (See Note 3) $136,379 $126,354
Reorganization value (See Note 2) 12,339 12,339
-------- --------
148,718 138,693
Less accumulated amortization 21,468 6,156
-------- --------
$127,250 $132,537
======== ========
</TABLE>
Amortization expense related to goodwill and reorganization value amounted
to $15,312, $2,986, and $1,584 in 1996, 1995 and 1994, respectively. In 1995,
the Company reduced reorganization value by $3,529 for the benefit realized
from the utilization of tax loss carryforwards existing when "Fresh Start
Reporting" was implemented.
(8) OTHER ASSETS
Other assets at September 30, consist of the following:
<TABLE>
<CAPTION>
Amortization
Period 1996 1995
------------- ------- -------
<S> <C> <C> <C>
Deferred financing costs life of agreement $15,506 $17,409
Deferred tooling units produced 14,339 9,086
Pension asset N/A 9,546 3,543
Net assets of discontinued operations N/A 1,800 ---
Other N/A 3,525 3,101
------- -------
Less accumulated amortization 44,716 33,139
11,160 6,078
------- -------
$33,556 $27,061
======= =======
</TABLE>
F-14
<PAGE> 79
Amortization expense related to deferred financing costs amounted to
$5,136, $1,707, and $798 in 1996, 1995 and 1994, respectively. Amortization
expense related to deferred tooling amounted to $2,578, $1,354 and $1,208 in
1996, 1995 and 1994, respectively.
(9) LONG TERM DEBT, CREDIT AGREEMENTS AND DEBT REFINANCING
Long term debt at September 30 consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
12% Senior Notes Due 2004..... $100,000 $100,000
11 1/8% Senior Notes Due 2005. 200,000 200,000
Revolving Credit Agreement.... 38,834 ---
Industrial revenue bonds...... 6,200 7,841
Capital lease obligations..... 15,569 16,960
-------- --------
$360,603 $324,801
Less current portion.......... 1,487 2,801
-------- --------
Long-term portion............. $359,116 $322,000
======== ========
</TABLE>
On July 26, 1994, the Company consummated a public offering relating to
$100,000 aggregate principal amount of the Company's 12% Senior Notes ("12%
Notes") and on July 28, 1995, the Company consummated a private placement
offering of $200,000 principal amount 11 1/8% Senior Notes Due 2005 ("11 1/8%
Notes") (which were subsequently exchanged for new 11 1/8% Notes which are not
subject to transfer restrictions). Both Notes were issued pursuant to
indentures by and among the Company and Guarantors, which are subsidiaries of
the Company, and First Union National Bank of North Carolina, as Trustee. See
Note 25 for information concerning the Guarantors.
In addition, both Note Indentures require the repayment of the Notes upon
the occurrence of a change in control, as defined, at a repurchase price of
101% of the principal amount thereof plus accrued and unpaid interest, limit
the issuance of new debt, preferred stock, as defined, and restrict the
payment of dividends, distributions from subsidiaries and the sale of assets
and subsidiary stock, as defined.
The Notes are redeemable at the option of the Company, in whole or in
part, at any time after July 15, 1999 for the 12% Notes or August 1, 2000 for
the 11 1/8% Notes at the various redemption prices set forth in the Indentures
relating to the Notes, plus accrued interest to the date of redemption. The
12% Notes mature on July 15, 2004, and the 11 1/8% Notes on August 1, 2005.
Interest on both Notes is payable semiannually.
The net proceeds from the sale of the 12% Notes of $94,300 were used to
prepay all indebtedness outstanding under the Company's then existing bank
credit agreement (approximately $51,100) and to pay certain
F-15
<PAGE> 80
trade payables that were incurred by the Company prior to its bankruptcy
(approximately $31,000). The balance of the proceeds from the sale of the 12%
Notes was used for general corporate purposes. The proceeds of $188,196 from
the sale of the 11 1/8% Notes were utilized as part of the purchase price of
the acquisition of Doehler-Jarvis, see Note 3.
Contemporaneously with the sale of the 11 1/8% Notes, the Company and
Guarantors (see Note 25) entered into a Revolving Credit Agreement, dated as of
July 28, 1995 ("Chemical Agreement"), by and among the Company and Guarantors
and Chemical Bank, as Agent, providing for up to $100,000 of working capital
loans. Prior to entering into the Chemical Agreement, the Company terminated
its existing revolving credit facility dated as of July 26, 1994. The
termination of this agreement resulted in an extraordinary charge of $2,192,
net of $1,200 of tax benefit, or $.32 per share. Borrowings under the Chemical
Agreement had borne interest at a rate per annum equal to 1.75% plus the
greater of (i) Chemical Bank's prime rate or (ii) Chemical Bank's CD rate plus
1% or (iii) Federal Funds effective rate plus 1/2 of 1% or (iv) Adjusted LIBOR
plus 2.75%. The lenders under the Chemical Agreement were paid commitment fees
at a rate of 0.5% per annum on unused commitments and letter of credit fees
equal to 2.75% per annum of the total undrawn amount of outstanding letters of
credit. The Company also paid commitment and other fees to the lenders and the
Agents. On July 25, 1996, the Company entered into an agreement with its banks
under the Chemical Agreement pursuant to which the banks waived certain
covenants involving maintenance of financial ratios and other coverages
effective June 30, 1996 through September 30, 1996. The Company had previously
notified the banks that it was unable to comply with these covenants because it
had experienced lower than expected operating performance. The new
arrangements with the banks included, among other things, an effective increase
in the applicable interest rate under the Revolving Credit Agreement by 2.0%
per year, as well as a reduction of available inventory to be used in the
borrowing base. As of June 30, 1996, the effect of the new arrangement was to
reduce the inventory borrowing base from $13,000 to a maximum of $5,000.
Effective September 2, 1996, inventory was eliminated from the borrowing base
leaving accounts receivable as the basis upon which to borrow funds. In view
of the Company's operating performance, new business and cost savings programs
requiring capital expenditures of $28,000 during the first nine months of 1996,
and the reduction of the inventory borrowing base by $8,000, the Company
determined that additional short term liquidity was necessary. On August 2,
1996, the Company borrowed $7,000 under a $10,000 short term credit facility
maturing on December 31, 1996, with its then existing banks. The short term
credit facility was collateralized by the Company's machinery and equipment.
The interest rate was 4% over the alternate base rate as defined. The Company
paid a $1,000 facility fee on August 2, 1996. The Company repaid this short
term loan on September 27, 1996. Borrowings under the Chemical Agreement
amounted to $38,834 at September 30, 1996 and are classified as long-term based
upon the refinancing discussed below. The interest rate was 12% at September
30, 1996. Outstanding letters of credit at September 30, 1996 amounted to
$19,476 (principally standby).
F-16
<PAGE> 81
The Company and certain of its subsidiaries entered into a financing
agreement dated as of October 4, 1996 with The CIT Group/Business Credit, Inc.
("Financing Agreement"), as a lender and as agent for a group of lenders. The
Financing Agreement provides an aggregate credit line of up to $120,000,
consisting of revolving loans and letters of credit of up to $90,000 of which
up to $25,000 may be extended in the form of letters of credit (principally
standby), and a $30,000 term loan facility. Revolving loans under the
Financing Agreement are subject to the following borrowing base formula: 85%
of eligible accounts receivable and a percentage varying from 25% to 50% of
eligible inventory, limited to $20,000. The commitments under the revolving
credit line terminate, and all amounts of revolving loans outstanding become
due and payable on October 4, 1999. The term loans mature on October 4, 1999.
As security for payment of revolving loans, letters of credit and other
obligations, including the term loans and related guarantees, the Company and
certain of its subsidiaries have granted to the lenders a security interest and
general lien on present and future accounts receivable, inventories, bank
accounts and certain general intangibles, together with proceeds thereof. As
security for payment of the term loan and the guarantee thereof by the Company
and each of its certain subsidiaries, a security interest and general lien on
present and future acquired equipment and other pledged collateral, including
the issued and outstanding shares of capital stock of certain of the Company's
subsidiaries, have been granted to the lenders. The Company and each of its
subsidiaries who are parties to the Financing Agreement have unconditionally
and irrevocably guaranteed the obligations of each of the Companies under the
Financing Agreement. If the Companies who are parties to the Financing
Agreement terminate the agreement prior to October 4, 1997, the Companies must
pay an early termination fee of approximately $900. The revolving loan under
the Financing agreement has an interest rate equivalent to prime plus 1.5% per
annum or at the Company's option, LIBOR, as defined, plus 3.5% per annum. The
term loan has an interest rate equivalent to prime plus 1.75% per annum, and
there is a 2% per annum charge on the face amount of each standby letter of
credit. Further, the lenders receive a line of credit fee of .5% per annum on
the unutilized portion of the revolving loans, together with certain fees as
have been separately agreed upon. The Company also paid commitment and other
fees which will be included in deferred debt expense. The Financing Agreement
also contains quarterly covenants requiring the maintenance of a minimum amount
of EBITDA and restricts amounts to be expended for capital expenditures and
amounts of revolving loans available to finance capital expenditures. On
October 4, 1996, the Company borrowed $38,273, under the Financing Agreement of
which $30,000 was borrowed as term loans and $8,273 as revolving loans. In
addition, an aggregate amount of $19,406 of letters of credit (principally
standby) were considered outstanding under the revolving credit line.
Contemporaneously with entering the new Financing Agreement, the Company
terminated the Chemical Agreement, dated as of July 28, 1995. Proceeds from
the new Financing Agreement were used to repay all outstanding loans under the
Chemical Agreement.
The Financing Agreement contains events of default which are usual and
customary in transactions of this type, including, among other things, payment
defaults in respect of the line of credit, cross-defaults to certain other
F-17
<PAGE> 82
indebtedness, breach of covenants or representations and warranties included in
the Financing Agreement and related documents and the institution of any
bankruptcy proceedings, subject, in certain instances, to specified grace and
cure periods. Upon the occurrence and continuance of an event of default under
the Financing Agreement, the Lenders may terminate their commitments to make
loans and issue letters of credit thereunder, declare the then outstanding
loans due and payable and demand cash collateral in respect of outstanding
letters of credit.
The Financing Agreement contains, among other things, covenants
restricting (subject to the prior consent of the lenders) the ability of the
Companies to sell or otherwise dispose of assets or merge, incur debt, pay
dividends, repurchase or redeem capital stock and indebtedness, create liens,
make certain investments or acquisitions, enter into transactions with
affiliates and otherwise restricting corporate activities.
The Industrial Revenue Bonds bear interest at an annual rate of 4.4% and
mature in 2009.
Machinery and equipment at September 30, 1996 and 1995 includes equipment
held under capital leases with an acquisition cost of approximately $16,727 and
$16,902, respectively, which arose principally through the acquisition of
Doehler-Jarvis. The initial lease terms for such leases end December 2002 and
September 2003. The leases are subject to renewal and the equipment under the
leases may be purchased at the end of the leases at fair market value not to
exceed 24% of the original cost. Accumulated amortization at September 30,
1996 and 1995 was $1,481 and $346, respectively.
Approximate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
--------- --------
<S> <C> <C>
Year ending September 30:
-------------------------
1997.......................................... $ --- $ 2,817
1998.......................................... --- 2,943
1999.......................................... --- 3,382
2000.......................................... 38,834 3,443
2001.......................................... --- 3,443
Thereafter.................................... 306,200 4,809
-------- -------
Total......................................... $345,034 $20,837
========
Less amounts representing interest............ 5,268
-------
Present value of future minimum lease payments $15,569
=======
</TABLE>
F-18
<PAGE> 83
(10) ACCRUED EXPENSES
Accrued expenses at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Interest................................ $ 6,353 $ 6,353
Salaries and wages...................... 12,252 16,747
Pension liabilities..................... 3,891 9,302
Workers compensation and medical........ 11,152 12,170
Costs related to discontinued operations 6,830 10,483
Tooling and maintenance costs........... 4,841 5,106
Environmental........................... 6,075 4,818
Post-retirement benefits................ 3,300 3,327
Other................................... 12,255 16,926
------- -------
$66,949 $85,232
======= =======
</TABLE>
(11) OTHER LIABILITIES
Other liabilities at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Pension liabilities ............. $ 3,887 $ 3,659
Workers' compensation............ 6,361 6,607
Environmental.................... 3,362 6,135
Deferred taxes................... 1,352 3,037
Tool and die replacement......... 10,008 11,000
Other............................ -- 737
------- -------
$24,970 $31,175
======= =======
</TABLE>
(12) OTHER (INCOME) EXPENSE, NET
Other (income) expense, net includes the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Write-down and disposal of assets no
longer required in operations........... $2,053 $ 461 $ 1,409
Various EPA and other litigation matters -- -- (850)
Interest income......................... (220) (2,453) (1,389)
Other, net.............................. (295) 203 298
------ ------- -------
$1,538 $(1,789) $ (532)
====== ======= =======
</TABLE>
F-19
<PAGE> 84
(13) INCOME TAXES
Provision for income tax expense for continuing operations consisted of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal.......... $ --- $ 6,650(a) $5,387(b)
Puerto Rico...... --- 440 1,186
Foreign and other 3,196 4,476 2,963
------ ------- ------
$3,196 $11,566 $9,536
====== ======= ======
</TABLE>
- ----------
(a) Includes a tax allocation aggregating $6,185 for goodwill, exercise of
stock options, and extraordinary item.
(b) Includes a tax allocation between continuing and discontinued operations
of $4,962.
Deferred income taxes result from temporary differences in the recognition
of revenue and expense for tax and financial statement purposes. The tax
effects of temporary differences that give rise to the deferred tax assets and
deferred tax liabilities at September 30, 1996 and 1995 are as follows:
Deferred tax assets:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carry forwards........................ $ 72,160 $ 54,659
Pension and postretirement benefits obligations.......... 37,676 38,233
Reorganization items capitalizable for tax purposes...... 4,100 4,100
Reserves and accruals not yet recognized for tax purposes 36,078 48,081
-------- --------
Total.................................................... 150,014 145,073
Less valuation allowance................................. 95,956 86,509
-------- --------
Total deferred tax assets................................ $ 54,058 $ 58,564
======== ========
</TABLE>
The Company believes it will more likely than not be able to realize its
net deferred tax assets of $54,058 by offsetting it against deferred tax
liabilities related to existing temporary differences that would reverse in the
carry forward period. The Company has established a valuation allowance for
certain of its gross deferred tax assets which exceed such deferred tax
liabilities.
The change in the valuation allowance in 1996 and 1995 primarily
represents recognition of the deferred tax asset related to reserves and
accruals not yet recognized for tax purposes.
F-20
<PAGE> 85
Deferred tax liabilities:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Depreciation.................. $54,794 $59,572
Other......................... 616 2,029
------- -------
Total deferred tax liabilities $55,410 $61,601
======= =======
</TABLE>
The net deferred tax liabilities of $1,352 and $3,037 are included in
other liabilities in the consolidated balance sheets at September 30, 1996 and
1995, respectively.
The following reconciles the statutory federal income tax expense
(benefit), computed at the applicable federal tax rate, to the effective income
tax expense:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate...... $(20,305) $ 7,238 $ 9,171
State income taxes, net of federal benefit... 736 298 ---
Benefit of Puerto Rico tax exemption......... --- (226) (1,406)
Permanent differences arising in connection
with businesses acquired or reorganization... 3,737 1,039 554
Other permanent differences.................. 115 467 ---
Amount for which no tax benefit is
recognized................................... 17,837 --- ---
Foreign taxes in excess of U.S. rates........ 318 2,353 593
Other........................................ 758 397 624
-------- ------- -------
Actual tax expense from continuing operations $ 3,196 $11,566 $ 9,536
======== ======= =======
</TABLE>
At September 30, 1996, the Company had available net operating loss
carryforwards and general business tax credits of approximately $180,000 and
$1,300, respectively, for Federal income tax purposes. These carry-forwards
expire in the years 2002 through 2011. The carryforwards are subject to annual
utilization limitations under Internal Revenue Code Section 382, due to the
change in ownership arising from the conversion of debentures into stock of the
post-confirmation Company and the acquisition of Doehler-Jarvis. The
utilization of the carryforwards is limited to approximately $11,000 and $6,000
per tax year, respectively, until fully utilized. The unused portion of the
Company and Doehler-Jarvis annual limitations at September 30, 1996 is
approximately $26,000 and $7,000 which may be carried forward and utilized in
subsequent years.
(14) RELATED PARTY TRANSACTIONS
Pursuant to the Management and Option Agreement, dated as of August 16,
1993, as Amended and Restated as of August 16, 1994, August 16, 1995 and August
16, 1996, between the Company and Anchor (the "Agreement"), Anchor has agreed
to provide the management services and expertise of Mr. Vincent J. Naimoli to
F-21
<PAGE> 86
serve the Company and manage its operations and business through the date that
is the third anniversary of the date that either the company or Anchor shall
have notified the other in writing that the term of the Agreement shall
terminate. During such period, Mr. Naimoli will be nominated and appointed to
serve as the Company's Chairman of the Board of Directors, Chief Executive
Officer and President. The Agreement provides that Mr. Naimoli may devote his
time to businesses and affairs unrelated to the Company, so long as it does not
materially interfere with his performance thereunder.
For the term of the Agreement, Anchor will be paid $83 per month. In
addition, Anchor is to be paid certain bonus amount based upon the Company's
operating performance for fiscal 1997 and thereafter. Salary and bonus for
1995 was limited to a maximum of $2,013, which was earned in 1995 and no bonus
was earned in 1996. In 1994, there was no maximum limitation and Anchor earned
$3,849. See Note 22 for stock options. The bonus to be paid to Anchor for
fiscal 1997 will be triggered if for such 1997 fiscal year the Company's
earnings before interest, taxes, depreciation and amortization ("EBITDA")
equals or exceeds $82,000, and in such event, the Company is to pay to Anchor a
bonus in respect of such 1997 fiscal year equal to the sum of (a) $500 plus (b)
5% of the amount, if any, by which EBITDA exceeds $82,000 plus (c) an
additional 5% of the amount, if any, by which such EBITDA exceeds the sum of
(x) $82,000 plus (y) $10,000. For the fiscal year ended September 30, 1997,
the total compensation and bonus paid by the Company to Anchor pursuant to the
Agreement is limited to a maximum of $2,400. Following fiscal 1997, the
parties are to negotiate with respect to a cap on the total compensation and
bonus to be paid by the Company to Anchor for Anchor's performance for each
fiscal year following the 1997 fiscal year commensurate with Mr. Naimoli's then
duties and responsibilities at the Company, provided, however, that the cap is
inapplicable in determining the amount, if any, that is to be paid under the
provisions of the Agreement relating to termination. Anchor and Mr. Naimoli
will be reimbursed for all reasonable out-of-pocket expenses incurred with
respect to Mr. Naimoli's performance under the Management and Option Agreement
and for all expenses incurred in connection with the defense or enforcement
thereof. Anchor and Mr. Naimoli are generally entitled to indemnification from
the Company for all activities related to the Management and Option Agreement.
Upon a sale by the Company of one or more of its operating units in a
transaction or series of transactions not constituting a Change in Control (as
defined), the Company is to pay to Anchor such additional compensation as the
Compensation Committee of the Company's Board of Directors may determine.
Pursuant to the Management and Option Agreement, and subject to applicable
law, Mr. Naimoli and his dependents are entitled to receive the same benefits
as are available to senior executive officers under the Company's employee
benefit plans. Effective January 1, 1995, Mr. Naimoli entered into a
Nonqualified Retirement Benefit Agreement with the Company which provides that
he is to receive benefits equal to the total monthly retirement income that
would be payable to him from the combination of the Harvard Retirement Plan,
the Harvard
F-22
<PAGE> 87
Nonqualified Additional Credited Service Plan and the Harvard Nonqualified
ERISA Excess Benefit Plan as if he were an employee eligible to receive
benefits under such Plans. For this purpose, the calculation of benefits shall
consider as service with the Company all periods during which Mr. Naimoli
rendered services to the Company under the Management and Option Agreement.
The period for which Mr. Naimoli rendered services to the Company is defined as
beginning on November 1, 1991, the date he commenced providing services to
Doehler-Jarvis, Inc. The benefits so payable are to be paid in the form of a
monthly retirement income under the payment options available to Mr. Naimoli.
The options that would be so available to him, would be those available if he
were a participant in such Plans, and may include benefits to his selected
beneficiaries. The Nonqualified Retirement Benefit Agreement provides that if
Mr. Naimoli's services terminate within two years following a change in control
of the Company (as defined in the Management and Option Agreement), he is to
receive the benefits thereunder within 30 days of such termination in a lump
sum cash payment equal to the "actuarial equivalent" of the benefits he would
have received under such Agreement. Under the Management and Option Agreement,
as restated as of August 16, 1995, Mr. Naimoli is given during the term of the
Agreement, medical and dental insurance benefits for both his family and him on
the terms and with the benefits as are from time-to-time provided to other
senior executive officers, provided however, that such benefits are without
cost to Mr. Naimoli and his family. Moreover, such Agreement requires the
Company to purchase and maintain during Mr. Naimoli's life, a life insurance
policy on his life in the face of amount $2,000, of which Mr. Naimoli's
beneficiaries are entitled to receive the benefit proceeds.
In the event of voluntary termination of the Agreement by the Company, or
if Anchor provides notice, during the period beginning on the 30th day
following and ending on the 90th day following the occurrence of a Change in
Control (as defined), that it intends to terminate the Agreement, the Company
is to pay to Anchor a lump sum cash payment equal to (a) the number 3
multiplied by (b) the sum of (1) the highest annual compensation in effect
under the Agreement during the one-year period preceding the occurrence of the
Change in Control and (2) the average amount earned under the Agreement's bonus
provisions during the three years preceding the occurrence of the Change in
Control and continue to provide Anchor and Mr. Naimoli with all of the other
benefits that Anchor and Mr. Naimoli would otherwise be entitled to pursuant to
the terms of the Agreement, including, without limitation, the stock options
granted under the Agreement.
The Management and Option Agreement may be terminated voluntarily by
either Anchor or the Company for "cause" (as defined in the Agreement) or upon
Mr. Naimoli's death or disability.
The Management and Option Agreement provides for severance benefits to be
payable to Anchor in the event of the termination of the Agreement under
specified circumstances.
F-23
<PAGE> 88
Pursuant to a Registration Rights Agreement, dated as of August 16, 1993,
as amended as of August 16, 1994, Anchor has been granted certain registration
rights in respect of the common stock issuable upon exercise of stock options,
including, at the Company's cost, up to one requested registration of such
shares after November 30, 1996, provided at least 5.0% of the outstanding
shares of the Company as of August 16, 1993 are included in such registration,
and such shares may not be otherwise freely sold. In addition, the
Registration Rights Agreement grants certain other incidental registration
rights to Anchor.
Mr. Naimoli, beneficially owned, through Anchor, 2,800.28 shares of the
common stock and 413.9987 shares of the preferred stock of Doehler-Jarvis
(representing 13.4% and 2.6%, respectively, of the shares of common stock and
preferred stock of Doehler-Jarvis outstanding immediately prior to the
acquisition). In addition, Mr. Naimoli directly owned $300 principal amount of
11 7/8% Notes and, through Anchor, indirectly owned $500 principal amount of 11
7/8% Notes of Doehler-Jarvis immediately prior to the acquisition. Upon
consummation of the acquisition, Anchor received approximately $11,700 in the
aggregate in exchange for its equity ownership in Doehler-Jarvis. In
connection with a tender offer by the Company for the 11 7/8 Notes of
Doehler-Jarvis, Mr. Naimoli and Anchor received approximately $875 in the
aggregate in consideration of their consent to the amendments to the 11 7/8%
Notes Indenture and tender of their 11 7/8% Notes, plus accrued interest to the
date of repurchase.
Mr. Naimoli and members of his immediate family and affiliated entities
beneficially own an aggregate of $2,525 principal amount of the Company's
12% Notes due 7/15/04 and $50 principal amount of the Company's 11% Notes
due 8/1/05.
Mr. Naimoli is a principal stockholder of Nice and Easy Travel & Co., Inc.
("Nice and Easy"), a travel agency, which agreed to act as exclusive travel
agent and to arrange travel services in such capacity for the Company and its
employees and representatives, beginning in December 1994. Nice and Easy
presently occupies approximately 375 square feet of space from the Company on a
rent-free basis. It has been agreed that with respect to travel services
rendered to the Company by Nice and Easy, the latter rebates to the Company
five percent through February 10, 1995 and three percent thereafter of annual
billings to the Company for travel business. During the years ended September
30, 1996, 1995 and 1994, Nice and Easy billed the Company, $1,130, $994 and
$102, respectively for travel services and rebated $34 and $31 to the Company
in 1996 and 1995, respectively.
In October 1995, the Board of Directors of the Company approved the lease
of a private suite at the Tropicana Field in St. Petersburg, Florida for Tampa
Bay Devil Rays baseball. Mr. Naimoli is the Managing General Partner of Tampa
Bay Devil Rays, Ltd. It is contemplated that the Company will lease the suite
for the period of five years at an annual rental of $60, plus increases
provided by the Consumer Price Index without
F-24
<PAGE> 89
premium. In addition, a license fee of $25 was paid representing a security
deposit of $20, and the balance as an initial non-refundable payment. Any
unused portion of the security deposit is to be returned at the end of the
lease term. An additional $25 payment was made in June 1996. Management has
agreed with two other partners to share in the cost of the suite, thereby
reducing the suite cost to $20 per annum. In connection with the transaction,
the Board determined that the transaction was fair and on terms comparable to
those which would be obtained from a third party in an arm's-length
transaction.
The Blackstone Group L.P., an investment banking firm of which Mr.
Hoffman, a Director of the Company, is a partner, invoiced the Company for
$1,941 in 1995 for financial advice rendered in developing the Company's bid
for Doehler-Jarvis. The Company paid to The Blackstone Group L.P. an upfront
fee of $75 and has agreed to pay additional fees for financial advice rendered
in structuring alternatives to enhance shareholder value and to pay designated
success fees in the event such alternatives are effected and consummated
successfully.
Directors who are not employees of the Company receive compensation at the
rate of $25 per annum plus $1 for attendance at each meeting of the Company's
Board of Directors and $1 for each meeting of the Audit Committee and
Compensation Committee they attend. Effective September 30, 1996, 25% or more
of such amounts are being paid in common stock of the Company. Mr. Naimoli is
not separately compensated for serving as a Director of the Company.
(15) COMMITMENTS AND CONTINGENT LIABILITIES
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive and rapidly changing
federal and state environmental regulations governing waste water discharges
and solid and hazardous waste management activities. The Company is a party to
a number of matters involving both Federal and State regulatory agencies
relating to environmental protection matters, some of which relate to waste
disposal sites including Superfund sites. The most significant site is the
Alsco-Anaconda Superfund Site (the "Site") (Gnadenhutten, Ohio).
Under arrangements between the Company and the Atlantic Richfield Company,
("ARCO"), the current owner of the Site, each has accepted that it is a PRP
with respect to the Site, but the Company maintains that under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") its responsibility is limited to waste actually
produced and deposited on the Site during its period of ownership (1965-1971).
Although it is not possible to definitively determine the Company's ultimate
exposure, management believes that the Company's obligations will likely be
limited to those accepted under the settlement agreement with ARCO described
below, which settlement was based upon an allocated percentage of total
anticipated remediation costs, which as alleged by ARCO, will aggregate
approximately $19,000 to $21,500. On
F-25
<PAGE> 90
January 16, 1995, the Company and ARCO entered into a settlement agreement
which calls for the Company to pay ARCO $6,250 as its share of up to $25,000 of
the cleanup and other environmental costs at the Site in twenty equal quarterly
installments which commenced January 1, 1995, including interest of 9%
beginning on that date. In return for this payment, ARCO has assumed
responsibility for cleanup activities at the Site and is obligated to indemnify
the Company for any environmental claims below the cap. If the cleanup costs
exceed $25,000, the parties will be in the same position as if the litigation
was not settled. Upon execution of the settlement agreement, the matter was
approved by the Delaware Bankruptcy Court.
The Company's Harman subsidiary has been named as one of several PRPs by
EPA pursuant to CERCLA concerning environmental contamination at the Vega Alta,
Puerto Rico Superfund site (the "Vega Alta Site"). Other named PRPs include
subsidiaries of General Electric Company ("General Electric"), Motorola, Inc.
("Motorola"), and The West Company, Inc. ("West Company") and the Puerto Rico
Industrial Development Corporation ("PRIDCO"). PRIDCO owns the industrial park
where the PRPs were operating facilities at the time of alleged discharges.
Another party, Unisys Corporation, was identified by General Electric as an
additional PRP at the Superfund Site as a successor to the prior operator at
one of the General Electric facilities. Unisys Corporation was not initially
designated as a PRP by EPA, although it was named as a PRP in conjunction with
the settlement proceedings and consent decree discussed below.
There are currently two phases of administrative proceedings in progress.
The first phase, involves a Unilateral Order by EPA that the named PRPs
implement the Vega Alta Site remedy chosen by EPA, consisting of the
replacement of the drinking water supply to local residents and installation
and operation of a groundwater treatment system to remediate groundwater
contamination. In addition, EPA sought recovery of costs it had expended at
the Vega Alta Site.
Motorola, West Company and Harman completed construction of the EPA remedy
pursuant to a cost-sharing arrangement. As of September 30, 1996, Harman's
remaining share of costs incurred by the other two PRPs pursuant to this
cost-sharing arrangement is approximately $360, including reimbursement of the
other two PRP's for the construction cost of the treatment system. Pursuant to
the Company's Plan, Harman began payment against these obligations (the "Plan
Amounts") in 1995.
Effective June 30, 1993, the PRPs reached a settlement among themselves.
Harman, together with Motorola and West Company, completed the agreed-upon work
for the first phase of administrative proceedings, as outlined above, which
includesd final construction and initial testing of the cleanup system. In
addition, Harman, Motorola and West Company each agreed to pay General Electric
the sum of $800 in return for General Electric's agreement to assume liability
for, and indemnify and hold Harman and the others harmless against, EPA's cost
recovery claim, to undertake operation and maintenance of the cleanup system
and to construct, operate and maintain any other
F-26
<PAGE> 91
proposed system that may be required by EPA, and to conduct any further work
required concerning further phases of work at the Vega Alta Site. Harman's
settlement payment to General Electric is being made in 20 equal quarterly
installments, which commenced in January 1995, with 9% interest per annum.
Harman, West Company and Motorola retained liability for any cleanup activities
that may in the future be required by EPA at their respective facilities due to
their own actions, for toxic tort claims and for natural resource damage
claims. In light of the settlement, Harman, Motorola and West Company
stipulated with the EPA to liability at the Vega Alta Site. In the suit by the
United States, a consent decree among all of the PRPs and the United States was
fully executed by all parties, and was entered by the federal district court,
finally resolving the cost recovery litigation.
Pursuant to a letter dated January 31, 1994 and subsequent notices since
that date, Harman and the other PRPs have been put on notice of potential
claims for damages, allegedly suffered by the owners and operators of farms
located in the vicinity of the Vega Alta Site. If Harman were to be found
liable in any future lawsuit, some of the alleged damages (e.g., personal
injury, property and punitive damages) would not be covered by the settlement
agreement with General Electric. In a letter to General Electric's counsel,
counsel for the owners and operators alleged estimated losses of approximately
$400,000 "based primarily on lost income stream," purportedly based on certain
assumptions concerning the value of the property, its potential for development
and groundwater contamination issues. At this time, however, Harman has no
information that would support such unindemnified claims, and believes the
claims to be speculative.
By letter dated June 4, 1996, the American Littoral Society ("ALS"), a
public interest group operated through the Environmental Law Clinic of the
Widener University School of Law, sent a notice letter to the Company pursuant
to the Clean Water Act threatening suit based on past and anticipated future
discharges to the Schuykill River in excess of the limits established in the
National Pollutant Discharge Elimination System permit ("NPDES") for the
Pottstown, Pennsylvania plant. Doehler-Jarvis' Pottstown plant has been and is
currently operating under an expired but still effective NPDES permit. The
plant's wastewater treatment system (or use "equipment") is not capable of
achieving routine compliance with certain discharge limitations, including
limits for phenol, oil, grease and total dissolved solids. The Pottstown plant
has been attempting to solve this problem by arranging to convey its effluent
to the Pottstown Public Owned Treatment Works ("Pottstown POTW"). This effort
has been hampered by West Pottsgrove township, since the plant's effluent must
flow through a short section of the township's sewer lines in order to be
conveyed on to the Pottstown POTW. The township has been withholding permission
to send the plant's effluent through a short section of its sewer line even
though the Pottstown POTW is willing to accept the effluent. Potential
penalties under the Clean Water Act could be several million dollars. The
Company is holding discussions with the ALS in hopes of settling this matter
short of litigation.
F-27
<PAGE> 92
Based on a letter from the ALS dated September 30, 1996, the total number
of violations approximate 8,200 occasions and the Clean Water Act authorizes
penalties of up to $25 per violation. The Company expects to settle this claim
for an amount significantly less than the alleged violations would indicate and
have provided for this settlement as part of accrued environmental costs at
September 30, 1996.
As of September 30, 1996, and in addition to the above matters, the
Company has received information requests, or notifications from EPA, state
agencies, and private parties alleging that the Company is a PRP pursuant to
the provisions of CERCLA or analogous state laws; or is currently participating
in the remedial investigation or closure activities; at 23 other sites
(including 8 sites with respect to Doehler-Jarvis). In accordance with the
Company's policies and based on consultation with legal counsel, the Company
has provided environmental related accruals of $9,437 as of September 30, 1996.
The Company believes that it will be entitled to receive approximately $313 of
these expenditures from proceeds of insurance and such amount has been recorded
in other assets at September 30, 1996. Furthermore, the Company does not
expect to use a material amount of funds for capital expenditures related to
currently existing environmental matters. Various environmental matters are
currently being litigated, however, and potential insurance recoveries, other
than those noted, are unknown at this time.
While it is not feasible to predict the outcome of all pending
environmental suits and claims, based on the most recent review by management
of these matters and after consultation with legal counsel, management is of
the opinion that the ultimate disposition of these matters will not have a
material effect on the financial position or results of operations of the
Company.
LEGAL PROCEEDINGS
In June 1995, a group of former employees of the Company's subsidiary,
Harman Automotive-Puerto Rico, Inc., commenced an action against the Company
and individual members of management in the Superior Court of the Commonwealth
of Puerto Rico seeking approximately $48,000 in monetary damages and unearned
wages relating to the closure by the Company of the Vega Alta, Puerto Rico
plant previously operated by such subsidiary. Claims made by the plaintiffs in
such action include the following allegations: (i) such employees were
discriminated against on the basis of national origin in violation of the laws
of Puerto Rico in connection with the plant closure and that, as a result
thereof, the Company is alleged to be obligated to pay unearned wages until
reinstatement occurs, or in lieu thereof, damages, including damages for mental
pain and anguish; (ii) during the years of service, plaintiffs were provided
with a one-half hour unpaid meal break, which is alleged to violate the laws of
Puerto Rico, providing for a one-hour unpaid meal break and demand to be paid
damages and penalties and request seniority which they claim was suspended
without jurisdiction; and (iii) plaintiffs were paid pursuant to a severance
formula that was not in accordance with the laws of Puerto Rico, which payments
were conditioned upon
F-28
<PAGE> 93
the plaintiffs executing releases in favor of the Company, and that, as a
result thereof, they allege that they were discharged without just cause and
are entitled to a statutory severance formula.
The Company is also a party to various claims and routine litigation
arising in the normal course of its business. Based on information currently
available, management of the Company believes, after consultation with legal
counsel, that the result of such claims and litigation, except for the
uncertainties related to ESNA discussed in Note 4, will not have a material
effect on the financial position or results of operations of the Company.
(16) LEASES
Rent expense under operating leases, consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Rent expense $3,340 $2,033 $1,871
</TABLE>
The following is a schedule of future annual minimum rental payments
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year as of September 30, 1996.
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30
-------------------------
<S> <C>
1997..................... $2,000
1998..................... $1,800
1999..................... $ 700
2000..................... $ 450
2001..................... $ 350
Thereafter............... $ -0-
</TABLE>
(17) RETIREMENT PLANS
The Company sponsors various defined benefit pension and savings
(principally 401(k)) plans covering substantially all employees. Expense under
these plans amounted to $4,355 in 1996, $4,255 in 1995 and $5,188 in 1994. The
Company annually contributes to the pension plans amounts that are actuarially
determined to provide the plans with sufficient assets to meet future benefit
payment requirements. The Company contributes to the savings plans amounts
that are directly related to employee contributions.
The Company sponsors a defined benefit pension plan covering all
non-bargaining unit employees. The annual benefits payable under this plan to
a covered employee at the normal retirement age (age 65) are 1% of the first $9
of the employee's career average annual earnings, as defined in the plan, plus
1 1/2% of annual earnings in excess of $9 multiplied by the number of years of
service. Substantially all of the other defined benefit pension plans the
Company sponsors provide benefits of a stated amount for each year of service.
In addition, the Company participates in several multi-employer pension
plans for the benefit of certain union members. The Company's contributions to
these plans amounted to $500 in 1996, $588 in 1995 and $391 in 1994.
F-29
<PAGE> 94
Under the Multi-Employer Pension Plan Amendments Act of 1980, if the Company
were to withdraw from these plans or if the plans were to be terminated, the
Company would be liable for a portion of any unfunded plan benefits that might
exist. Information with respect to the amount of this potential liability is
not available.
Pension expense for all of the Company's defined benefit pension plans
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Benefit earned........................... $ 2,865 $ 2,315 $ 3,641
Interest on projected benefit obligations 8,445 7,068 6,339
Actual return on assets.................. (8,315) (9,025) (840)
Net amortization and deferral............ 557 3,186 (4,602)
------- ------- -------
$ 3,552 $ 3,544 $ 4,538
======= ======= =======
</TABLE>
The following summarizes at September 30, the funded status of the defined
benefit plans that the Company sponsors and the related amounts recognized in
the Company's consolidated balance sheets together with the assumptions
utilized.
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ---------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested................................ $ 74,873 $ 22,061 $ 54,799 $ 33,570
Non-vested............................ 3,482 3,301 3,114 5,013
---------- ---------- --------- ----------
Accumulated benefit obligations....... 78,355 25,362 57,913 38,583
Effects of salary progression......... 3,113 104 4,948 118
---------- ---------- --------- ----------
Projected benefit obligations......... 81,468 25,466 62,861 38,701
---------- ---------- --------- ----------
Plan assets:
Stocks................................ 36,284 8,189 23,464 9,861
Bonds................................. 34,694 5,743 24,375 10,724
Other................................. 12,242 3,860 10,961 5,358
---------- ---------- --------- ----------
83,220 17,792 58,800 25,943
---------- ---------- --------- ----------
Plan assets over (under) projected
benefit obligations..................... 1,752 (7,674) (4,061) (12,758)
Minimum liability recognized............ -- (1,933) -- (1,989)
Net loss not recognized................. 7,456 1,575 7,352 1,746
Prior service cost...................... 338 254 99 222
---------- ---------- --------- ----------
Pension assets (liability) recognized. $ 9,546 $ (7,778) $ 3,390 $ (12,779)
========== ========== ========= ==========
Assumptions used:
Discount rate......................... 8.5% 8.5% 8.5% 8.5%
Rate of return on assets.............. 9.5% 8.5 - 9.5% 9.5% 9.5%
Salary progression rate............... 4.0 - 5.0% 4.0 - 5.0% 4.0 - 5.0% 4.0 - 5.0%
</TABLE>
The Company entered into a Settlement Agreement (the "Settlement
Agreement"), dated as of July 26, 1994, with the Pension Benefit Guaranty
Corporation (the "PBGC") pursuant to which the Company agreed to make
F-30
<PAGE> 95
contributions to certain of its underfunded pension plans. These contributions
will be in addition to the minimum statutory funding requirements with respect
to such plans. Pursuant to the Settlement Agreement, the Company made
additional contributions to its underfunded pension plans in an amount
aggregating $6,000 on August 2, 1994 and $1,500 quarterly thereafter through
September 30, 1996 and is obligated to make quarterly payments of $1,500
quarterly through and including September 30, 1997. The Settlement Agreement,
among other things, includes a covenant restricting the Company's ability to
redeem the PIK Preferred Stock and a covenant not to create or suffer to exist
a lien upon any of its assets to secure both the 12% and 11% Senior Notes
unless contemporaneously therewith effective provision is made to equally and
ratably secure the Company's potential "unfunded benefit liabilities" (as
defined in Section 4001(a)(18) of the Employee Retirement Income Security Act).
The Settlement Agreement also provides that with respect to any unpaid
contributions under the agreement (including any accelerated amounts), the
PBGC's remedies include the imposition of a lien to secure such unpaid
contributions similar to the lien to which a plan is entitled under Section
412(n) of the Internal Revenue Code with respect to unpaid minimum statutory
contributions.
(18) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of the Company's subsidiaries provide postretirement health care
and life insurance benefits for all salaried and for hourly retirees of certain
of its plants. The obligation, as of September 30, 1996 and 1995 was
determined by utilizing a discount rate of 8 1/2% and a graded medical trend
rate projected at annual rates ranging ratably from 13% in 1993 to 5% through
the year 2000.
Since the Company does not fund postretirement benefit plans, there are no
plan assets. Net periodic postretirement benefit cost at September 30 is
comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost.................................. $ 1,595 $1,009 $1,043
Interest on accumulated postretirement benefit
obligation.................................... 7,196 5,724 4,696
Net amortization and deferral................. (493) -- --
------- ------ ------
$ 8,298 $6,733 $5,739
======= ====== ======
</TABLE>
F-31
<PAGE> 96
The accumulated postretirement benefit obligation at September 30, 1996
and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Retirees...................................... $ 38,547 $ 46,875
Fully eligible active plan participants....... 21,305 21,361
Other active plan participants................ 30,745 31,947
-------- --------
Accumulated postretirement benefit obligation. 90,597 100,183
Unrecognized net (loss) gain.................. 14,167 (1,214)
-------- --------
Accrued postretirement benefit cost........... 104,764 98,969
Included in accrued expenses.................. 3,300 3,327
-------- --------
Non-current postretirement benefit obligations $101,464 $ 95,642
======== ========
</TABLE>
The effect of a 1% annual increase in the assumed cost trend rates
discussed above would increase the accumulated postretirement obligation at
September 30, 1996 by approximately $12,509, and would increase the aggregate
of the service and interest cost components by approximately $1,316.
(19) PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK
Under its Certificate of Incorporation, the PIK Preferred Stock on
liquidation, winding up and dissolution ranks senior to Common Stock and has a
liquidation preference of $25.00 per share, plus accrued and unpaid dividends,
before any distribution or payment is made to the holders of Common Stock.
There are 12,000,000 shares authorized and 4,609,987 and 4,035,000 shares
issued and outstanding in 1996 and 1995, respectively.
The PIK Preferred Stock holders are entitled to cumulative dividends at
the rate per annum of $3.5625 per share, payable at the Company's option in
cash or in additional shares of PIK Preferred Stock at the rate of 0.1425 share
of PIK Preferred Stock for each share of PIK Preferred Stock outstanding. See
Note 9 for restriction on paying cash dividends.
On September 30, 1996 and 1995, the Company paid the annual dividend on
PIK Preferred Stocks by issuing 574,987 and 503,271, respectively, of
additional shares of PIK Preferred Stock. The Company recorded an increase of
$14,844 and $12,582 in 1996 and 1995, respectively, in its PIK Preferred Stock
and a corresponding deduction in additional paid-in-capital to recognize such
dividend and the accretion of the related difference between the fair value of
such stock at August 23, 1992 and redemption value.
On September 30, 1994, the Company redeemed an aggregate of $10,000
(400,000 shares) of the PIK Preferred Stock and on June 30, 1995, the Company
redeemed 542,209 shares of PIK Preferred Stock which together with accrued
dividends aggregated $15,000.
F-32
<PAGE> 97
On November 16, 1998, the Company is required to redeem all shares of PIK
Preferred Stock outstanding at the liquidation preference price which is
estimated to be $153,000. If the Company fails to redeem the PIK Preferred
Stock on such date, or otherwise fails to pay a dividend payment, then the
number of directors constituting the Board shall be increased by two (2) and
the outstanding shares of PIK Preferred Stock shall vote as a class, with each
share entitled to one vote, to elect two (2) Directors to fill such newly
created directorships so long as such failure continues. Due to such mandatory
redemption requirements, the PIK Preferred Stock is not reflected as part of
common shareholders' equity. Such stock was valued at fair value as of August
23, 1992, including the fair value of accrued dividends from October 1, 1991.
Such carrying value has been increased by a periodic accretion between fair
value and redemption value.
The Company, at the option of the Board, may redeem, in whole or in part,
shares of PIK Preferred Stock at the liquidation preference per share price
plus all accrued and unpaid dividends on such shares, at any time prior to the
redemption date (subject to PBGC restrictions and Financing Agreement). So
long as shares of PIK Preferred Stock are outstanding, the Company shall not
declare dividends on the Common Stock or any other securities junior to the PIK
Preferred Stock or repurchase any of such shares.
The Company may, at its option, at any time, exchange the Company's 14
1/4% Subordinated Notes due November 16, 1998, if such securities are issued by
the Company, for all of the PIK Preferred Stock. Holders thereof will be
entitled to receive $25 principal amount of Notes for each share of PIK
Preferred Stock held by them at the time of exchange and each share of PIK
Preferred Stock accrued as a dividend on such shares of PIK Preferred Stock on
the date of exchange, up to but not including the date of exchange.
So long as any shares of PIK Preferred Stock are outstanding, the Company
shall not issue any shares of preferred stock which (i) specify a dividend rate
in excess of 14 1/4% of the liquidation preference of such preferred stock,
(ii) may be redeemed or are subject to sinking fund requirements which must be
satisfied prior to the redemption or repurchase of all outstanding shares of
PIK Preferred Stock, (iii) have a mandatory redemption date prior to January 1,
1999, or (iv) rank senior to the PIK Preferred Stock or, unless the net
proceeds of the issuance of the preferred stock are used to redeem or
repurchase PIK Preferred Stock or Exchange Notes, rank pari passu with the PIK
Preferred Stock, with respect to dividend rights and rights on liquidation,
winding up and dissolution.
(20) PREFERRED STOCK
The Board is expressly authorized in the Certificate of Incorporation
(without action by the shareholders), to provide for the issuance of all or any
shares of the preferred stock in one or more classes or series, and to fix for
each such class or series such voting powers, and such designations,
preferences and rights as the Board by resolution shall express and as
permitted by the General Corporation Law of the State of Florida.
F-33
<PAGE> 98
There are no present plans for issuance of any shares of preferred stock.
When and if any shares of preferred stock are issued, certain rights of the
holders thereof may affect the rights of the holders of the Common Stock and
PIK Preferred Stock. See Note 19 for restrictions upon the issuance of shares
of preferred stock so long as shares of PIK Preferred Stock are outstanding.
On October 18, 1994, the Board of Directors of the Company adopted a
Shareholder Rights Plan ("Plan") which contemplates the issuance of preferred
stock purchase rights to the holders of the Company's Common Stock of record as
of October 21, 1994. As a result, there are 500,000 shares of Series A, Junior
Preferred Stock, par value $.01 per share, authorized.
The Plan calls for holders of the Company's Common Stock to receive, in
the form of a dividend, one Right for each share of Common Stock held as of the
above record date. The Plan, which is intended to deter coercive takeover
tactics, prevents a potential acquirer from gaining control of the Company
without offering a fair price to all holders of Common Stock. The Rights
expire on October 31, 2004.
Each Right issued will, initially, entitle shareholders to buy one
one-hundredth of a share of newly authorized preferred stock of the Company for
$64. However, the Right will be exercisable only if a person or group (other
than shareholders owning at least 10 percent but less than 20 percent of the
Company's Common Stock outstanding on the date the Board of Directors
authorizes the dividend) acquires beneficial ownership or commences a tender or
exchange offer that will result in that person or group becoming a beneficial
owner of 26 percent-or-more of the Company's Common Stock.
Initially, each Right not owned by a 15-percent-or-more shareholder or
related parties will entitle its holder to purchase one share of the Company's
preferred stock at $64 or whatever is the then-current exercise price of the
Rights.
Upon the occurrence of certain events, the Right can be used to purchase
shares of the Company's Common Stock, or under certain circumstances to be
determined by the Board of Directors, for cash, other property, or securities
with a value of twice that of the Rights current price.
In addition, if after any person or group has become a 15 percent-or-more
shareholder, the Company is involved in a merger or other business combination
with another person in which the Company does not survive, or in which the
Common Stock is changed or exchanged, or the Company sells 50 percent or more
of its assets or earning power to another person, each Right will then entitle
its holder to purchase -- at the Right's then-current price -- common stock of
such other person having a value equal to twice the Right's price.
F-34
<PAGE> 99
In the event of a tender or exchange offer for all outstanding shares of
the Company that is approved by a majority of the Board's independent Directors
- -- those not affiliated with any 15 percent-or-more shareholder -- the
provision relating to 15 percent-or-more beneficial ownership of the Company's
shares will not apply.
The Company will, generally, be entitled to redeem the Rights for $0.01
per Right at any time until 10 days -- subject to extension -- following a
public announcement that a 15 percent position has been acquired. The
Preferred Stock Purchase Rights have been registered with the Securities and
Exchange Commission on Form 8-A.
(21) COMMON STOCK
Dividends on the Common Stock are subject to restrictions in the Company's
Financing Agreement and, so long as any PIK Preferred Stock is outstanding, the
Certificate of Incorporation provides that no dividends shall be declared on
Common Stock or any securities junior to the PIK Preferred Stock or repurchase
of any such shares. Such holders have no preemptive or other right to
subscribe for or purchase additional shares of capital stock.
(22) STOCK OPTIONS
On January 19, 1994, the Board of Directors approved Stock Option Plans,
and on August 4, 1994 approved certain modifications thereto, which provides
for up to 400,000 shares of the Company's Common Stock to be granted to members
of the Board of Directors (other than the Company's Chairman and Chief
Executive Officer) and key employees. Options under both plans were granted at
the fair market value on the date of grants and have an exercise period of ten
years. Options under the Director's plan vest 100% at the date of grant while
the key employee's plan become exercisable at 25% or 33% per year after a
one-year waiting period.
In addition, pursuant to the Management and Option Agreement dated as of
August 16, 1993, Anchor was granted options to purchase 652,096 shares of
Common Stock, of which 496,278 were exercisable immediately at an exercise
price as set by the Board of Directors on October 27, 1993 of $6.00 per share,
and an additional 155,818 became exercisable on August 16, 1994 at an exercise
price of $13.75. The option price per share in respect of the additional
shares was the average market price per shares of Common Stock for the five
most recent days immediately prior to August 16, 1994.
Additionally on August 4, 1994, the Board of Directors granted to Anchor
options to purchase 17,000 shares of Common Stock which became exercisable
immediately at $13.75 per share and in accordance with such amendment to the
above Management and Option Agreement, granted Anchor an aggregate of 300,000
additional stock options to purchase 300,000 shares of Common Stock at $14.00
per share, which become exercisable as follows: 100,000 -- 8/16/95; 100,000 --
8/16/96; 100,000 -- 8/16/97. Such options are exercisable if closing price of
the Company's Common Stock equals or exceeds $20.00 per share for 15 of 30
trading days prior to August 16,
F-35
<PAGE> 100
1995 for the first 100,000 options; and $30.00 and $40.00 per share for any 30
trading days subsequent to August 16, 1995 and 1996, respectively, and prior to
August 16, 1996 and August 16, 1997, respectively. On August 16, 1995 such
condition was met and the first 100,000 options became exercisable. No options
became exercisable during 1996. On August 16, 2002 any options outstanding
will be exercisable without regard to the per share price of Common Stock if
Anchor is continuing to provide services to the Company at such date.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
OPTION SHARES
-------------
KEY EXERCISE PRICE
EMPLOYEES DIRECTORS ANCHOR TOTAL RANGE-PER SHARE
------------ --------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 9/30/93..... --- --- 652,096 652,096 $ 6.00 to $ 13.75
Granted 1994........ 206,500 20,000 317,000 543,500 $ 8.00 to $16.125
Exercised........... --- --- --- --- ---
Cancelled........... 4,000 --- --- 4,000 $ 8.00
------- ------ ------- ---------
Balance 9/30/94..... 202,500 20,000 969,096 1,191,596 $ 6.00 to $16.125
Granted 1995........ 1,000 8,000 --- 9,000 $16.00 to $ 17.25
Exercised........... 1,500 --- 400,000 401,500 $ 6.00 to $ 8.00
Cancelled........... 750 --- --- 750 $ 8.00
------- ------ ------- ---------
Balance 9/30/95..... 201,250 28,000 569,096 798,346 $ 6.00 to $ 17.25
Granted 1996........ 75,800 6,000 --- 81,800 $11.25 to $ 28.00
Exercised........... 19,450 --- --- 19,450 $ 8.00
Cancelled........... 71,250 --- --- 71,250 $ 8.00 to $ 28.00
------- ------ ------- ---------
Balance 9/30/96..... 186,350 34,000 569,096 789,446 $ 6.00 to $ 28.00
Exercisable at
September 30:
1994................ --- --- 652,096 652,096 $ 6.00 to $ 13.75
1995................ 50,125 28,000 369,096 447,221 $ 6.00 to $ 17.25
1996................ 77,800 34,000 369,096 480,896 $ 6.00 to $ 28.00
</TABLE>
(23) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT SEGMENTS
The Company operates primarily in the automotive accessories segment.
This segment produces a wide range of products, including: rubber glass - run
channels; rubber seals for doors and trunk lids; aluminum castings; outside
rearview mirrors; cast, fabricated, machined and decorated metal products; and
metal stamped and roll form products. Ford, General Motors and Chrysler
accounted for 31%, 43% and 8% of the automotive accessories segment sales in
1996, 27%, 35% and 11% in 1995 and 33%, 34% and 14% in 1994.
Included under non-automotive is the manufacture of a line of office
chairs, including ergonomic chairs, sold principally to the U.S. Government and
various state and local governmental entities and retail businesses, wholesale
clubs and superstores. In addition, it includes the assembly and sale of
rocket launchers for use on rotary and fixed wing aircraft and the assembling
to the specifications of various manufacturers of certain electronic and
electric parts and products. The U.S. Government accounted for 32% of such
sales in 1996, 35% in 1995 and 45% in 1994.
F-36
<PAGE> 101
Segment operating income (loss) is total revenue less operating
expenses. In computing segment operating income (loss), none of the following
items have been added or deducted; interest income and expense, corporate
expenses, other (income) expense, net, not specifically attributable to the
segments. Identifiable assets by industry segment are those assets that are
used in the Company's operations in each segment. Corporate assets are
principally cash, prepaid expenses and other assets.
Export sales accounted for less than 10% of the Company's consolidated
sales for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Operating
Year Ended Total Income Identifiable Capital
September 30, 1996 Sales (Loss) Assets Depreciation Expenditures
------------------ ------------- ---------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Automotive accessories................. $791,477 $ (9,099) $578,861 $ 41,644 $ 40,530
Non-automotive......................... 33,360 (2,171) 14,664 988 48
-------- -------- -------- -------- --------
Total business segments................ 824,837 (11,270) 593,525 42,632 40,578
Corporate.............................. --- 258 22,380 --- ---
Interest expense....................... --- (47,004) --- --- ---
Discontinued operations................ --- (7,500) 1,800 --- ---
-------- -------- -------- -------- --------
Consolidated total..................... $824,837 $(65,516) $617,705 $ 42,632 $ 40,578
======== ======== ======== ======== ========
Year Ended
September 30, 1995
------------------
Automotive accessories.................. $600,036 $ 37,114 $597,917 $ 28,038 $ 22,020
Non-automotive.......................... 31,796 138 16,124 917 60
-------- -------- -------- -------- --------
Total business segments................. 631,832 37,252 614,041 28,955 22,080
Corporate............................... --- 3,006 40,600 --- ---
Interest expense........................ --- (19,579) --- --- ---
Discontinued operations................. --- --- 7,621 --- ---
-------- -------- -------- -------- --------
Consolidated total........... $631,832 $ 20,679 $662,262 $ 28,955 $ 22,080
======== ======== ======== ======== ========
Year Ended
September 30, 1994
------------------
Automotive accessories....... $592,237 $ 37,574 $333,689 $ 24,354 $ 9,934
Non-automotive............... 22,715 (1,260) 14,487 1,156 207
-------- -------- -------- -------- --------
Total business segments...... 614,952 36,314 348,176 25,510 10,141
Corporate.................... --- 1,837 17,603 --- ---
Interest expense............. --- (11,947) --- --- ---
Discontinued operations...... --- --- 22,163 --- ---
-------- -------- -------- -------- --------
Consolidated total........... $614,952 $ 26,204 $387,942 $ 25,510 $ 10,141
======== ======== ======== ======== ========
</TABLE>
F-37
<PAGE> 102
(24) FAIR VALUE OF FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable. The
carrying value amount approximates fair value because of the short maturity of
these instruments.
Long-Term Debt. The fair value of the Company's long-term debt is
estimated based upon the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities.
PIK Preferred Stock. The fair value was determined by quoted market
price.
The estimated fair value of the Company's financial instruments at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 1,107 $ 1,107
Accounts receivable 99,581 99,581
Accounts payable 89,073 89,073
Long-term debt (including current portion) 360,603 343,013
PIK preferred stock 114,495 101,996
</TABLE>
(25) GUARANTOR SUBSIDIARIES
Both the 12% Notes and the 11 1/8% Notes are guaranteed on a senior
unsecured basis, pursuant to guaranties (the Guaranties) by all of the
Company's wholly-owned direct and certain of its wholly-owned indirect domestic
subsidiaries (the Guarantors). Both Notes are unconditionally guarantied,
jointly and severally, on a senior unsecured basis, by each of the Guarantors
under such Guarantor's guaranty (a Guaranty). Each Guaranty by a Guarantor is
limited in amount to an amount not to exceed the maximum amount that can be
guarantied by that Guarantor without rendering the Guaranty, as it relates to
such Guarantor, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer. As such, a Guaranty could be effectively subordinated
to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Guarantor, and, depending on the amount of such
indebtedness, a Guarantor's liability on its Guaranty could be reduced to zero.
The Company conducts all of its automotive business through and derives
virtually all of its income from its subsidiaries. Therefore, the Company's
ability to make required principal and interest payments with respect to the
Company's indebtedness (including the Notes) and other obligations depends on
the earnings of its subsidiaries and on its ability to receive funds from its
subsidiaries through dividends or other payments. The ability of its
subsidiaries to pay such dividends or make payments on intercompany
indebtedness or otherwise will be subject to applicable state laws.
F-38
<PAGE> 103
Upon the sale or other disposition of a Guarantor or the sale or
disposition of all or substantially all of the assets of a Guarantor (in each
case other than to the Company or an affiliate of the Company) permitted by the
indenture governing the Notes, such Guarantor will be released and relieved
from all of its obligations under its Guaranty.
The following condensed consolidating information presents:
1. Condensed balance sheets as of September 30, 1996 and 1995 and
condensed statements of operations and cash flows for the years ended September
30, 1996, 1995 and 1994.
2. The Parent Company and Combined Guarantor Subsidiaries with their
investments in subsidiaries accounted for on the equity method.
3. Elimination entries necessary to consolidate the Parent Company and all
of its subsidiaries.
4. Reorganization items have been included under the Parent Company in the
accompanying condensed consolidating statements of operations and cash flows.
5. The Parent Company, pursuant to the terms of an interest bearing note
with Guarantor Subsidiaries, has included in their allocation of expenses,
interest expense of $14,078, $5,679 and $3,570 for the years ended September
30, 1996, 1995 and 1994, respectively.
The Company believes that providing the following condensed consolidating
information is of material interest to investors in the Notes and has not
presented separate financial statements for each of the Guarantors, because it
was deemed that such financial statements would not provide the investor with
any material additional information.
F-39
<PAGE> 104
HARVARD INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............... $ (1,655) $ 4,367 $ (1,605) $ -- $ 1,107
Accounts receivable, net ................ 5,925 88,124 5,532 -- 99,581
Inventories ............................. 5,056 46,312 2,533 -- 53,901
Prepaid expenses and other current assets 372 1,265 -- -- 1,637
--------- --------- --------- --------- ---------
Total current assets .................. 9,698 140,068 6,460 -- 156,226
Investment in Subsidiaries ................ 296,822 41,877 -- (338,699) --
Property, plant and equipment, net ........ 4,747 286,575 9,351 -- 300,673
Intangible assets, net .................... -- 127,250 -- -- 127,250
Intercompany receivables .................. 394,988 222,486 16,134 (633,608) --
Other assets .............................. 25,428 8,092 36 -- 33,556
--------- --------- --------- --------- ---------
$ 731,683 $ 826,348 $ 31,981 $(972,307) $ 617,705
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
DEFICIENCY
Current liabilities:
Current portion of long-term debt ....... $ -- $ 1,487 $ -- $ -- $ 1,487
Accounts payable ........................ 3,711 81,975 3,387 -- 89,073
Accrued expenses ........................ 19,947 47,002 -- -- 66,949
Income taxes payable .................... 5 1,169 4,701 -- 5,875
--------- --------- --------- --------- ---------
Total current liabilities .......... 23,663 131,633 8,088 -- 163,384
Long-term debt ............................ 300,445 58,671 -- -- 359,116
Postretirement benefits other than
pensions .............................. -- 101,464 -- -- 101,464
Intercompany payables ..................... 435,038 217,523 (18,953) (633,608) --
Other ..................................... 3,766 20,235 969 -- 24,970
--------- --------- --------- --------- ---------
Total liabilities .................. 762,912 529,526 (9,896) (633,608) 648,934
--------- --------- --------- --------- ---------
PIK Preferred ............................. 114,495 -- -- -- 114,495
--------- --------- --------- --------- ---------
Shareholders' deficiency:
Common stock and additional
paid-in-capital ....................... 42,315 73,054 135 (73,189) 42,315
Additional minimum pension liability .... (1,767) (1,767) -- 1,767 (1,767)
Foreign currency translation adjustment . (1,964) (1,952) (1,952) 3,904 (1,964)
Accumulated deficit ..................... (184,308) 227,487 43,694 (271,181) (184,308)
--------- --------- --------- --------- ---------
Total shareholders' deficiency ..... (145,724) 296,822 41,877 (338,699) (145,724)
--------- --------- --------- --------- ---------
$ 731,683 $ 826,348 $ 31,981 $(972,307) $ 617,705
========= ========= ========= ========= =========
</TABLE>
F-40
<PAGE> 105
HARVARD INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 18,645 $ (2,180) $ 3,491 $ (31) $ 19,925
Accounts receivable, net..................... 6,138 89,589 6,987 - 102,714
Inventories.................................. 5,304 57,286 1,152 - 63,742
Prepaid expenses and other current assets.... 7,962 1,073 1 - 9,036
--------- --------- -------- ---------- ---------
Total current assets....................... 38,049 145,768 11,631 (31) 195,417
Investment in Subsidiaries..................... 328,523 45,266 - (373,789) -
Property, plant and equipment, net............. 5,527 296,047 5,673 - 307,247
Intangible assets, net......................... - 132,537 - - 132,537
Intercompany receivables....................... 322,282 260,511 41,659 (624,452) -
Other assets................................... 18,859 7,962 240 - 27,061
--------- --------- -------- ---------- ---------
$ 713,240 $ 888,091 $ 59,203 $ (998,272) $ 662,262
========= ========= ======== ========== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt............ $ 31 $ 2,770 $ - $ - $ 2,801
Accounts payable............................. 3,273 72,089 4,340 - 79,702
Accrued expenses............................. 27,199 57,422 611 - 85,232
Income taxes payable......................... 3,133 2,428 2,715 (11) 8,265
--------- --------- -------- ---------- ---------
Total current liabilities................ 33,636 134,709 7,666 (11) 176,000
Long-term debt................................. 300,000 22,000 - - 322,000
Postretirement benefits other than pensions... - 95,642 - - 95,642
Intercompany payables.......................... 337,179 284,983 2,290 (624,452) -
Other.......................................... 4,980 22,234 3,961 - 31,175
--------- --------- -------- ---------- ---------
Total liabilities....................... 675,795 559,568 13,917 (624,463) 624,817
--------- --------- -------- ---------- ---------
PIK Preferred.................................. 99,651 - - - 99,651
--------- --------- -------- ---------- ---------
Shareholders' equity (deficiency):
Common stock and additional
paid-in-capital............................ 56,969 73,054 135 (73,189) 56,969
Additional minimum pension liability......... (1,836) (1,836) - 1,836 (1,836)
Foreign currency translation adjustment...... (1,743) (1,727) (1,743) 3,470 (1,743)
Retained earnings (deficit).................. (115,596) 259,032 46,894 (305,926) (115,596)
--------- --------- -------- ---------- ---------
Total shareholders' equity (deficit)....... (62,206) 328,523 45,286 (373,809) (62,206)
--------- --------- -------- ---------- ---------
$ 713,240 $ 888,091 $ 59,203 $ (998,272) $ 662,262
========= ========= ======== ========== =========
</TABLE>
F-41
<PAGE> 106
HARVARD INDUSTRIES, INC.
CONSOLIDATING INCOME STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
---------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales.......................................... $ 33,360 $ 765,455 $ 26,022 $ - $ 824,837
---------- --------- -------- -------- ---------
Costs and expenses:
Cost of sales................................ 20,073 733,510 22,558 - 776,141
Selling, general and administrative.......... 10,668 32,186 4 - 42,858
Interest expense............................. 41,478 5,526 - - 47,004
Amortization of goodwill..................... - 15,312 - - 15,312
Other (income) expense, net.................. 1,536 1,347 (1,345) - 1,538
Equity in (income) loss of subsidiaries..... 41,137 (2,278) - (38,859) -
Allocated expenses........................... (21,078) 19,857 1,221 - -
---------- --------- -------- -------- ---------
Total costs and expenses................. 93,814 805,460 22,438 (38,859) 882,853
---------- --------- -------- -------- ---------
Income (loss) before provision for
income taxes ................................ (60,454) (40,005) 3,584 38,859 (58,016)
Provision for income taxes..................... 758 1,132 1,306 - 3,196
---------- --------- -------- -------- ---------
Income (loss) from continuing operations....... (61,212) (41,137) 2,278 38,859 (61,212)
Loss from discontinued operations.............. (7,500) - - - (7,500)
---------- --------- -------- -------- ---------
Net income (loss).............................. $ (68,712) $ (41,137) $ 2,278 $ 38,859 $ (68,712)
========== ========= ======== ======== =========
</TABLE>
F-42
<PAGE> 107
HARVARD INDUSTRIES, INC
CONSOLIDATING INCOME STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales ..................................... $ 31,796 $ 568,264 $ 31,772 $ -- $ 631,832
Intercompany sales ........................ -- -- 8,570 (8,570) --
--------- --------- --------- --------- ---------
Total sales ......................... 31,796 568,264 40,342 (8,570) 631,832
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ........................... 28,342 504,655 32,913 (8,570) 557,340
Selling, general and administrative ..... 11,811 21,226 -- -- 33,037
Interest expense ........................ 17,473 2,097 9 -- 19,579
Amortization of goodwill ................ -- 2,986 -- -- 2,986
Other (income) expense, net ............. (1,630) 238 (397) -- (1,789)
Equity in (income) loss of
subsidiaries .......................... (15,981) (1,864) -- 17,845 --
Allocated expenses ...................... (14,332) 12,879 1,453 --
--------- --------- --------- --------- ---------
Total costs and expenses ............ 25,683 542,217 33,978 9,275 611,153
--------- --------- --------- --------- ---------
Income (loss) before income taxes ......... 6,113 26,047 6,364 (17,845) 20,679
Provision for income taxes ................ (3,000) 10,066 4,500 -- 11,566
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before extraordinary item .............. 9,113 15,981 1,864 (17,845) 9,113
Loss from discontinued operations ......... -- -- 28 (28) --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ... 9,113 15,981 1,892 (17,873) 9,113
Extraordinary item - early extinguishnent of
debt(net of income tax benefit of $1,200) (2,192) -- -- -- (2,192)
--------- --------- --------- --------- ---------
Net income (loss) ...................... $ 6,921 $ 15,981 $ 1,892 $ (17,873) $ 6,921
========= ========= ========= ========= =========
</TABLE>
F-43
<PAGE> 108
HARVARD INDUSTRIES, INC.
CONSOLIDATING INCOME STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales ................................ $22,715 $556,650 $35,587 $ - $614,952
Intercompany sales ................... - - 33,644 (33,644) -
------- -------- ------- -------- --------
Total sales ..................... 22,715 556,650 69,231 (33,644) 614,952
------- -------- ------- -------- --------
Costs and expenses:
Cost of sales ..................... 21,920 501,605 53,651 (33,644) 543,532
Selling, general and administrative 12,716 19,499 2 - 32,217
Interest expense................... 10,591 1,342 14 - 11,947
Amortization of goodwill........... - 1,584 - - 1,584
Other (income) expense, net........ 150 1,206 (1,888) - (532)
Equity in (income) loss of
subsidiaries...................... (20,660) (11,756) - 32,416 -
Allocated expenses................. (16,670) 14,029 2,641 - -
------- -------- ------- -------- --------
Total costs and expenses......... 8,047 527,509 54,420 (1,228) 588,748
------- -------- ------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary
item................................. 14,668 29,141 14,811 (32,416) 26,204
Provision (benefit) for income taxes... (2,000) 8,481 3,055 - 9,536
------- -------- ------- -------- --------
Income (loss from continuing
operations........................... 16,668 20,660 11,756 (32,416) 16,668
Income (loss) from discontinued
operations........................... (9,038) - 106 (106) (9,038)
------- -------- ------- -------- --------
Net income (loss).................... $ 7,630 $ 20,660 $11,862 $(32,522) $ 7,630
======== ======== ======= ======== ========
</TABLE>
F-44
<PAGE> 109
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Income (loss) from continuing operations .................. $(61,212) $(41,137) $ 2,278 $ 38,859 $(61,212)
Add back (deduct) items not affecting
cash and cash equivalents:
Equity in (income) loss of subsidiaries ................. 41,137 (2,278) - (38,859) -
Depreciation and amortization ........................... 6,204 58,446 1,008 - 65,658
Loss on disposition of property, plant and
equipment and property held for sale ................... - 2,053 - - 2,053
Postretirement benefits ................................. - 5,822 - - 5,822
Changes in operating assets and liabilities:
Accounts receivable ..................................... 213 1,465 1,455 - 3,133
Inventories ............................................. 248 8,245 (1,381) - 7,112
Other current assets .................................... (31) (192) 1 - (222)
Accounts payable ........................................ 438 9,886 (953) - 9,371
Accrued expenses and income taxes payable ............... (6,103) (25,714) 1,362 11 (30,444)
Other noncurrent liabilities ............................ - 819 - - 819
-------- -------- ------- -------- --------
Net cash provided by (used in) operations ......... (19,106) 17,415 3,770 11 2,090
-------- -------- ------- -------- --------
Cash flows related to investing activities:
Acquisition of property, plant and equipment .............. (291) (35,474) (4,813) -- (40,578)
Cash flows related to discontinued operations ............. (3,332) - -- -- (3,332)
Proceeds from disposition of property, plant and equipment - 909 -- -- 909
Net change in other noncurrent accounts ................... (5,802) 3,260 (2,857) 176 (5,223)
-------- -------- ------- -------- --------
Net cash provided by (used in) investing activities ......... (9,425) (31,305) (7,670) 176 (48,224)
-------- -------- ------- -------- --------
Cash flows related to financing activities:
Proceeds from exercise of stock options ................... 190 - - - 190
Net borrowings under credit agreement ..................... 445 38,389 - - 38,834
Repayments of long-term debt .............................. (31) (3,001) - - (3,032)
Pension fund payments pursuant to PBGC settlement agreement (6,000) - - - (6,000)
Payment of EPA settlements ................................ (2,090) (586) - - (2,676)
Intercompany dividends .................................... - 5,683 (5,683) - -
Net changes in intercompany balances ...................... 15,717 (20,048) 4,487 (156) -
-------- -------- ------- -------- --------
Net cash provided by (used in) financing activities ........ 8,231 20,437 (1,196) (156) 27,316
-------- -------- ------- -------- --------
Net increase (decrease) in cash and cash equivalents ........ (20,300) 6,547 (5,096) 31 (18,818)
Cash and cash equivalents :
Beginning of period ....................................... 18,645 (2,180) 3,491 (31) 19,925
-------- -------- ------- -------- --------
End of period ............................................. $ (1,655) $ 4,367 $(1,605) $ - $ 1,107
======== ======== ======= ======== ========
</TABLE>
F-45
<PAGE> 110
HARVARD INDUSTRIES, INC
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Net income (loss) from continuing operations
before extraordinary item ................................. $ 9,113 $ 15,981 $ 1,864 $ (17,845) $ 9,113
Add back (deduct) items not affecting
cash and cash equivalents:
Income tax allocation charge ............................ 2,722 3,529 - - 6,251
Equity in (income) loss of subsidiaries ................. (15,981) (1,864) - 17,845 -
Depreciation and amortization ........................... 2,698 31,114 1,044 - 34,856
Disposition of property, plant and
equipment and property held for sale ................... (1) 419 43 - 461
Postretirement benefits ................................. - 4,373 - - 4,373
Changes in operating assets and liabilities :
Accounts receivable ..................................... (1,883) (8,830) 848 - (9,865)
Inventories ............................................. (502) 450 932 - 880
Other current assets .................................... 1,430 283 (1) - 1,712
Accounts payable ........................................ 1,341 2,535 (2,180) - 1,696
Accrued expenses and income taxes payable ............... (11,315) (4,186) (6,467) 14 (21,954)
Other noncurrent liabilities ............................. (331) (271) (1,870) - (2,472)
--------- --------- -------- --------- --------
Net cash provided by (used in) operations ............... (12,709) 43,533 (5,787) 14 25,051
--------- --------- -------- --------- --------
Cash flows related to investing activities:
Acquisition of property, plant and equipment .............. (232) (20,996) (852) - (22,080)
Proceeds to date from sale of discontinued operations ..... 5,029 - 602 (602) 5,029
Proceeds from disposition of property,
plant and equipment ..................................... 2 1,178 79 - 1,259
Acquisition of Doehler-Jarvis, includung refinancing,
net of cash acquired ..................................... (210,231) - (210,231)
Net change in other noncurrent accounts ................... 6,289 (8,988) 1,282 671 (746)
--------- --------- -------- --------- --------
Net cash provided by (used in) investing activities ......... (199,143) (28,806) 1,111 69 (226,769)
--------- --------- -------- --------- --------
Cash flows related to financing activities:
Proceeds from Senior Notes Offering ....................... 200,000 - - - 200,000
Issuance cost of Senior Notes and
Revolving Credit Facility ............................... (11,804) - - - (11,804)
Redemption of PIK preferred stock ......................... (15,000) - - - (15,000)
Proceeds from exercise of stock options ................... 2,419 - 2,419
Repayments of long-term debt .............................. (1,147) (4,673) - - (5,820)
Pension fund payment pursuant to PBGC
settlement agreement .................................... - (6,000) (6,000)
Payment of EPA settlements ................................ (1,884) (535) (93) - (2,512)
Net changes in intercompany balances ...................... 53,695 (60,116) 6,421 - -
--------- --------- -------- --------- --------
Net cash provided by (used in) financing activities ........ 226,279 (71,324) 6,328 0 161,283
--------- --------- -------- --------- --------
Net increase (decrease) in cash and cash equivalents ........ 14,427 (56,597) 1,652 83 (40,435)
Cash and cash equivalents :
Beginning of period ....................................... 4,218 54,417 1,839 (114) 60,360
--------- --------- -------- --------- --------
End of period ............................................. $ 18,645 (2,180) $ 3,491 $ (31) $ 19,925
========= ========= ======== ========= ========
</TABLE>
F-46
<PAGE> 111
HARVARD INDUSTRIES, INC
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Income (loss) from continuing operations .......... $ 16,668 $ 20,660 $ 11,756 $(32,416) $ 16,668
Add back (deduct) items not affecting
cash and cash equivalents:
Income tax allocation between continuing and
discontinued operations .......................... 4,962 -- -- -- 4,962
Equity in (income) loss of subsidiaries ......... (20,660) (11,756) -- 32,416 --
Depreciation and amortization ................... 2,143 26,368 1,344 -- 29,855
Disposition of property, plant and
equipment and property held for sale ........... 256 1,461 104 -- 1,821
Other charges ................................... -- 300 -- -- 300
Postretirement benefits ......................... -- 3,550 -- -- 3,550
Changes in operating assets and liabilities of
continuing operations, excluding reorganization
items:
Accounts receivable ............................. (1,521) 9,156 (2,872) -- 4,763
Inventories ..................................... 631 (4,926) 2,145 -- (2,150)
Other current assets ............................ (1,122) 1,154 (5) -- 27
Accounts payable ................................ 1,219 12,747 2,578 -- 16,544
Accrued expenses and income taxes payable ....... 5,288 4,883 1,161 (25) 11,307
--------- -------- -------- -------- ---------
Net cash provided by (used in) continuing
operations before reorganization items .. 7,864 63,597 16,211 (25) 87,647
Cash flows from reorganization items
(principally professional fees) .......... (323) -- -- -- (323)
--------- -------- -------- -------- ---------
Net cash provided by (used in) continuing
operations before ....................... 7,541 63,597 16,211 (25) 87,324
--------- -------- -------- -------- ---------
Cash flows related to investing activities:
Acquisition of property, plant and equipment ...... (274) (8,809) (1,058) -- (10,141)
Proceeds from disposition of property,
plant and equipment ............................. 4,567 1,358 800 -- 6,725
Investment in subsidiaries/additional capital
contribution by Parent ........................... (16,937) 16,937 -- -- --
Change in net assets of discontinued operations ... (10,538) -- 10 (10) (10,538)
Net change in other noncurrent accounts ........... (7,943) 2,824 (1,722) 8,588 1,747
--------- -------- -------- -------- ---------
Net cash provided by (used in) investing activities . (31,125) 12,310 (1,970) 8,578 (12,207)
--------- -------- -------- -------- ---------
Cash flows related to financing activities:
Proceeds from Senior Notes Offering ............... 100,000 -- -- -- 100,000
Issuance cost of Senior Notes and Revolving
Credit Facilities ............................... (9,117) -- -- -- (9,117)
Redemption of PIK preferred stock ................. (10,000) -- -- -- (10,000)
Repayments of long-term debt ...................... (65,124) (1,392) -- -- (66,516)
Payment of prepetition liabilities ................ (4,743) (33,275) (697) -- (38,715)
Pension fund payment pursuant to PBGC
settlement agreement ............................ -- (6,000) -- -- (6,000)
Net changes in intercompany balances .............. 1,514 19,787 (12,803) (8,498) --
--------- -------- -------- -------- ---------
Net cash provided by (used in) financing
activities ........................................ 12,530 (20,880) (13,500) (8,498) (30,348)
--------- -------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents ....................................... (11,054) 55,027 741 55 44,769
Cash and cash equivalents :
Beginning of period ............................... 15,272 (610) 1,098 (169) 15,591
--------- -------- -------- -------- ---------
End of period ..................................... $ 4,218 $ 54,417 $ 1,839 $ (114) $ 60,360
========= ======== ======== ======== =========
</TABLE>
F-47
<PAGE> 112
(26) QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousand of dollars, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 1996
Quarters ended Dec. 31 Mar. 31 June 30 Sept. 30
- -------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales................................... $210,536 $200,821 $222,300 $191,180
Gross profit............................ 22,186 4,395 14,025 8,090
Loss
Continuing operations.................. (1,724) (20,962) (11,097) (27,429)(c)
Discontinued operations................ --- --- --- (7,500)
-------- -------- -------- --------
Net loss............................. $ (1,724) $(20,962) $(11,097) $(34,929)
======== ======== ======== ========
Primary per common and common
equivalent share (a)(b)
Loss from continuing operations........ $ (0.78) $ (3.53) $ (2.12) $ (4.45)
Loss from discontinued operations...... --- --- --- (1.07)
-------- -------- -------- --------
Net Loss............................. $ (0.78) $ (3.53) $ (2.12) $ (5.52)
======== ======== ======== ========
Cash dividends paid..................... $ --- $ --- $ --- $ ---
======== ======== ======== ========
Fiscal 1995
Quarters ended (d)
- --------------
Sales................................... $149,859 $157,981 $149,926 $174,066
Gross profit............................ 15,359 20,853 20,803 17,477
Income (loss)
Continuing operations.................. 2,504 5,767 4,377 (3,535)
Discontinued operations................ --- --- --- (2,192)
-------- -------- -------- --------
Net loss............................. $ 2,504 $ 5,767 $ 4,377 $ (5,727)
======== ======== ======== ========
Primary per common and common
equivalent share (a)
Income (loss) from continuing
operations............................. $ (0.19) $ 0.28 $ 0.05 $ (0.97)
Income (loss) from discontinued
operations............................. --- --- --- (0.31)
-------- -------- -------- --------
Net income (loss).................... $ (0.19) $ 0.28 $ 0.05 $ (1.28)
======== ======== ======== ========
Cash dividends paid..................... $ --- $ --- $ --- $ ---
======== ======== ======== ========
</TABLE>
- --------------------------------------
(a) Year-to-date earnings per share do not equal the sum of the quarterly
earnings per share.
(b) Fully diluted earnings per share are the same as primary earnings per
share.
(c) Includes a charge of $4,636 of additional amortization of goodwill
related to Dochler-Jarvis. See Note 2.
(d) Restated for change in method of accounting for certain inventory. See
Note 5.
F-48
<PAGE> 113
(3) EXHIBITS
2.1 Amended Findings of Fact, Conclusions of Law and Order confirming
Amended Plans of Reorganization of the Registrant and certain of its
subsidiaries by the United States Bankruptcy Court for the District of
Delaware (including Sixth Amended Plan or Reorganization of the
Registrant) (incorporated by reference to Exhibit 2.1 to Registrant's
Form 10 (Commission File No. 0-21362)).
3.1(i) Articles of Incorporation of the Registrant, filed with the
Secretary of State of Florida on February 8, 1996 (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 8-K as filed on
April 8, 1996 (Commission File No. 0-21362)).
3.1(ii) Articles of Amendment to Articles of Incorporation of the
Registrant, filed with the Secretary of State of Florida on March 22,
1996 (incorporated by reference to Exhibit 3.4 to the Registrant's
Form 8-K as filed on April 8, 1996 (Commission File No. 0-21362)).
3.1(iii) By-Laws of the Registrant (incorporated by reference to Exhibit
3.5 to the Registrant's Form 8-K as filed on April 8, 1996 (Commission
File No. 0-21362)).
3.1(iv) Rights Agreement dated as of October 18, 1994, between the
Registrant and Shawmut Bank Connecticut National Association, as
Rights Agent (incorporated by reference to Exhibit 2 to Registrant's
Form 8-A as filed with the Securities and Exchange Commission on
October 22, 1994) (Commission File No. 0-21362)).
3.1(v) Amendment No. 1 to Rights Agreement, dated as of June 12, 1995,
between the Registrant and Fleet Bank (formerly Shawmut Bank
Connecticut National Association), as Rights Agent (incorporated by
reference to Exhibit 1 to Amendment No. 1 to the Registrant's Form
8-A/A as filed with the Securities and Exchange Commission on June 20,
1995 (Commission File No. 0-21362)).
3.1(vi) Amendment No. 2 to Rights Agreement, dated as of May 31, 1996,
between the Registrant and Fleet National Bank (formerly Shawmut Bank
Connecticut National Association) as Rights Agent (incorporated by
reference to Exhibit 3 to Amendment No. 2 to Registrant's Form 8A/A
filed with the Securities and Exchange Commission on June 8, 1996
(Commission File No. 0-21362)).
4.1 Indenture dated as of July 28, 1995 (including the form of 11%
Senior Note Due 2005) among the Company, the Guarantors named therein
and First Union National Bank of North Carolina as Trustee
(incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K
filed under date of August 11, 1995 (Commission File No. 0-21362)).
4.2 Form of Guaranty Agreement entered into by each of
Doehler-Jarvis, Inc., Doehler-Jarvis Greeneville, Inc., Doehler-Jarvis
Pottstown, Inc., Doehler-Jarvis Technologies, Inc. and Doehler-Jarvis
Toledo, Inc., relating to the 11% Senior Notes Due 2005 (incorporated
by reference to Exhibit 4.2 to the Registrant's Form S-1 (Commission
File No. 33-96376)).
4.3 Indenture (including the form of 12% Senior Note Due 2004), dated
as of July 15, 1994, among the Registrant, its Guarantor subsidiaries
and First Union National Bank of North Carolina, as Trustee
(incorporated by reference to Exhibit 4.01 to the Registrant's Form
8-K filed under date of July 26, 1994 (Commission File No. 0-21362)).
4.4 Form of Guaranty Agreement entered into by each of
Doehler-Jarvis, Inc., Doehler-Jarvis Greeneville, Inc., Doehler-Jarvis
Pottstown, Inc., Doehler-Jarvis Technologies, Inc. and Doehler-Jarvis
Toledo, Inc., relating to the 12% Senior Notes Due 2004 (incorporated
by reference to Exhibit 4.5 to the Registrant's Form S-1 (Commission
File No. 33-96376)).
II-1
<PAGE> 114
4.5 Form of Indenture (including the form of 14% Subordinated Note
due November 16, 1998) between the Registrant and a Trustee to be
selected (incorporated by reference to Appendix 5 in Exhibit 2.1 to
the Registrant's Form 10 (Commission File No. 0-21362)).
4.6 Form of Stock Certificate for Common Stock, par value $.01 per
share, of the Registrant (incorporated by reference to Exhibit 2 to
Amendment No. 4 to Registrant's Form 10/A, dated May 2, 1996
(Commission File No. 0-21362)).
4.7 Form of Stock Certificate for Pay-in-Kind Exchangeable Preferred
Stock, par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.4 to the Registrant's Form 10 (Commission File
No. 0-21362)).
4.8 Form of Rights Certificate (incorporated by reference to Exhibit
A to Exhibit 2 to the Registrant's Form 8-A filed on October 24, 1994
(Commission File No. 0-21362)).
4.9 Specimen 12% Senior Note Due 2004 of the Registrant (incorporated
by reference to Exhibit 4.02 to the Registrant's Form 8-K filed under
date of July 26, 1994 (Commission File No. 0-21362)).
4.10 Specimen 11% Senior Note Due 2005 of the Registrant (incorporated
by reference to Exhibit 4.11 to the Registrant's Registration
Statement on Form S-1 (Commission File No. 33-96376)).
10.1 Financing Agreement, dated as of October 4, 1996, among the
Registrant and certain of its subsidiaries, with The CIT
Group/Business Credit Inc., as a lender and as agent for a lender
group (the "CIT Agreement") (incorporated by reference to Exhibit
10.1 to the Registrant's Form 8-K filed under date of October 29, 1996
(Commission File No. 0-21362)).
10.2 Amendment No. 1 to the CIT Agreement, dated as of December 20, 1996.
10.3 Settlement Agreement dated as of July 26, 1994, by and among the
Registrant and certain of its subsidiaries and the PBGC (incorporated
in reference to Exhibit 10.13 to the Registrant's Form 8-K filed under
date of July 26, 1994 (Commission File No. 0-21362)).
10.4 Amended and Restated Management and Option Agreement, dated as of
August 16, 1994, between Anchor Industries International, Inc. and the
Registrant (incorporated by reference to Exhibit 10.17 to the
Registrant's Form 10-K for the year ended September 30, 1994
(Commission File No. 0-21362)).
10.5 Amended and Restated Management and Option Agreement, dated as of
August 16, 1995, between Anchor Industries International, Inc. and the
Registrant (incorporated by reference to Exhibit 10.3(ii) to the
Registrant's Annual Report on Form 10-K for the year ended September
30, 1995 (Commission File No. 0-21362)).
10.6 Form of Amended and Restated Management and Option Agreement,
dated as of August 16, 1996, between Anchor Industries International,
Inc. and the Registrant.
10.7 Non-Qualified Retirement Benefit Agreement, dated March 10, 1995
between the Registrant and Vincent J. Naimoli (incorporated by
reference to Exhibit 10.19 to the Registrant's Form S-1 (Commission
File No. 33-76430)).
10.8 Split Dollar Life Insurance Agreement Collateral Assignment method
by and between the Company and Raymond A. Naimoli, as Trustee of the
Vincent J. Naimoli 1992 Insurance Trust, dated March 26, 1996.
10.9 Collateral Assignment of Split Dollar Policy by and between the
Company and Raymond A. Naimoli, as Trustee of The Vincent J. Naimoli
1992 Insurance Trust, dated March 26, 1996.
II-2
<PAGE> 115
10.10 Retention Bonus Agreement, dated October 4, 1996, between the Company
and Michael Polich.
10.11 Retention Bonus Agreement, dated October 4, 1996, between the
Company and David Stegemoller.
10.12 Registration Rights Agreement, dated as of August 16, 1993,
between Anchor Industries International, Inc. and the Registrant
(incorporated by reference to Exhibit 10.7 to the Registrant's Form
S-1 (Commission File No. 33-76430)).
10.13 First Amendment to Registration Rights Agreement, dated as of
August 16, 1994, by and between Anchor Industries International, Inc.
and the Registrant (incorporated by reference to Exhibit 10.5 to the
Registrant's Form S-1 (Commission File No. 33-96376)).
10.14 Form of Severance Agreement between the Registrant and certain
executive officers of the Registrant.
10.15 Harvard Capital Accumulation Plan, as amended and restated
(incorporated by reference to Exhibit 4.9 to Registrant's
Post-Effective Amendment No. 1 to Form S-8 (Commission File No.
33-90166)).
10.16 Harvard Industries, Inc. Stock Option Plan, as amended and restated,
effective September 1, 1996 (incorporated by reference to Exhibit 4.9
to Registrant's Post-Effective Amendment No. 1 to Form S-8 (Commission
File No. 33-90166)).
10.17 Harvard Industries, Inc. Nonemployee Director Stock Option Plan, as
amended and restated, effective September 1, 1996 (incorporated by
reference to Exhibit 4.10 to Registrant's Post-Effective Amendment No.
1 to Form S-8 (Commission File No. 33-90166)).
10.18 Harvard Industries, Inc. Employee Stock Purchase Plan, as amended and
restated, effective September 1, 1996 (incorporated by reference to
Exhibit 4.11 to Registrant's Post-Effective Amendment No. 1 to Form
S-8 (Commission File No. 33-90166)).
10.19 1994 Short-Term Incentive Compensation Plan of the Company
(incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 33-76430)).
10.20 USLCC Financing Agreement (incorporated by reference to Exhibit 10.1
to the Registration Statement on Form S-1 of Doehler-Jarvis, Inc.
(File No. 33-77032)).
10.21 USLCC Loan Agreement (incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-1 of Doehler-Jarvis, Inc. (File No.
33-77032)).
10.22 USLCC Lease Agreement (incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-1 of Doehler-Jarvis, Inc.
(File No. 33-77032)).
10.23 Form of Executive Equity Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1 of
Doehler-Jarvis, Inc. (File No. 33-77032)).
10.24 Form of Unit Award Agreement (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1 of Doehler-Jarvis,
Inc. (File No. 33-77032)).
10.25 Form of Indemnification Agreement to be entered into with officers and
directors of the Company (incorporated by reference to Exhibit 10.13
to the Registration Statement on Form S-1 of Doehler-Jarvis, Inc.
(File No. 33-77032)).
II-3
<PAGE> 116
10.26 Supplemental Executive Retirement Plan of Doehler-Jarvis, Inc.
(incorporated by reference to Exhibit 10.19 to the Annual Report on
Form 10-K for the year ended December 31, 1994 of Doehler-Jarvis, Inc.
(File No. 33-77032)).
10.27 Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan
(incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (File No. 33-96376)).
10.28 Harvard Industries, Inc. Nonqualified Additional Credited
Service Plan (incorporated by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No. 33-96376)).
12.1 Statement regarding computation of ratio of earnings to fixed
charges and dividends on preferred stock for the Company for the three
years ended September 30, 1996.
22 List of subsidiaries of Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Price Waterhouse LLP.
(b) Reports on Form 8-K
Reports on Form 8-K were filed with the Securities and Exchange Commission
during the final quarter of the fiscal year ended September 30, 1996, as
follows:
Current Report on Form 8-K filed on October 30, 1996.
II-4
<PAGE> 117
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HARVARD INDUSTRIES, INC.
Date: December 30, 1996 By: /s/ Vincent J. Naimoli
------------------------------------
Vincent J. Naimoli
Chairman of the Board, President,
Chief Executive Officer and Director
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.
<TABLE>
<S> <C>
Date: December 30, 1996 By: /s/ Joseph J. Gagliardi
----------------------------------------
Joseph J. Gagliardi
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: December 30, 1996 By: /s/ William J. Warren
----------------------------------------
William J. Warren
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date: December 30, 1996 By: /s/ C. Scott Bartlett, Jr.
----------------------------------------
C. Scott Bartlett, Jr.
Director
Date: December 30, 1996 By: /s/ Michael Hoffman
----------------------------------------
Michael Hoffman
Director
Date: December , 1996 By:
----------------------------------------
Joseph P. Hoar
Director
Date: December 30, 1996 By: /s/ John W. Adams
----------------------------------------
John W. Adams
Director
</TABLE>
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1
TO
FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
as Agent and Lender
and
Congress Financial Corporation
General Electric Capital Corporation
Heller Financial, Inc.
Finova Capital Corporation
and
Foothill Capital Corporation
as Lenders
and
Harvard Industries, Inc.,
The Kingston-Warren Corporation,
Harman Automotive, Inc.,
Hayes-Albion Corporation,
Doehler-Jarvis, Inc.,
Doehler-Jarvis, Greeneville, Inc.,
Doehler-Jarvis Pottstown, Inc.,
Doehler-Jarvis Technologies, Inc.,
and
Doehler-Jarvis Toledo, Inc.
(as Borrowers)
Dated: December __, 1996
<PAGE> 2
DATED: December __, 1996
AMENDMENT NO. 1 (the "Amendment"), by and among The CIT Group/Business
Credit, Inc. ("CITBC"), Congress Financial Corporation, General Electric
Capital Corporation, Heller Financial, Inc., Finova Capital Corporation and
Foothill Capital Corporation (each a "Lender" and collectively the "Lenders"),
CITBC as agent for the Lenders (the "Agent") and Harvard Industries, Inc., a
Florida corporation (hereinafter "Harvard"), the Kingston-Warren Corporation, a
New Hampshire corporation, Harman Automotive, Inc., a Michigan corporation,
Hayes-Albion Corporation, a Michigan corporation and Doehler-Jarvis, Inc., a
Delaware corporation, Doehler-Jarvis Greeneville, Inc., a Delaware corporation,
Doehler-Jarvis Pottstown, Inc., a Delaware corporation, Doehler-Jarvis
Technologies, Inc., a Delaware corporation, and Doehler-Jarvis Toledo, Inc., a
Delaware corporation. Harvard and each of the entities subsequently identified
above are referred to herein individually as a "Company" and collectively as
the Companies.
W I T N E S S E T H
WHEREAS, the Companies, the Lenders and the Agent are party to a
Financing Agreement, dated October 4, 1996 (as such Agreement is amended hereby
and as it may be futher amended, the "Financing Agreement" and capitalized
terms defined in the Financing Agreement and not otherwise defined herein
having the meanings provided therein); and
WHEREAS, the Companies have requested that the Lenders amend Section 7,
Paragraph 11 of the Financing Agreement so as to reduce the EBITDA required to
be maintained by the Companies for various periods during the terms of the
Financing Agreement; and
WHEREAS, the Companies have requested that the lenders amend the
Financing Agreement in certain other respects as provided herein; and
WHEREAS, it is a condition precedent to the Lenders agreeing to amend
the Financing Agreement as requested by the Companies the (i) the Availability
Reserve be increased from $5,000,000 to $10,000,000 and (ii) that the parties
hereto enter into this Amendment; and
WHEREAS, as consideration for the Lenders agreeing to amend the
Financing Agreement as so requested by the Companies, the Companies have agreed
<PAGE> 3
to pay an amendment fee of $100,000 (the "Amendment Fee") to the Agent for the
benefit of the Lenders; and
WHEREAS, the Lenders have agreed with the Companies to amend the
Financing Agreement upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Financing Agreement. Upon the satisfaction
of the conditions in Section 3 of this Amendment relating to the effectiveness
of this Section 1, the Financing Agreement is hereby amended as follows:
(a) Section 1 is hereby amended by:
(i) amending the definition of "AVAILABILITY" by deleting the word
"Issuer" in clause (y) thereof and substituting in its place "Issuing Bank";
(ii) deleting in its entirety the definition of "AVAILABILITY RESERVE"
and substituting in its place the following new definition:
"AVAILABILITY RESERVE" means, as to all of the Companies in the
aggregate, at any date, $10,000,000 plus (i) such additional amounts as the
Agent, in the exercise of its sole discretion exercised in a commercially
reasonable manner, may from time to time establish against the Availability, and
(ii) such additional amounts as may be added thereto pursuant to Section 7,
Paragraph 6(b)(ii) or Section 11, Paragraph 2 hereof.
(iii) deleting in its entirety the definition of "DISBURSEMENT ACCOUNT";
(iv) adding, in the appropriate alphabetical order, the following
defined term:
"AGENT FEE LETTER" means the fee letter dated October 4, 1996 issued by
the Agent to, and accepted by, the Companies."
(b) Section 3 is hereby amended by:
2
<PAGE> 4
(i) amending Paragraph 3 by deleting the reference to "Section 7,
Paragraph 8" in the penultimate sentence thereof and substituting in its place
"Section 7, Paragraph 9";
(ii) amending Paragraph 8 by inserting the word "Revolving" immediately
before "Line of Credit" in clause (b) thereof.
(c) Section 6, Paragraph 4 is hereby amended by deleting the "this
Paragraph 6" in the clause (b) thereof and substituting in its place "this
Paragraph 4".
(d) Section 7 is hereby amended by:
(i) amending Paragraph (2)(dd) to delete the following language from
the first sentence:
"(including, without limitation, all Intellectual Property as defined in
the Intellectual Property Security Agreement)";
(ii) amending Paragraph 10 to insert, immediately after the word
"Agent", the words "and the Required Lenders";
(iii) deleting Paragraph 11 in its entirety and substituting in its
place the following;
"11. Until termination of this Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Companies shall
maintain EBITDA of not less than:
1. $1,000,000 for the Fiscal Quarter ending December 31, 1996;
2. $11,000,000 for the two Fiscal Quarters ending March 31, 1997;
3. $32,000,000 for the three Fiscal Quarters ending June 30, 1997;
4. $48,000,000 for the Fiscal Year ending September 30, 1997;
5. $70,000,000 for the Fiscal Year ending September 30, 1998; and
6. $75,000,000 thereafter."
3
<PAGE> 5
(e) Section 8, Paragraph 1 is hereby amended by inserting,
immediately after "Agent" in clause (a) of the first sentence thereof, the words
"and/or the Lenders".
(f) Section 12, Paragraph 4 is hereby amended by deleting the
word "Each" at the beginning of the first sentence thereof and inserting in its
place the phrase "Except for the limited purpose set forth in Paragraph 6 of
this Section 12, each..."
(g) Section 14, Paragraph 6 is hereby amended by inserting,
immediately after "The Companies" in the first sentence thereof, the words ",
the Agent and the Lenders".
(h) Section 15, Paragraph 10 is hereby amended by inserting,
immediately before "Line of Credit" in clause (c) of the first sentence
thereof, the word "Revolving".
SECTION 2. Representations and Warranties. Each of the
Companies hereby represents and warrants as to itself and its Subsidiaries that
(a) the execution, delivery and performance of this Amendment have been duly
authorized by all necessary corporate action on the part of such Company and
this Amendment constitutes a legal, valid and binding obligation of such
Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law), (b) no
Default or Event of Default will result from this Amendment and (c) the
representations and warranties of such Company contained in Section 7 of the
Financing Agreement are true and correct as of the date hereof as though made on
such date, except to the extent such representations and warranties relate to an
earlier date, in which case such representations and warranties were correct on
and as of such earlier date.
SECTION 3. Conditions to Effectiveness. The amendments in
Section 1 of this Amendment shall become effective on the date (the "Effective
Date") when counterparts hereof shall have been executed by the Required Lenders
(provided that Section 1(h) of this Amendment shall become effective upon
execution by all the Lenders), the Agent and the Companies, and the Agent shall
have received:
(a) The Amendment Fee, for the benefit of the Lenders; and
(b) A certificate of the secretary or an assistant secretary of
each of the Companies, dated the Effective Date, in form and substance
satisfactory to the
4
<PAGE> 6
Agent, certifying the names and true signatures of each officer of such Company
who have been authorized to execute and deliver any document required to be
executed and delivered hereunder by or on behalf of such Company.
SECTION 4. Effect on the Financing Agreement. Except as
amended hereby, the Financing Agreement and the other Documents shall remain in
full force and effect.
SECTION 5. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together constitute one and the same agreement.
SECTION 6. Governing Law. The validity, interpretation and
enforcement of this Amendment shall be governed by the law of the State of New
York.
SECTION 7. Headings. Section headings in this Amendment are
included herein for the convenience of reference only and shall not constitute
part of this Amendment for any other purpose.
SECTION 8. References. References herein and in the Documents
to the Financing Agreement are to the Financing Agreement as amended hereby.
5
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their proper and duly authorized officers as of the
date set forth above. This Amendment shall take effect as of the date set
forth above after being accepted below by an officer of the Agent and the
Lenders after which, the Agent shall forward to the Company a fully executed
original for their files.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC., as Agent and
Lender
By:/s/ Frank Grimaldi
----------------------------
Vice President
CONGRESS FINANCIAL
CORPORATION, as Lender
By:/s/ Kenneth Donahue
----------------------------
Vice President
GENERAL ELECTRIC
CAPITAL CORPORATION, as
Lender
By:
----------------------------
Title:
HELLER FINANCIAL, INC., as
Lender
By:/s/ Tom Burkowski
----------------------------
Vice President
<PAGE> 8
FINOVA CAPITAL
CORPORATION, AS LENDER
By: /s/ Carlos Valles
----------------------------------
Title: Carlos Valles
Vice President
FOOTHILL CAPITAL
CORPORATION, AS LENDER
By: /s/ Matt Simoneau
----------------------------------
Title: Assistant Vice President
Read and Agreed to:
HARVARD INDUSTRIES, INC.
THE KINGSTON-WARREN CORPORATION
HARMAN AUTOMOTIVE, INC.
HAYES-ALBION CORPORATION
DOEHLER-JARVIS, INC.
DOEHLER-JARVIS GREENVILLE, INC.
DOEHLER-JARVIS POTTSTOWN, INC.
DOEHLER-JAVIS TECHNOLOGIES, INC.
DOEHLER-JARVIS TOLEDO, INC.
By: /s/ Joseph J. Gagliardi
-----------------------------------
Title: Vice President Finance
Chief Finance Operations
<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
MANAGEMENT AND OPTION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (the "Agreement"), dated
as of August 16, 1996, is entered into by and between Harvard Industries, Inc.,
a Florida corporation (the "Company") and Anchor Industries International,
Inc., a Florida corporation ("AII").
WHEREAS, the Company has previously engaged AII to provide the
management services and expertise of Vincent J. Naimoli (the "Executive") to
the Company on the terms and subject to the conditions provided for in the
Management and Option Agreement, dated August 16, 1993, by and between the
Company and AII (the "Initial Agreement"), as amended and restated as of August
16, 1994 and August 16, 1995 (as most recently so amended and restated, the
"Prior Agreement");
WHEREAS, AII is willing to continue to provide to the Company
the management services and expertise of the Executive and the Company desires
to continue to retain AII to provide such services; and
WHEREAS, the Company and AII desire to amend and restate the
Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto intending to be
legally bound, do hereby amend and restate the Prior Agreement as follows:
1. Term.
<PAGE> 2
This Agreement is for the period (the "Term") commencing on
the date hereof (the "Effective Date") and terminating on the date (the
"Termination Date") that is the third anniversary of the date that either the
Company or AII shall have notified the other party in writing that the Term
shall terminate.
2. Positions; Duties and Reporting Relationship.
The Company hereby appoints and employs AII to provide the
management services and expertise of the Executive to serve the Company and
manage the operations and business of the Company, and AII hereby accepts the
appointment and employment by the Company upon the terms and subject to the
conditions provided for herein. Except as provided herein, during the Term the
Company agrees that the Executive shall be nominated and appointed to serve as
Chairman of the Board of Directors, Chief Executive Officer and President of
the Company. AII shall cause the Executive to use his skills and render
services to the best of his abilities in supervising, managing and conducting
the operations and business of the Company; provided, however, that the
foregoing shall not prevent the Executive from devoting his time and efforts to
businesses and other affairs which are unrelated to this Agreement, so long as
they do not materially interfere with the performance of his duties hereunder.
In such capacity as Chairman of the Board of Directors, Chief
Executive Officer and President of the Company, the Executive shall have the
executive authority, responsibilities and duties typically held by the Chairman
of the Board of Directors, Chief Executive Officer and President of a
nationally recognized manufacturing and sales corporation. Without in anyway
limiting the foregoing, as part of his duties hereunder, the Executive shall be
responsible for and have general supervisory control over managing the
Company's and its
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<PAGE> 3
subsidiaries' relationship with their (i) lenders and financial advisors, (ii)
principal customers and suppliers and (iii) employees or their bargaining
representatives. In addition, the Executive is hereby authorized and directed
(i) to evaluate and negotiate on behalf of the Company or its subsidiaries,
with the assistance of advisors, all material transactions involving the
Company or its subsidiaries, including, without limitation, joint ventures,
divestitures, acquisitions, mergers or other significant investments or
divestment, and (ii) to implement and plan for the strategic focus of the
Company's and its subsidiaries' marketing, sales and production efforts. AII
shall cause the Executive to perform additional duties as are reasonably
requested by the Board of Directors of the Company, consistent with the
Executive's position and the responsibilities and duties set forth above. AII
and the Executive shall at all times be subject to the authority of the Board
of Directors of the Company and shall report to the Board of Directors of the
Company at regularly scheduled meetings and with reasonable promptness in the
event of any material developments in connection with the business and affairs
of the Company.
3. Compensation; Bonus.
(a) Compensation. During the Term of this
Agreement, the Company shall pay AII $83,333.33 per month in compensation,
payable in equal semi-monthly installments on the first and fifteenth day of
each month.
(b) Bonus. In addition to the compensation
provided for above in Section 3(a), the Company shall pay to AII the bonus
amounts calculated in accordance with this Section 3(b).
(i) For the Company's fiscal year ending
September 30, 1994, the Company shall pay to AII an amount equal to 5%
of the excess, if any, of (A) the Adjusted Operating
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<PAGE> 4
Income (as defined below) of the Company for such fiscal year over (B)
$20 million (up to a maximum of $500,000) plus 10% of the excess, if
any, of (A) the Adjusted Operating Income for such fiscal year over
(B) $30 million.
(ii) Subject to Section 3(d), for the
fiscal year of the Company beginning on October 1, 1994, the Company
shall pay to AII an amount equal to 5% of the excess, if any, of (A)
the Adjusted Operating Income (as defined below) of the Company for
such fiscal year over (B) the lesser of (x) $40 million or (y) the
Adjusted Operating Income of the Company as forecasted in the budget
of the Company for such fiscal year (up to a maximum of $500,000);
plus 10% of the excess, if any, of (A) the Adjusted Operating Income
of the Company for such fiscal year over (B) the lesser of (x) $50
million or (y) $10 million plus the Adjusted Operating Income of the
Company as forecasted in the budget of the Company for such fiscal
year.
(iii) Subject to Section 3(d), for the
fiscal year of the Company beginning on October 1, 1995, the Company
shall pay to AII an amount determined pursuant to the formula set
forth in Section 3(b)(ii) above; provided, however, that the Board of
Directors of the Company shall, no later than December 1, 1995,
prescribe dollar amounts to be used in lieu of each of the dollar
amounts set forth in Section 3(b)(ii) for purposes of determining the
amount payable under this Section 3(b)(iii).
(iv) Subject to Section 3(d), if, for the
fiscal year of the Company beginning on October 1, 1996, the Company's
earnings before interest, taxes, depreciation and amortization
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<PAGE> 5
("EBITDA") equals or exceeds $82 million (the "1996 Budget Amount"),
the Company shall pay to AII a bonus in respect of such fiscal year
equal to the sum of (A) $500,000 plus (B) 5% of the amount, if any, by
which such EBITDA exceeds the 1996 Budget Amount plus (C) an
additional 5% of the amount, if any, by which such EBITDA exceeds the
sum of (x) the 1996 Budget Amount plus (y) $10 million.
"Adjusted Operating Income" means, for any period, Operating
Income (as defined below) for such period adjusted to (i) eliminate the effects
of any changes adopted in generally accepted accounting principles ("GAAP")
subsequent to August 16, 1994, (ii) eliminate the effects of the implementation
of AICPA's Statement of Position 90-7 (Financial Reporting by Entities in
Reorganization Under the U.S. Bankruptcy Code) in connection with the
reorganization of the Company and its subsidiaries, (iii) eliminate the effects
of adoption of Financial Accounting Standard 106 by the Company and its
subsidiaries, (iv) include certain other adjustments, each of which is set
forth in Appendix 6 (the "Adjusted Operating Income Template") to the Company's
plan of reorganization with respect to the Company's bankruptcy case (United
States Bankruptcy Court for the District of Delaware, Case Nos. 91-404 and
91-479 through 91-487), (v) eliminate the effects of any accrued or paid
severance or consulting costs or expense related to the resignation of the
Company's former Chairman, President and Chief Executive Officer and former
In-House Counsel, (vi) eliminate the effect of any bonus which is accrued or
paid pursuant to this Agreement and (vii) eliminate the effect of any increased
or decreased pension, profit sharing or other expense as a result of a change
in prevailing interest rates from those used by the Company in preparing its
annual budget or similar forecasts of Adjusted Operating Income for the fiscal
year ending September 30, 1994.
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<PAGE> 6
"Operating Income" means, for any period, (i) the consolidated
sales, minus (ii) consolidated cost of goods sold, minus (iii) consolidated
selling, general and administrative expenses, other than Bankruptcy Expenses
(as defined in the Company's Certificate of Incorporation in effect on the
Effective Date of the Prior Agreement) and amortization of reorganization
expenses, of the Company and its subsidiaries for such period. Notwithstanding
the foregoing, (i) with respect to the Company's fiscal year ended September
30, 1994, Operating Income shall not reflect any items described in the
preceding sentence attributable to the ESNA division of the Company ("ESNA")
which would have the effect of reducing Operating Income by more than $4
million and (ii) with respect to the Company's fiscal year ended September 30,
1995 and thereafter, Operating Income shall be calculated without regard to the
operations of ESNA if the net effect of such operations would result in an
increase to Operating Income except to the extent that the aggregate amount of
such increases in all such years would, when combined with the loss
attributable to ESNA in the Company's fiscal year ended September 30, 1994,
result in a net loss of less than $4 million (or a net gain). For the
Company's fiscal year ended September 30, 1994 and thereafter, Operating Income
will be derived from such fiscal year's audited consolidated financial
statements opined upon by the Company's independent public accountants prepared
on a basis consistent with the Company's consolidated financial statements for
the one month period ended September 30, 1992 and the fiscal year ended
September 30, 1993. All Operating Income determinations will be (i) prepared
by the Company and its subsidiaries and (ii) to the extent otherwise required
of the Company, reviewed and reported upon by the Company's independent public
accountants no later than 90 days following the end of any such period.
(c) Following the fiscal year ending September
30, 1997, the parties will in good faith nego-
6
<PAGE> 7
tiate an agreement or understanding with respect to the bonus compensation that
will be paid by the Company to AII for its performance hereunder for each
fiscal year of the Company after the fiscal year ending September 30, 1997.
The agreement with respect to such bonus compensation shall be based upon the
Adjusted Operating Income of the Company for each such fiscal year, or such
other criteria as the parties shall agree to, and shall be commensurate with
the Executive's duties and responsibilities at the Company and the performance
of the Company.
(d) Cap on Total Compensation and Bonus. For the
fiscal years of the Company ending on September 30, 1995, September 30, 1996
and September 30, 1997, the total cash compensation and bonus paid by the
Company to AII pursuant to Section 3(a) and 3(b) above shall be limited to a
maximum of $2 million, $2.4 million and $2.4 million, respectively. Following
the fiscal year ending September 30, 1997, the parties shall in good faith
negotiate an agreement or understanding with respect to the cap on the total
compensation and bonus to be paid by the Company to AII for AII's performance
hereunder for each fiscal year of the Company after the fiscal year ending
September 30, 1997. Such agreement or understanding with respect to the cap on
total compensation and bonus shall be commensurate with the Executive's duties
and responsibilities at the Company and the performance of the Company,
provided, however, that in no event shall such cap be less than $2.4 million
and provided further that such cap shall be inapplicable in determining the
amount, if any, to be paid under Section 5 hereof.
(e) Divestiture Bonus. Upon the sale by the
Company of one or more of its operating units in a transaction or series of
transactions not constituting a Change in Control, the Company shall pay to AII
such additional compensation as the Compensation Committee of the Board may
determine.
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<PAGE> 8
4. Benefits.
(a) During the Term, the Company shall provide
medical and dental insurance benefits to the Executive and his eligible
dependents on the same terms as such benefits are from time to time provided to
other senior executive officers of the Company; provided that such benefits
shall be provided at no cost to the Executive or his eligible dependents. Upon
the request of AII, the Executive and/or his eligible dependents shall be
entitled to participate in or receive benefits under all of the Company's other
employee benefit plans and arrangements now or hereafter in effect for senior
executive officers, on terms that are no less favorable than those provided to
such other senior executive officers of the Company.
(b) The Company shall purchase and shall maintain
in effect during the Term, a "key-man" life insurance policy or policies on the
life of the Executive in an amount not less than $2 million. Not less than $2
million of the benefit payable under such policy or policies shall be payable
to one or more beneficiaries designated by AII.
(c) For purposes of any benefit plan or
arrangement of the Company in which the Executive participates (including,
without limitation, any agreement between the Company and AII or the Executive
with respect to supplemental pension payments), the Executive shall, for all
purposes thereunder be deemed to have commenced employment with the Company as
of November 1, 1991 (i.e., the date on which he commenced providing services to
Doehler-Jarvis, Inc).
5. Termination.
This Agreement, other than Sections 6, 9, 10 and 11 hereof,
shall terminate upon the occurrence of any
8
<PAGE> 9
of the events and in accordance with the terms set forth in subsections (a)
through (d) of this Section. In the event of any termination, AII shall be
entitled to receive all compensation and benefits which have accrued but not
been paid prior to the date of such termination.
(a) Voluntary Termination.
Should AII or the Company wish to terminate this
Agreement for any reason during the Term, such party shall give the other party
hereto sixty (60) days prior written notice setting forth the reasons for such
termination and specifying the date as of which such termination is to become
effective; provided, that, if the Company terminates this Agreement pursuant to
this Section 5(a) or AII provides notice, during the period beginning on the
30th day following and ending on the 90th day following the occurrence of a
Change in Control of the Company (as defined in Section 6(e) below), that it
intends to terminate this Agreement, the Company shall (i) pay to AII a lump
sum cash payment equal to (A) the number three (3) multiplied by (B) the sum of
(1) the highest annual compensation in effect under Section 3(a) hereof during
the one-year period preceding the occurrence of the Change in Control and (2)
the average amount earned or paid under Section 3(b) hereof during the three
years preceding the occurrence of the Change in Control and (ii) continue to
provide AII and the Executive with all of the other benefits that AII and the
Executive would otherwise be entitled to pursuant to the terms of this
Agreement, including, without limitation, the Options granted pursuant to
Section 6.
(b) Death or Permanent Disability.
The Company may terminate this Agreement upon the
death of Executive or in the event of the Executive's Permanent Disability (as
defined below), seven (7) days after written notice of the Permanent Dis-
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<PAGE> 10
ability of the Executive is received by the parties hereto. The Executive
shall be deemed to be Permanently Disabled if in the written opinion of a
qualified physician designated by the Company and reasonably acceptable to AII,
for a period of nine consecutive months the Executive will be unable to perform
in a reasonable manner his duties and obligations under this Agreement.
Notwithstanding anything herein to the contrary, in the event this Agreement is
terminated pursuant to this Section 5(b), AII and the Company shall in good
faith determine the appropriate bonus compensation to be paid to AII under
Section 3, based upon the length of time AII has performed hereunder, the
Operating Income at such time and the bonus thresholds and percentages set
forth in Section 3.
(c) For Cause.
This Agreement shall terminate at the option of the
Company, for "Cause" (as defined below) immediately upon receipt by AII of
written notice from the Company setting forth in reasonable detail the grounds
for termination which constitute Cause. For purposes of this Agreement, a
termination shall be for "Cause" if the Executive (i) intentionally commits an
act of fraud, embezzlement or misappropriation involving the Company, (ii) is
convicted by a court of competent jurisdiction of, or enters a plea of guilty
to, any felony involving moral turpitude or dishonesty, or (iii) commits an
act, or fails to commit an act, which amounts to willful or wanton misconduct
or gross negligence and which results in significant harm to the Company.
(d) Bankruptcy.
AII may terminate this Agreement immediately, if the
Company shall make an assignment for the benefit of creditors, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator
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<PAGE> 11
or receiver of the Company or of any substantial part of the assets of the
Company, or shall commence any case or other proceeding relating to the
Company, or any significant subsidiary of the Company, under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect, or
shall take any action to authorize or in furtherance of any of the foregoing.
6. Options to Purchase Company's Stock.
(a) Grant.
(i) As an inducement for AII entering
into the Initial Agreement, the Company irrevocably granted to AII an option
("Option I") to acquire as the beneficial owner of record that number of shares
of class B common stock, par value $.01 per share (or such other common stock
as the class B common stock may be converted or exchanged into pursuant to the
Company's Certificate of Incorporation, in either case, the "Common Stock"), of
the Company, which when added to all other shares of Common Stock and class A
common stock, par value $.01 per share (the "Class A Common Stock"), of the
Company outstanding on the Effective Date of the Initial Agreement
(collectively, the "Outstanding Shares") (together with all shares of Common
Stock and Class A Common Stock which may be issued upon the exercise or
conversion of all options, warrants, convertible or exchangeable securities or
interests and rights to receive distributions which are outstanding on the
Effective Date of the Initial Agreement (upon merger, sale, liquidation or
otherwise) including the shares of Common Stock subject to Option I) equaled
9.00% of such total.
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<PAGE> 12
(ii) Option II. As an inducement for AII
entering into the Prior Agreement, the Company granted to AII an option (the
"Option II", and, together with Option I, the "Options") to acquire as the
beneficial owner of record 300,000 shares of Common Stock. The grant of Option
II was subject to the approval of the Company's stockholders, which approval
was obtained at the annual meeting of the Company's stockholders next following
the parties entering into the Prior Agreement.
(b) Exercise.
(i) Option I. Option I became
exercisable with respect to 7% of the Outstanding Shares (the "Initial Shares")
on August 16, 1993. With respect to 2% of the Outstanding Shares (the "Second
Shares"), Option I became exercisable on August 16, 1994.
AII, or its designee, became entitled to
purchase the Initial Shares upon exercise of Option I at an exercise price per
share of Common Stock equal to $6 per share, i.e., the greater of (x) $6.00 per
share and (y) the average market price per share of Common Stock for the five
most recent trading days of the Common Stock immediately prior to September 30,
1993. AII, or its designee, shall be entitled to purchase the Second Shares
upon exercise of Option I at an exercise price per share of Common Stock equal
to $13.75, i.e., the average market price per share of Common Stock for the
five most recent trading days of the Common Stock immediately prior to August
16, 1994.
(ii) Option II. Option II shall become
exercisable by AII or its designee at an exercise price per share of Common
Stock equal to $14.00, i.e., the market price per share of Common Stock as of
August 16, 1994, (i) with respect to 100,000 shares of Common Stock, on the
fifteenth trading day on which the market price of Common Stock equals or
exceeds $20 per share
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<PAGE> 13
during the period of 30 trading days immediately prior to August 16, 1995, (ii)
with respect to 100,000 shares of Common Stock, on the fifteenth trading day on
which the market price of Common Stock equals or exceeds $30 per share during
any period of 30 trading days occurring subsequent to August 15, 1995 and prior
to August 16, 1996, and (iii) with respect to 100,000 shares of Common Stock,
on the fifteenth trading day on which the market price of Common Stock equals
or exceeds $40 per share during any period of 30 trading days occurring
subsequent to August 15, 1996 and prior to August 16, 1997. If any portion of
Option II becomes exercisable in accordance with the foregoing, any portion of
Option II that previously failed to become exercisable because the stock price
targets specified above were not achieved during the prescribed time periods
shall also become exercisable at the same time. Notwithstanding the foregoing,
Option II shall become exercisable to the extent it had not previously become
exercisable on August 16, 2002 if, on such date, AII is continuing to provide
services to the Company pursuant to this Agreement or any amendment thereof or
successor thereto. Subject only to the terms of this Section 6, the Options
may be exercised, in whole or in part, at any time.
(iii) The Options may be exercised in
accordance with the terms of this Agreement by written notice thereof signed
and delivered by AII, or its designee, to the Company. Such notice shall state
the number of shares to be purchased and the date of exercise, and shall be
accompanied by payment of the full exercise price in cash or certified or
cashier's check or such other method of payment as is reasonably acceptable to
the Company.
(c) Expiration; Vesting. Options shall expire on
the tenth anniversary of their respective dates of grant.
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<PAGE> 14
(d) Anti-Dilution. In the event of any change in
the Common Stock or Class A Common Stock by reason of any stock dividend or
other distribution (whether in the form of cash, stock, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, spin-off, split-up, combination, repurchase or exchange of
shares or of any similar corporate transaction or event, the Company shall,
with respect to the Options, make such equitable changes in adjustments as it
deems necessary or appropriate in the number of shares, the exercise price,
and/or the kind of shares for which the Options are exercisable, in order to
prevent dilution or enlargement of the rights of AII under this Agreement.
(e) Change in Control. Notwithstanding any other
provision of this Agreement to the contrary, if, while any Options remain
outstanding under this Agreement, a "Change in Control" of the Company (as
defined below) occurs, then all Options granted that are outstanding at the
time of such Change in Control shall become immediately exercisable in full.
For purposes of this Section 6(e), a Change in
Control of the Company shall occur upon the happening of the earliest to occur
of the following:
(i) any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than (x) the
Company, (y) any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or (z) any corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company (each an "excluded person")), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (not including in the
securities benefi-
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<PAGE> 15
cially owned by such person any securities acquired directly from the
Company or its affiliates) representing 30% or more of the combined
voting power of the Company's then outstanding voting securities;
(ii) during any period of not more than two
consecutive years, individuals who at the beginning of such period
constitute the board of directors of the Company (the "Board"), and
any new director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved (other than any
director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company), cease for any reason to constitute at least a majority of
the Board;
(iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than (x) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (y) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquired
30% or
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<PAGE> 16
more of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
7. Expenses, Reimbursement.
The Company shall promptly reimburse AII or the Executive for
all reasonable out-of-pocket costs and expenses incurred by AII or the
Executive in connection with or arising out of Executive's performance under
this Agreement, including, without limitation, out-of-pocket costs and expenses
for travel, transportation, lodging, and business meals. The Company agrees to
promptly pay all fees, costs and expenses (including reasonable attorney's fees
and expenses) of AII or the Executive in connection with negotiating and
entering into this Agreement or in any successful action to defend or enforce
this Agreement or to collect any payments (in the form of cash compensation or
otherwise) from the Company under this Agreement or the securities issuable
hereunder.
8. Representations and Warranties.
(a) The Company represents and warrants that:
(i) The Company is a corporation duly
organized and validly existing under the laws of the state of Florida.
The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement, and the performance of
the Company's obligations under
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<PAGE> 17
this Agreement, including the issuance of the Options to purchase
shares of Common Stock, have been duly authorized by all necessary
corporate action, and on the Effective Date this Agreement shall
constitute the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
(ii) Neither the execution and delivery
of this Agreement or any related documents by the Company, nor the
consummation of the transactions contemplated hereby, will conflict
with, or result in a breach or default of any of the terms, conditions
or provisions of the certificate of incorporation or bylaws (or other
similar governing documents) of the Company or any law or any
regulation, order, writ, injunction, license, franchise or decree of
any court or governmental instrumentality or agency or of any
agreement or instrument to which the Company is a party or by which it
is bound or to which it or its assets is subject, nor result in the
creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the assets of the Company.
(iii) Upon issuance by the Company of the
shares of Common Stock provided in Section 6 hereof, such shares will
be duly authorized, validly issued, fully paid and nonassessable and
shall be free of all preemptive rights and free of any lien or adverse
claim other than those which may arise from acts or omissions on the
part of AII, or its designee.
(b) AII represents and warrants that:
(i) AII is a corporation duly organized
and validly existing under the laws
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<PAGE> 18
of the state of Florida. AII has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement,
and the performance of its obligations under this Agreement have been
duly authorized by all requisite action and this Agreement constitutes
the legal, valid and binding obligation of AII, enforceable against it
in accordance with its terms.
(ii) Neither the execution and delivery
of this Agreement or any related documents by AII, nor the
consummation of the transactions contemplated hereby, will conflict
with, or result in a breach or default of any of the terms, conditions
or provision of AII's certificate of incorporation, by-laws or other
constituent documents or any law or any regulation, order, writ,
injunction, license, franchise or decree of any court or governmental
instrumentality or agency or of any agreement or instrument to which
AII is a party or by which it is bound or to which it or its assets is
subject, nor result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the assets of AII.
9. Covenants.
(a) During the term of the Options, the Company
shall at all times have authorized and reserved for issuance, and will keep
available, solely for issuance hereunder, shares of Common Stock sufficient to
satisfy the Company's obligation to issue shares of Common Stock to AII, or its
designee, as provided in Section 6 hereof.
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<PAGE> 19
(b) Upon the general listing of shares of Common
Stock on any securities exchange or inter-dealer quotation system by the
Company, each of the shares of Common Stock which are issuable upon exercise of
the Options will be listed for trading on such exchange or inter-dealer
quotation system, on a current or when issued basis, following each issuance of
shares of Common Stock upon exercise of the Options provided herein.
(c) In connection with the execution of the Prior
Agreement, the parties hereto entered into an amendment to the Registration
Rights Agreement, dated as of August 16, 1993, by and between the Company and
AII, which Registration Rights Agreement (as so amended) shall remain in full
force and effect in accordance with its terms.
10. Indemnification.
(a) In addition to and without in any way
limiting any other rights the Indemnified Parties (as defined below) may have
under the Certificate of Incorporation or By-Laws (or other similar charter or
governing document) of the Company or any of its subsidiaries, the Delaware
General Corporation Law, any existing contract or otherwise, the Company shall
indemnify and save and hold, AII, the Executive and their affiliates, officers,
directors, security holders, employees, consultants and agents (individually an
"Indemnified Party" and collectively the "Indemnified Parties") harmless from
and against any and all damages, liabilities, losses, costs and expenses
(including, but not limited to, reasonable attorney's fees and expenses)
resulting from, arising out of, or in connection with, this Agreement, the
Prior Agreement or the acceptance or performance of duties or rendering of
services by any of the Indemnified Parties under this Agreement or the Prior
Agreement, except that the Company shall have no liability hereunder in respect
of any act or omission of an Indemnified Party, which act
19
<PAGE> 20
or omission is caused by AII or the Executive's willful breach of this
Agreement in any material respect, reckless or gross negligent disregard for
the Company's interests or failure to act in good faith; provided, however,
that no act or omission constituting a good faith exercise of business judgment
shall constitute a material breach of this Agreement, reckless or gross
negligent disregard for the Company's interests. In the event the Company does
not compromise or assume the defense of any indemnifiable claim or action
against an Indemnified Party, the Company shall promptly pay to the Indemnified
Party all costs and expenses incurred or to be incurred by an Indemnified Party
in defending any claim in advance of the final disposition thereof; provided,
however, that if it is ultimately determined by a court of competent
jurisdiction (from whose decision no appeals may be taken or the time for
appeal has lapsed) that the Indemnified Party was not entitled to indemnity
hereunder, then the Indemnified Party shall repay forthwith all amounts so
advanced. The Indemnified Party shall deliver to the Company statements of the
costs and expenses so incurred, or to be incurred, on a monthly basis, and the
Company shall pay to the Indemnified Party the amounts shown on such
statements, within five days after receipt of such statements.
(b) In order for an Indemnified Party to be
entitled to any indemnification provided for under this Agreement in respect
of, arising out of, or involving any suit, action, proceeding, claim, demand or
written notice made by any third party against an Indemnified Party (a "Third
Party Claim"), such Indemnified Party must notify the Company in writing of the
Third Party Claim within thirty days after receipt by such Indemnified Party of
written notice of the Third Party Claim; provided, however, that the failure of
any Indemnified Party to give such notice shall not affect such Indemnified
Party's right to indemnification hereunder except to the extent the Company has
actually been prejudiced or
20
<PAGE> 21
damaged thereby. If a Third Party Claim is made against an Indemnified Party,
the Company shall be entitled, if it so chooses, to elect to compromise or
assume the defense thereof by delivering written notice to such effect to the
Indemnified Party within thirty business days, or such shorter period as is
reasonably required, following receipt by the Company of the notice of the
Third Party Claim. Such compromise or defense shall be at the Company's sole
cost and expense, with counsel reasonably selected by the Company. If the
Company elects to compromise or assume the defense of any Third Party Claim, it
may not agree to any settlement or compromise of such claim, other than a
settlement or compromise solely for monetary damages for which the Company
shall be responsible, without the prior written consent of AII. If the Company
elects to compromise or assume the defense of a Third Party Claim, the
Indemnified Party, will cooperate in all reasonable respects with the Company
in connection with such compromise or defense, and shall have the right to
participate in such compromise or defense with counsel selected and paid for by
the Indemnified Party. Except as otherwise provided, regardless of which party
assumes the defense of a Third Party Claim, (i) the Indemnified Party shall not
settle or compromise any Third Party Claim without the consent of the Company,
(ii) the Company shall not unreasonably withhold consent to any settlement or
compromise of such claim and (iii) the Indemnified Party and the Company shall
cooperate in any settlement or compromise of such claim whether by the Company
or the Indemnified Party, as the case may be.
(c) From the Effective Date and at all times
throughout the Term, the Company covenants and agrees to use all commercially
reasonable efforts to maintain Directors and Officers Liability insurance, or
other similar insurance, for the benefit of the Executive, on terms that are
not less favorable than those currently maintained by the Company.
21
<PAGE> 22
11. Confidentiality.
During the Term and for three years thereafter, AII will not,
and will not permit any of AII's affiliates to, in any manner, directly or
indirectly, disclose, divulge, discuss or communicate to any person or entity
or use for the benefit of any person or entity other than the Company any
confidential information of the Company, including this Agreement, except as
required in connection with the performance of AII's and the Executive's duties
and responsibilities hereunder, by law or by the rules and regulations of any
stock exchange or inter-dealer quotation network on which the Common Stock is
listed or traded.
During the Term and for three years thereafter, the Company
shall not, and will not permit any of its current or future officers,
directors, employees or affiliates to, in any manner, directly or indirectly,
disclose, divulge, discuss or communicate to any person or entity or use for
the benefit of any person or entity other than the Company, any confidential or
disparaging information relating to AII or the Executive, except as may be
reasonably required by law or by the rules and regulations of any stock
exchange or inter-dealer quotation network on which the Common Stock is listed
or traded.
Since AII or the Company may be irreparably damaged if the
provisions of this Section are not specifically enforced, either party shall be
entitled to an injunction (either preliminary, permanent, or both) restraining
any violation of this Section, or any other appropriate decree of specific
performance. Such remedy shall not be exclusive and shall be in addition to
any other remedy which any party may have including, without limitation,
recovery of damages. The parties hereto acknowledge that the availability of a
damage remedy does not constitute an adequate remedy at law and in no way
22
<PAGE> 23
shall be deemed or considered a defense to an application for injunctive relief
against actual or threatened breach of the restrictions contained in this
Section.
12. Amendment or Modification, Waiver.
No provision of this Agreement may be amended or waived unless
such amendment or waiver is agreed to in writing, signed by a duly authorized
representative of AII and the Company. No waiver by any party hereto of any
breach by another party hereto of any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same time, any prior time or any
subsequent time.
13. Notices.
Any and all notices or consents required or permitted to be
given under any of the provisions of this Agreement shall be in writing or by
written telecommunication and delivered either by hand delivery or by
registered or certified mail, return receipt requested, to the relevant
addresses set out below, in which event they shall be deemed to have been duly
given upon receipt.
If to AII, at:
Anchor Industries International, Inc.
2502 North Rocky Point Drive
Tampa, Florida 33607
Attention: Vincent J. Naimoli
Telecopy: (813) 287-2521
If to the Company, at:
Harvard Industries, Inc.
2502 North Rocky Point Drive
Tampa, Florida 33607
23
<PAGE> 24
Attention: Vice President, Finance
Telecopy: (813) 281-0851
In either case with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Morris J. Kramer, Esq.
Telecopy: (212) 735-2001
14. Survival of Agreements.
Except as set forth herein, all agreements, covenants,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and shall continue in full force and effect.
15. Successors and Assigns.
This Agreement may not be assigned by AII without the prior
written consent of the Company, except that it may be freely assigned without
such consent to the Executive or to a corporation or other entity which is
majority owned and controlled by the Executive. This Agreement may not be
assigned by the Company without the prior written consent of AII, other than to
the Company's successor in the case of a merger or consolidation involving the
Company. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
16. Entire Agreement.
This Agreement contains the entire agreement between the
parties hereto with respect to the subject matter hereof; supersedes all prior
written agreements and negotiations and oral understandings, if any, and it may
not be amended, supplemented or discharged except by
24
<PAGE> 25
an instrument in writing signed by the parties hereto. Notwithstanding the
foregoing, this Agreement does not supersede the Nonqualified Retirement
Benefit Agreement for Vincent J. Naimoli adopted by the Company effective as of
January 1, 1995.
17. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same agreement.
18. Severability.
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
19. Governing Law.
This Agreement will be governed by and construed in accordance
with the laws of the State of Florida, without regard to its conflicts of laws
principles.
25
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective duly authorized
officers as of the date first written above.
ANCHOR INDUSTRIES INTERNATIONAL, INC.
By: /s/ Vincent J. Naimoli
-----------------------------
Name: Vincent J. Naimoli
Title: Chairman and Chief
Executive Officer
HARVARD INDUSTRIES, INC.
By: /s/ Richard T. Dawson
-----------------------------
Name: Richard T. Dawson
Title: Vice President
26
<PAGE> 1
EXHIBIT 10.8
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
COLLATERAL ASSIGNMENT METHOD
THIS AGREEMENT is made this 26th day of March, 1996, by and between
Harvard Industries, Inc., (the "Corporation") and Raymond A. Naimoli, as
Trustee of the Vincent J. Naimoli 1992 Insurance Trust (the "Trustee").
WHEREAS, the Corporation has entered into an Amended and Restated
Management and Option Agreement with Anchor Industries International ("AII")
dated August 16, 1995, as further amended on January 30, 1996, (the "AII
Agreement"); and
WHEREAS, pursuant to the AII Agreement, AII has agreed to provide the
management services and expertise of Vincent J. Naimoli (the "Executive"); and
WHEREAS, pursuant to Section 4(b) of the AII Agreement, the Corporation
agrees to purchase and maintain, during the term of the AII Agreement, and any
extensions thereof, a life insurance policy on the life of the Executive in the
amount of $2 million dollars, with the Corporation the beneficiary to its share
of premium contributions (total premiums paid less the economic benefit amount),
and the Trust as beneficiary of the remaining balance; and
WHEREAS, the Executive agrees to participate in such program to the
extent hereinafter provided.
NOW, THEREFORE, the parties named above agree as follow:
(1) Life Insurance Policy
(a) In furtherance of the purposes of this Agreement,
life insurance, hereinafter referred to as the Policy,
has been purchased on the life of the Executive, from
John Hancock Mutual Life Insurance Company,
hereinafter called Insurer. See schedule A attached
hereto for particulars on the Policy and any other
life insurance Policies issued in connection with this
Plan.
(b) This Agreement is effective as to a particular Policy
upon execution, or upon issuance and acceptance of
such Policy, whichever is later.
(2) Ownership Rights and Duties under the Policy
(a) The Trustee shall retain and may exercise all
incidents and rights of ownership with respect to the
Policy except as otherwise hereinafter provided.
(b) The Corporation shall have the right to:
1. obtain policy loans or other withdrawals to
the extent of its interest in this Policy as
defined in Paragraph 10 of this Agreement.
This Policy may be assigned as collateral for
such loans or withdrawals. The interest due
on such loans shall be a debt of the
Corporation owed to the Insurer;
Page -1-
<PAGE> 2
2. collect from the Insurer its interest in the
proceeds of the Policy upon the death of the
Insured, upon the termination of this Agreement for
any reason whatsoever, or upon the surrender or
maturity of the Policy. Proceeds so collected shall
be net of any outstanding Policy loans or
withdrawals made to or by the Corporation.
(c) The Trustee shall be responsible for safeguarding the
Policy.
(d) The Parties to this Agreement shall execute and forward
promptly and without unreasonable delay, changes in
beneficiary designations, forms and documents, including
the Policy, as required by the Insurer, to facilitate the
exercise of any rights of the Parties hereto. The Parties
hereto shall not be required to execute any documents or
take any action that would impair their own interest under
the Policy.
(3) Collateral Assignment
Concurrently with the execution of this Agreement, the Trustee
shall execute a Collateral Assignment of the Policy as security
for the Corporate premium advances made to the Trustee. Such
Collateral Assignment shall not be inconsistent with the rights of
the Parties under this Agreement.
(4) Payment of Premiums
The Corporation shall pay the annual premium each year. The
Executive will be bonused an amount equal to the "economic
benefit" of the life insurance protection enjoyed by the Executive
each year. The "economic benefit" as defined by the lower of the
PS58 cost or the amount equal to the taxable term cost provided by
the Insurer, based upon reference to IRS Rev. Ruls. 64-328 and
66-110, or any rulings which may substitute, supersede, replace or
amend them, governing the federal income tax consequences of split
dollar arrangements.
(5) Use of Dividends
All dividends attributable to the Policy shall be applied to
Option U.
(6) Payment of Proceeds
On the Executive's death, the Corporation shall receive Part One
of the Policy, and the Trustee shall receive Part Two of the
Policy.
(7) Definitions
(a) Part One is an amount payable to the Corporation equal to
the total premiums paid by the Corporation less the total
"economic benefit" as defined in Paragraph 4.
(b) Part Two is the amount payable to the Trustee equal to the
total death benefit payable less the amount calculated
under Part One.
Page -2-
<PAGE> 3
(8) Termination of Agreement
This Agreement shall terminate for any of the following reasons:
(a) Performance of its terms following death of the Insured;
(b) Termination of the AII Agreement;
(c) A Party's submission of written notice of such intention to
the other party;
(d) Any action by one Party that would defeat or impair the
interest of such other Party other than death or
termination of employment. Such action shall include, but
is not limited to failure to pay premiums as agreed upon;
cancellation of the Policy by any Party thereto.
Termination of Agreement because of death, termination of
the AII Agreement, or termination by notice shall be
effective immediately. All other terminations shall be
effective 30 days from any such action.
(10) Repayment for Reasons Other than Death
(a) In all instances of termination other than death, the
Corporation shall certify as required by the Insurer the
extent of its interest in the Policy, and payment of such
amount shall release the Insurer from any liability to the
Corporation.
(b) Such repayment to the Corporation of the amounts owed it
under this Agreement shall be made from the total cash
values of the Policy. All parties shall execute the
documents necessary to facilitate such use of the total
cash values, regardless of any rights any party may have in
such total cash values.
(c) The amounts owed to the Corporation in the event of
termination other than by death shall be the lesser of the
cash surrender value of the Policy or the total premiums
paid by the Corporation less the PS58 cost.
(11) Disposition of Policy Upon Termination of Agreement
The Trustee may dispose of this Policy upon termination of this
Agreement by sale or otherwise except that no disposition of such
Policy shall take place if the Corporation has not certified to
the Insurer that its interest in such Policy has been satisfied or
released.
(12) Amendment of Agreement
This Agreement may be altered, amended, or modified, including the
addition of any extra Policy provisions, by a written agreement
signed by the Corporation and Trustee. The law of the State of
Florida shall govern this Agreement. It shall be the obligation
of the Corporation to notify the Insurer of any amendments or
changes to this Agreement.
Page -3-
<PAGE> 4
(13) Interpretation of Agreement
Where appropriate in this Agreement, words used in the singular
shall include the plural and words used in the masculine shall
include the feminine and vice versa.
(14) Liability of Insurer
John Hancock Mutual Life Insurance Company is not a party to this
Agreement. With respect to any Policy of insurance issued
pursuant to this Agreement, John Hancock Mutual Life Insurance
Company shall have no liability except as set forth in the Policy.
Such Insurer shall not be bound to inquire into or take notice of
any of the covenants herein contained as to Policies of life
insurance, or as to the application of the proceeds of such
Policies.
The Insurer shall be discharged from all liability in making
payments of the proceeds, and in permitting rights and privileges
under a Policy to be exercised pursuant to the provisions of the
Policy.
(15) Binding Agreement
This Agreement shall bind all parties their successors and assigns
and any Policy beneficiary.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year stated earlier.
HARVARD INDUSTRIES, INC.
21-071532 By: /s/ Richard T. Dawson
- ---------------------------------- ---------------------------------------
Employment Identification Number Richard T. Dawson, Vice-President
/s/ Ruth White /s/ Raymond A. Naimoli
- ---------------------------------- --------------------------------------
Witness Raymond A. Naimoli, as Trustee of the
Vincent J. Naimoli 1992 Insurance
Trust
Page -4-
<PAGE> 5
SCHEDULE A
JOHN HANCOCK LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Insured Policy Number Face Amount Issue Date
------- ------------- ----------- ----------
<S> <C> <C> <C>
Vincent J. Naimoli 85310001 $2,139,140* January 25, 1995
</TABLE>
* Initial Death Benefit
<PAGE> 1
EXHIBIT 10.9
COLLATERAL ASSIGNMENT OF SPLIT-DOLLARED POLICY
This Assignment is made this 26th day of March, 1996, by the
undersigned (herein called the "Trustee"), to Harvard Industries, Inc., Suite
960, 2502 N. Rocky Point Drive, Tampa, Florida 33607, a Delaware corporation
(herein called the "Corporation"), its successors and assigns.
1. The subject of this Assignment is a certain life insurance
policy, No. 850310-001, issued by the John Hancock Mutual Life
Insurance Company (herein called the "Insurer"), See Schedule
A of Agreement mentioned in Paragraph 2 below.
2. The Policy is subject to a Split-Dollar Life Insurance
Agreement Collateral Assignment Method (herein called the
"Agreement") dated March 26, 1996, between the Corporation and
Raymond A. Naimoli as Trustee of the Vincent J. Naimoli 1992
Insurance Trust (the "Trust"). The Agreement was created
pursuant to the terms of Section 4(b) of the Amended and
Restated Management and Option Agreement by and between the
Corporation and Anchor Industries International, dated August
16, 1995, as further amended January 30, 1996, benefit of
Vincent J. Naimoli. Such Agreement is hereby incorporated into
and made a part of this Agreement.
3. The Trustee hereby assigns, transfers, and sets over to the
Corporation the following specific limited rights in the
policy, and subject to the following terms and provisions:
(a) This Assignment is made, and the Policy is held as
collateral security for the premium advances to the
Trustee, now existing or hereafter made by the
Corporation under the terms of the Agreement.
(b) The Corporation's rights in the Policy are to the
extent of its interest in the Policy as stated in
Paragraph 2 of the attached Split Dollar Agreement.
4. The Corporation shall have a right to obtain from the Insurer
one or more loans or advances against its interest in the cash
surrender values of the Policy.
(a) The Corporation shall be responsible for the payment
of interest on any such loans by the Corporation
against such cash surrender values of the Policy
during the term of the Agreement.
(b) Such loans or withdrawals made by the Corporation
against (or from) the cash surrender values of the
Policy shall be treated as repayments of the
Corporation's premium advances by the Owner.
5. The Corporation shall have the right to be repaid to the extent
of its interest:
(a) in the event of the death of the Insured on the Policy.
(b) in the event the Policy is lapsed, canceled or
surrendered by the Trustee.
(c) in the event of the termination of the Split Dollar
Agreement.
Page -1-
<PAGE> 2
6. (a) The Corporation is strictly prohibited:
(1) from surrendering the Policy for cancellation; or
(2) from assigning its rights to any person other than to
the Trustee or to some other person as the Trustee
may direct; and
(3) in general, from taking any action which would
endanger the interest of the Trust or endanger the
payment of the death proceeds in excess of its
interest in the Policy.
(b) Notwithstanding any provisions of this Assignment to the
contrary, the Corporation shall, when its interest has been
satisfied by obligated to release this Assignment, or make a
reassignment of its interest in the Policy to the Trustee.
7. Except as specifically provided herein, the Trustee shall retain and
possess all other incidents of ownership in the Policy, including but
not limited to:
(a) the sole and exclusive right to cancel or surrender the Policy
for its cash surrender value, if any;
(b) the right to designate and change the beneficiary of the death
proceeds on the Policy; and
(c) the right to elect and exercise any optional mode of settlement
permitted by the Policy;
However, all rights retained by the Trustee shall be subject to the
terms and conditions of the Agreement.
8. The Insurer shall:
(a) have no duty or obligation to inquire into or investigate the
reason or validity of the Corporation's request to exercise
any of its rights hereunder, or whether the Trustee has notice
of it. The Insurer may treat any such request by the
Corporation as an affirmation that the request conforms to
this Assignment and the Agreement, and is thereby authorized
to act upon such requests;
(b) by fully protected in recognizing a request by the Trustee to
exercise any right of ownership, whether or not the Corporation
has notice of such request including but not limited to the
right to surrender the Policy.
9. Upon request, the Trustee shall forward the Policy to the Insurer for
endorsement of any designation or change of the Policy beneficiary, or
any election of an optional plan of payment of the proceeds. The
Trustee shall forward the Policy for these purposes without
unreasonable delay.
Page -2-
<PAGE> 3
10. The exercise of any right given herein to the Corporation, or retained
by the Trustee shall be solely at the option of each party respectively,
and shall not require notice or consent of one party to the other.
11. The Corporation shall release and reassign all of its specific rights in
the Policy transferred by this Assignment upon repayment of the premium
advances without unreasonable delay.
12. The Insurer is not a party to the Split Dollar Assignment.
IN WITNESS WHEREOF, this assignment is hereby executed this 26th day of March,
1996.
/s/ Ruth White /s/ Raymond A. Naimoli
- ----------------------------- ---------------------------------
Witness Trustee
Page -3-
<PAGE> 4
HARVARD INDUSTRIES, INC.
SPLIT DOLLAR INSURANCE SUMMARY
March, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash
Company & Issue Face Amount Premium/ Surrender
Policy No. Date & Plan Mode Value Owner Beneficiary
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VINCENT J. NAIMOLI
- ------------------
John Hancock 25-Jan-95 $2,272,280 $136,140 $160,177 Raymond A. Naimoli, Trustee $2,000,000 payable to the
85310001 Whole Life Annual Vincent J. Naimoli 1992 Vincent J. Naimoli 1992
Insurance Trust dated Insurance Trust dated
December 28, 1992 December 28, 1992
Balance payable to
Harvard Industries, Inc.~
</TABLE>
~Executed Split Dollar Agreement and Collateral Assignment outstanding
<PAGE> 1
EXHIBIT 10.10
DATE: 10/4/96
TO: MICHAEL POLICH
FROM: ROGER BURTRAW
SUBJECT: RETENTION BONUS
This is a "special bonus" agreement to pay you the sum of $250,000
should the Doehler-Jarvis Division or the Power Train Division be sold
separately.
To be eligible for this bonus, you must remain with Harvard Industries
throughout the effort to make such a sale and actively participate in the
process. If a sale is consummated, you will receive this payment within ten
(10) business days following the closing.
If you decide to remain with the buyer after such sale, this will be
considered a resignation not for good reason and would void your previously
agreed to Severance Agreement dated 9/17/96.
Should the entire company be sold prior to the sale of the
Doehler-Jarvis Division or the Power Train Division, your Severance Agreement
will supersede this agreement to pay a "special bonus and this agreement will
be void.
This agreement is not an agreement by the Company to retain your
services during this period.
This agreement is effective on this date and will expire at the end of
one (1) year unless renewed by the Company thirty (30) calendar days prior to
its expiration.
<PAGE> 1
EXHIBIT 10.11
DATE: 10/4/96
TO: DAVE STEGEMOLLER
FROM: ROGER BURTRAW
SUBJECT: RETENTION BONUS
The Company has approved a "special bonus" designed to retain your
services during any effort to sell the Powertrain Division of Harvard
Industries, or Harvard Industries. If you remain with Harvard Industries
throughout the effort to sell and a sale is consummated, you will receive a
bonus of $250,000 with necessary legal deductions ten (10) business days after
the closing.
To be eligible for this bonus, you must remain with Harvard Industries
throughout the effort to make such a sale and actively participate in the
process. If a sale is consummated, you will receive this payment within ten
(10) business days following the closing.
This is not an agreement by the Company to retain your services during
this period.
This agreement will be effective on this date and will expire at the
end of one (1) year unless renewed in writing by the Company thirty (30) days
prior to its expiration.
<PAGE> 1
EXHIBIT 10.14
Schedule to Exhibit 10.12
The Registrant entered into Severance Agreements in substantially the
form filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K with
the following named executive officers on September 17, 1996:
Roger L. Burtraw
Joseph J. Gagliardi
Michael L. Polich
These agreements are substantially identical to the form of Severance
Agreement filed as Exhibit 10.12, with the following exceptions:
Roger L. Burtraw's Severance Agreement provides for (i) a one-time
severance payment equal to three times the sum of his annual base salary, (ii)
outplacement services for three years following his termination, and (iii)
insurance benefits for Mr. Burtraw and his dependents for three years after his
termination.
<PAGE> 2
SEVERANCE AGREEMENT
THIS AGREEMENT, dated September 17, 1996, is made by and between
Harvard Industries, Inc., a Florida corporation (the "Company"), and
_______________________ (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in
this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2
hereof, the Term of this Agreement shall commence on the date hereof and shall
continue in effect through September 30, 1998; provided, however, that
commencing on October 1, 1997 and each October 1 thereafter, the Term shall
automatically be extended for one additional year unless, not later than June
30 of the preceding year, the Company or the Executive shall have given notice
not to extend the Term; and further provided, however, that if a Change in
Control shall have occurred during the Term, the Term shall expire no earlier
than twenty-four (24) months beyond the month in which such Change in Control
occurred.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there
<PAGE> 3
shall be deemed to have been) a termination of the Executive's employment with
the Company following a Change in Control and during the Term. This Agreement
shall not be construed as creating an express or implied contract of employment
and, except as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in the employ of
the Company.
4. The Executive's Covenants. The Executive agrees that, subject
to the terms and conditions of this Agreement, in the event of a Potential
Change in Control during the Term, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is six (6) months from the
date of such Potential Change of Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment
for Good Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term,
during any period that the Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to physical or mental
illness, the Company shall pay the Executive's full salary to the Executive at
the rate in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for
any reason following a Change in Control and during the Term, the Company shall
pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect immediately prior to the Date of Termination
or, if higher, the rate in effect immediately prior to the first occurrence of
an event or circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for
any reason following a Change in Control and during the Term, the Company shall
pay to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
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retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, if the Executive's
employment is terminated following a Change in Control and during the Term,
other than (A) by the Company for Cause, (B) by reason of death or Disability,
or (C) by the Executive without Good Reason, the Company shall pay the
Executive the amounts, and provide the Executive the benefits, described in
this Section 6.1 ("Severance Payments"), in addition to any payments and
benefits to which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to have
been terminated following a Change in Control by the Company without Cause or
by the Executive with Good Reason, if (i) the Executive's employment is
terminated by the Company without Cause prior to a Change in Control (whether
or not a Change in Control ever occurs) and such termination was at the request
or direction of a Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) the Executive
terminates his employment for Good Reason prior to a Change in Control (whether
or not a Change in Control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of such Person, or
(iii) the Executive's employment is terminated by the Company without Cause or
by the Executive for Good Reason and such termination or the circumstance or
event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever
occurs). For purposes of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to the Committee by clear
and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company
shall pay to the Executive a lump sum severance payment, in cash,
equal to two times the sum of (i) the Executive's base salary as in
effect immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the target bonus in
effect, pursuant to any annual bonus or incentive plan maintained by
the Company, for the fiscal year during which the Date of Termination
occurs or, if higher, for the fiscal year during which first occurs
an event or circumstance constituting Good Reason.
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(B) For the twenty-four (24) month period immediately
following the Date of Termination, the Company shall arrange to
provide the Executive and his dependents life, disability, accident
and health insurance benefits substantially similar to those provided
to the Executive and his dependents immediately prior to the Date of
Termination or, if more favorable to the Executive, those provided to
the Executive and his dependents immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, at no
greater cost to the Executive than the cost to the Executive
immediately prior to such date or occurrence; provided, however,
that, unless the Executive consents to a different method (after
taking into account the effect of such method on the calculation of
"parachute payments" pursuant to Section 6.2 hereof) such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this
Section 6.1 (B) shall be reduced to the extent benefits of the same
type are received by or made available to the Executive during the
twenty-four (24) month period following the Executive's termination of
employment (and any such benefits received by or made available to the
Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the Executive for
the excess, if any, of the cost of such benefits to the Executive over
such cost immediately prior to the Date of Termination or, if more
favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason. If the Severance Payments
shall be decreased pursuant to Section 6.2 hereof, and the Section
6.1(B) benefits which remain payable after the application of Section
6.2 hereof are thereafter reduced pursuant to the immediately
preceding sentence, the Company shall, no later than five (5) business
days following such reduction, pay to the Executive the least of (a)
the amount of the decrease made in the Severance Payments pursuant to
Section 6.2 hereof, (b) the amount of the subsequent reduction in
these Section 6.1(B) benefits, or (c) the maximum amount which can be
paid to the Executive without being, or causing any other payment to
be, nondeductible by reason of section 280G of the Code.
(C) Notwithstanding any provision of any annual or long-term
incentive plan to the contrary, the Company shall pay to the Executive
a lump sum amount, in cash, equal to the sum of (i) any unpaid
incentive compensation which has been allocated or awarded to the
Executive for a completed fiscal year or other measuring period
preceding the Date of Termination under any such plan and which, as of
the Date of Termination, is contingent only upon the continued
employment of the Executive to a subsequent date, and (ii) a pro rata
portion to the Date of Termination of the aggregate value of all
contingent incentive compensation awards to the Executive for all then
uncompleted periods under any such plan, calculated as to each such
award by multiplying the award that the Executive would
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have earned on the last day of the performance award period, assuming
the achievement, at the target level, of the individual and corporate
performance goals established with respect to such award, by the
fraction obtained by dividing the number of full months and any
fractional portion of a month during such performance award period
through the Date of Termination by the total number of months
contained in such performance award period.
(D) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor
plan thereto, the Company shall pay the Executive a lump sum amount,
in cash, equal to the excess of (i) the actuarial equivalent of the
aggregate retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight life
annuity commencing at the date (but in no event earlier than the
second anniversary of the Date of Termination) as of which the
actuarial equivalent of such annuity is greatest) which the Executive
would have accrued under the terms of all Pension Plans (without
regard to any amendment to any Pension Plan made subsequent to a
Change in Control and on or prior to the Date of Termination, which
amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if the Executive were
fully vested thereunder and had accumulated (after the Date of
Termination) twenty-four (24) additional months of service credit
thereunder and had been credited under each Pension Plan during such
period with compensation equal to the Executive's compensation (as
defined in such Pension Plan) during the twelve (19) months
immediately preceding Date of Termination or, if higher, during the
twelve months immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, over (ii) the actuarial
equivalent of the aggregate retirement pension (taking into account
any early retirement subsidies associated therewith and determined as
a straight life annuity commencing at the date (but in no event
earlier than the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive had
accrued pursuant to the provisions of the Pension Plans as of the Date
of Termination. For purposes of this Section 6.1(D), "actuarial
equivalent" shall be determined using the same assumptions utilized
under the Harvard Retirement Plan immediately prior to the Date of
Termination or, if more favorable to the Executive, immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason.
(E) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of
two years or, if earlier, until the first acceptance by the Executive
of an offer of employment; provided, however, that the Executive may
elect to receive a lump sum cash payment, payable no later than the
fifth day following the
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Date of Termination, in an amount equal to the value of one year of
such services.
6.2 (A) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Executive
in connection with a Change in Control or the termination of the Executive's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such Person)
(all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or
part), by the Company, an affiliate or Person making such payment or providing
such benefit as a result of section 280G of the Code, then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason of
section 280G of the Code in such other plan, arrangement or agreement), the
cash Severance Payments shall first be reduced (if necessary, to zero), and all
other Severance Payments shall thereafter be reduced (if necessary, to zero);
provided, however, that the Executive may elect to have the noncash Severance
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments.
(B) For purposes of this limitation, (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and
selected by the accounting firm which was, immediately prior to the Change in
Control, the Company's independent auditor (the "Auditor"), does not constitute
a "parachute payment" within the meaning of section 280G(b)(2) of the Code,
including by reason of section 280G(b)(4)(A) of the Code, (iii) the Severance
Payments shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in clauses (i) or (ii)) in their
entirety constitute reasonable compensation for services actually rendered
within the meaning of section 280G(b)(4)(B) of the Code or are otherwise not
subject to disallowance as deductions by reason of section 280G of the Code, in
the opinion of Tax Counsel, and (iv) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Auditor in accordance with the principles of sections 280G(d)(3) and (4)
of the Code.
(C) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Company in applying the terms of this Section 6.2, the
Total Payments paid to or for the Executive's benefit are in an amount that
would result
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in any portion of such Total Payments being subject to the Excise Tax, then, if
such repayment would result in (i) no portion of the remaining Total Payments
being subject to the Excise Tax and (ii) a dollar-for-dollar reduction in the
Executive's taxable income and wages for purposes of federal state and local
income and employment taxes, the Executive shall have an obligation to pay the
Company upon demand an amount equal to the sum of (i) the excess of the Total
Payments paid to or for the Executive's benefit over the Total Payments that
could have been paid to or for the Executive's benefit without any portion of
such Total Payments being subject to the Excise Tax; and (ii) interest on the
amount set forth in clause (i) of this sentence at the rate provided in section
1274(b)(2)(B) of the Code from the date of the Executive's receipt of such
excess until the date of such payment.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof shall be made not larer than the fifth day following the Date of
Termination; provided, however, that if the amounts of such payments, and the
limitation on such payments set forth in Section 6.2 hereof, cannot be finally
determined on or before such day, the Company shall pay to the Executive on
such day an estimate, as determined in good faith by the Company of the minimum
amount of such payments to which the Executive is clearly entitled and shall
pay the remainder of such payments (together with interest on the unpaid
remainder (or on all such payments to the extent the Company fails to make such
payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later
than the thirtieth (30th) day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at 120% of the rate provided in section 1274(b)(2)(B)
of the Code). At the time that payments are made under this Agreement, the
Company shall provide the Executive with a written statement setting forth the
manner in which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other advice the
Company has received from Tax Counsel, the Auditor or other advisors or
consultants (and any such opinions or advice which ar in writing shall be
attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after
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delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during
the Term, any purported termination of the Executive's employment (other than
by reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (3O) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) day,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not
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<PAGE> 10
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided, however, chat the Date of
Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given, until the Date of Termination, as
determined in accordance with Section 7.3 hereof. Amounts paid under this
Section 7.4 are in addition to all other amounts due under this Agreement
(other than those due under Section 5.2 hereof) and shall not be offset against
or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Section 6 hereof or
Section 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof) shall not be reduced by
any compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of 'he business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the.Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
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9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Harvard Industries, Inc.
2502 North Rocky Point Drive, Suite 960
Tampa, Florida 33607
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control by the Company other than for
Cause or by the Executive other than for Good Reason. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Delaware. All references to sections of
the Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for
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<PAGE> 12
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling. 12.1 Validity. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
12.1 Pooling. In the event that the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment then (A) this Agreement shall, to the extent practicable,
be interpreted so as to permit such accounting treatment, and (B) to the extent
that the application of clause (A) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), such provision
shall be null and void as of the date hereof. All determinations under this
Section 12.2 shall be made by the accounting firm whose opinion with respect to
"pooling of interests" is required as a condition to the consummation of such
transaction.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which hall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Committee and shall be in writing. Any denial by the Committee of a
claim for benefits under this Agreement shall be delivered to the Executive in
writing and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Tampa, Florida, in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrators award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the
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Executive shall be entitled to seek specific performance of the Executive's
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executives incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive pursuant to Section 7.1
hereof) after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's curies, or (ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of
this definition (x) no act, or failure to act, on the Executives part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure
to act, was in the best interest of the Company and (y) in the event of a
dispute concerning the application of this provision, no claim by the Company
that Cause exists shall be given effect unless the Company establishes to the
Committee by clear and convincing evidence that Cause exists.
(G) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities
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beneficially owned by such Person any securities acquired directly
from the Company or its affiliates) representing 25% or more of the
combined voting power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in connection
with a transaction described in clause (i) of paragraph (III) below;
or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was approved
or recommended by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on the date hereof or
whose appointment, election or nomination for election was previously
so approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
any subsidiary of the Company, at least 60\ of the combined voting
power of the securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no
Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the company (not including in the securities
Beneficially Owned by such Person any securities acquired directly
from the Company or its Affiliates other than in connection with the
acquisition by the Company or its Affiliates of a business)
representing 25% or more of the combined voting power of the Company's
then outstanding securities; or
(IV) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 75% of the combine voting
power of the voting securities of which are owned by
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<PAGE> 15
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer than three
in number) who, on the date six months before a Change in Control, constitute
the Compensation Committee f the Board, plus (ii) in the event that fewer than
three individuals are available from the group specified in clause (i) above
for any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or
individual previously so appointed under this clause (ii)); provided, however,
that the maximum number of individuals constituting the Committee shall not
exceed five.
(J) "Company" shall mean Harvard Industries, Inc. and, except in
determining under Section 15(E) , hereof whether or not any Change in Control
of the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in section
7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
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<PAGE> 16
(N) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(O) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.3 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (I), (V), (VI) or (VII) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent
with the Executives status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all
senior executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of
employment to a location more than 35 miles from the Executive its
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive to be based anywhere
other than such principal place of employment (or permitted relocation
thereof) except for required travel on the Company's business to an
extent substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the Executive any
portion of the Executive current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in
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<PAGE> 17
Control which is material to the Executive's total compensation,
including but not limited to the Harvard Management Incentive Plan and
the Harvard 1994 Stock Option Plan or any substitute plans adopted
prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company to continue
the Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount or timing of payment of benefits provided and the
level of the Executive's participation relative to other participants,
as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control
(except for across-the-board changes similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled on the basis of
years of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the Change in Control;
or
(VII) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executives employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(P) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
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<PAGE> 18
(Q) "Pension Plan" shall mean any tax-qualified, supplemental or
excess benefit pension plan maintained by the Company and any other plan or
agreement entered into between the Executive and the Company which is designed
to provide the Executive with supplemental retirement benefits.
(R) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14 (d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company.
(S) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control:
(II) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
either the then outstanding shares of common stock of the Company or
the combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred
(T) "Retirement" shall be deemed the reason for the termination by the
Executive of the Executives employment if such employment is terminated in
accordance with the Company's retirement policy, including early retirement,
generally applicable to its salaried employees.
(U) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(V) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
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<PAGE> 19
(W) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(X) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
HARVARD INDUSTRIES, INC.
By:
-------------------------------------
Name:
---------------------------
Title:
--------------------------
----------------------------------------
Executive
Address:
----------------------------------------
----------------------------------------
----------------------------------------
(Please print carefully)
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<PAGE> 1
EXHIBIT 12.1
HARVARD INDUSTRIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
DIVIDENDS ON PREFERRED STOCK
(In thousands of dollars)
<TABLE>
<CAPTION>
Year ended
-----------------------------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Pre-tax income from continuing operations...................................... $ (58,016) $ 20,679 $ 26,204
Add: Fixed charges.............................................................. 48,117 20,257 12,571
---------- ---------- ----------
Income as adjusted.............................................................. $ (9,899) $ 40,936 $ 38,775
========== ========== =========
Fixed charges:
Interest on indebtedness.................................................... $ 47,004 $ 19,579 $ 11,947
Portion of rents representative of the interest factor...................... 1,113 678 624
---------- ---------- ----------
Fixed charges............................................................... 48,117 20,257 12,571
Dividends on preferred stock and accretion...................................... 14,844 14,809 14,767
---------- ---------- ----------
Fixed charges and dividends on preferred stock.................................. $ 62,961 $ 35,066 $ 27,338
========== ========== ==========
Ratio of earnings over fixed charges and dividends
on preferred stock ......................................................... 1.17 x 1.42
========== ==========
Deficiency of earnings over fixed charges and
dividends on preferred stock................................................ $ (53,062)
==========
</TABLE>
<PAGE> 1
Exhibit 22
SUBSIDIARIES OF HARVARD INDUSTRIES, INC.
The Company and all active subsidiaries as of September 30, 1996, are
listed below, and are included in its consolidated financial statements:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation Percentage of Ownership
---- ----------------------------- -----------------------
<S> <C> <C>
Harman Automotive, Inc. Michigan 100%
Harman Automotive - Puerto Rico, Inc.* Delaware 100
Hayes-Albion Corporation Michigan 100
Harvard Transportation Corporation** Michigan 100
Trim Trends Canada Limited** Canadian 100
The Kingston-Warren Corporation New Hampshire 100
177192 Canada Inc. Canadian 100
Doehler-Jarvis, Inc. Delaware 100
Doehler-Jarvis Greeneville, Inc.** Delaware 100
Doehler-Jarvis Pottstown, Inc.*** Delaware 100
Doehler-Jarvis Technologies, Inc.*** Delaware 100
Doehler-Jarvis Toledo, Inc.*** Delaware 100
</TABLE>
- -------------------
* Subsidiary of Harman Automotive, Inc.
** Subsidiary of Hayes-Albion Corporation
*** Subsidiary of Doehler-Jarvis, Inc.
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Harvard Industries, Inc.
We consent to incorporation by reference in the registration statements (Nos.
33-90166 and 33-98748) on Form S-8 of Harvard Industries, Inc. of our report
dated November 11, 1994, related to the consolidated statements of operations,
shareholders' deficiency, and cash flows for the year ended September 30, 1994,
which report appears in the September 30, 1996 annual report on Form 10-K of
Harvard Industries, Inc.
KPMG Peat Marwick LLP
Tampa, Florida
December 26, 1996
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-90166 and 33-98748) of Harvard Industries, Inc.
of our report dated November 4, 1996 appearing on page F-2 of this Form 10-K.
Price Waterhouse LLP
Tampa, Florida
December 26, 1996
