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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, 1997
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)
3 WERNER WAY, LEBANON, NEW JERSEY 08833
(Address of principal executive offices) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (908) 437-4100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, par value $.01 per share Over the Counter Bulletin Board Market
Pay-In-Kind Exchangeable Preferred Stock, Over the Counter Bulletin Board Market
par value $.01 per share
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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 15, 1997, was $4,299,240 based on
the average bid and asked prices of the Common Stock in the Over the Counter
Bulletin Board Market on such date.
The number of shares outstanding of Registrant's Common Stock, as of
December 15, 1997, was 7,026,437.
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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 referenced above. Forward-looking
statements may include, but are not limited to, projections of revenues,
income or losses, capital expenditures, plans for future operations,
financing needs or plans, compliance with financial covenants in loan
agreements, plans for liquidation or 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 the bankruptcy proceedings,
the ability to obtain additional financing, including the Company's ability
to meet obligations as they become due, and other pending and possible
litigation, as well as assumptions relating to the foregoing. In addition,
when used in this discussion, the words "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and similar expressions are
intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, including, but not limited to, 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, 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. Statements in this Annual Report, particularly in
"Item 1. Business-Compliance with Environmental Laws," "Item 3. Legal
Proceedings" 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 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 ability to consummate successfully
negotiations looking towards defraying certain costs in connection with the
wind-down of the Toledo, Ohio facility, unanticipated developments in the
bankruptcy proceedings and the impact thereof, as well as other pending
litigation, and increases in borrowing costs.
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
unanticipated events.
ITEM 1. BUSINESS
Material Events
On May 8, 1997, Harvard Industries, Inc. (the "Company" or the
"Registrant") and its domestic subsidiaries (collectively the "Debtors")
filed voluntary petitions for relief under Chapter 11 of the Federal
bankruptcy laws in the United States Bankruptcy Court for the District of
Delaware (the "Court").
Under Chapter 11, holders of most claims arising prior to the filing of
the petitions for relief under the Federal bankruptcy laws are stayed from
collecting on such claims while the Debtors continue business operations as
debtors-in-possession ("DIP"). Additional claims may arise subsequent to the
filing date resulting from rejection of executory contracts, including
leases. Holders of pre-petition claims secured by liens against the Debtors'
assets ("secured claims") are also stayed from enforcing their rights as
secured creditors without leave of the Court.
The Debtors have received approval from the Court to pay or otherwise
honor certain pre-petition obligations, including certain employee wages,
salaries and other compensation, employee benefits, reimbursable employee
expenses and certain workers' compensation claims, as well as to continue
customer practices with respect to warranties, refunds and return policies.
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The Debtors have not yet filed with the Court any plans of reorganization.
Under the Bankruptcy Code, a debtor is given an exclusive period of 120 days
to file a plan of reorganization and 180 days to solicit acceptances to such
plan. These periods afforded to the Debtors under the Bankruptcy Code
initially expired on September 5, 1997 and November 4, 1997, respectively,
and have been extended by the Court from time to time. The Court has given
the Debtors until June 2, 1998 to formulate and file their plans of
reorganization, and until August 1, 1998 to solicit plan acceptances thereto.
In the event such plans are formulated and approved by the creditors and the
Court, continuation of the Debtors' business after reorganization is
dependent upon the success of future operations and the ability to meet
obligations as they become due. See "Item 3. Legal Proceedings" and Note 1 to
Consolidated Financial Statements for additional information.
Business
The Company 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").
In connection with the election of Mr. Roger G. Pollazzi as Chief
Operating Officer in November 1997, the Company has relocated its principal
executive offices to 3 Werner Way, Lebanon, New Jersey 08833. The terms
"Company" and "Registrant" as used herein mean Harvard Industries, Inc.
together with all of its subsidiaries, unless the context indicates
otherwise.
Consolidated net sales for the fiscal year ended September 30, 1997 were
$810.8 million as compared with $824.8 million of net sales for the fiscal
year ended September 30, 1996. Of such sales (i) approximately 43%, 33% and
7% were attributable to GM, Ford and Chrysler, respectively, for the fiscal
year ended September 30, 1997 and (ii) approximately 43%, 31% and 8% were
attributable to GM, Ford and Chrysler, respectively, for the fiscal year
ended September 30, 1996. The Company's automotive business sales represented
98% and 96%, respectively, of the consolidated net sales for the fiscal years
ended September 30, 1997 and September 30, 1996.
The Company conducts its automotive operations primarily through four
wholly owned direct subsidiaries, The Kingston-Warren Corporation
("Kingston-Warren"), Harman Automotive, Inc. ("Harman"), Hayes-Albion
Corporation ("Hayes-Albion"), and Doehler-Jarvis, Inc. ("Doehler-Jarvis").
Doehler-Jarvis, in turn, conducts it activities through four of its direct
subsidiaries, namely, Doehler-Jarvis Toledo, Inc. ("Toledo"), Doehler-Jarvis
Pottstown, Inc. ("Pottstown"), Doehler-Jarvis Greeneville, Inc.
("Greeneville") and Doehler-Jarvis Technologies, Inc. (collectively, the
"Doehler-Jarvis entities"). The Company's 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.
Strategic Alternatives
The Company has from time to time solicited investment banking services
for the purpose of exploring strategic financial alternatives to maximize the
value of its assets. These 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. Due to the
continuing losses, additional capacity problems and substantial capital
expenditures required for its operations generated by its Toledo subsidiary,
management has determined to wind down existing operations at the
subsidiary's Toledo, Ohio plant, or otherwise sell or dispose of that
facility. Both Ford and GM are negotiating with the Company to defray certain
expenses and assume certain obligations in connection with the wind-down. The
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Company is unable to estimate its costs with respect to the wind-down. The
Company plans to maintain the operations of Greeneville and Pottstown.
Although the Company has previously reported that it intended to sell all of
the Doehler-Jarvis entities, no offer has been received that has been deemed
acceptable by the Company.
The Company has, in furtherance of its intention to sell or dispose of
certain non-core businesses, sold the materials handling division of its
Kingston-Warren subsidiary in December 1997 to a non-affiliated party for an
aggregate cash consideration of $18 million, the proceeds of which were
applied to payment of the Company's indebtedness under its DIP Financing
Agreement. See "Post-Petition Loan and Security Agreement." In addition, the
Company continues to be desirous of selling or otherwise disposing of its
Harman subsidiary as well as its Harvard Interiors furniture business (which
are intended to be liquidated if not sold or otherwise disposed of by
February 1998). See "Item 2. Properties" regarding an agreement to sell the
real property of Harvard Interiors located in St. Louis, Missouri.
There can be no assurance that any transaction for the sale or disposition
of any of the above entities will be approved by the Company or will be
consummated.
OPERATIONS DESCRIPTION
Overview
Automotive component manufacturers, like the Company, are invited to bid
for specific products and component systems which are 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.
With respect to 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
supplier 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 factor for suppliers to the
automotive industry has changed from pure cost minimization to total program
management encompassing 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 of existing businesses.
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 is generally 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 supplied 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 the Farmington Hills 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 and reduced load
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times, thereby reducing the historically high labor content in the Company's
product costs. Furthermore, the Company, can mathematically test its product
designs prior to production, resulting in savings through the elimination of
numerous physical prototypes and 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. In 1995 and 1996, the Company
was the cooperative supplier on three major body sealing programs at GM.
Three additional programs (GMX230, GMT360 and GMX320) were ultimately awarded
to the Company in 1997.
Following the design of its products, the Company employs work cells and
synchronous manufacturing techniques to improve production efficiency.
Central to this approach is the emphasis on a "continuous improvement"
environment that enables employees to develop new and more efficient
manufacturing techniques.
AUTOMOTIVE INDUSTRY DEVELOPMENTS
The North American automotive parts supply business is composed of sales
to OEMs and the automotive aftermarket. The Company primarily sells products
to be installed as original equipment in new cars and trucks predominantly to
OEMs and to other OEM suppliers.
New Business Development
Historically, the U.S. Automakers furnished their suppliers with
blueprints and specifications for their required products and chose 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 necessary to bring the part to
production. The development cycle includes the design and engineering
function and 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, during which 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 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 abilities 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 on suppliers' cost and improving 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 to
pass on a portion of the benefit of productivity improvement in the form of
lower prices in exchange for multi-year supply agreements. These initiatives
have required suppliers to implement programs to lower their costs and reduce
component and system prices to the OEMs.
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.
OEMs are expected to continue to purchase integrated systems in order to
reduce the 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 15.5% in
1996.
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 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 a production level 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, production has risen to 15.2
million units for the 1996 calendar year, with comparable units projected for
calendar year 1997.
SUBSIDIARIES
The Kingston-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, followed by secondary procedures consisting
of trimming, notching, stretch bending and molding. Kingston-Warren
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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. Until November
1997, Kingston-Warren manufactured 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.
Doehler-Jarvis Entities
The businesses of the Doehler-Jarvis entities have operated since 1907.
The Doehler-Jarvis entities specialize in complex, high volume aluminum
castings primarily for use in the automotive industry. The Doehler-Jarvis
entities conduct operations primarily at three manufacturing facilities
located in Toledo, Ohio, Pottstown, Pennsylvania and Greeneville, Tennessee.
Management is proposing to wind down the Toledo, Ohio manufacturing
operation.
The automotive components manufactured by the Doehler-Jarvis entities
include automatic transmission cases and components, cylinder heads, cam
carriers, intake manifolds, front engine covers, water pumps and rack and
pinion housings. These 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 exposure
to production declines in any particular model, while providing some
resistance to an economic downturn due to consumer preference 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 in addition to its
proprietary DoehlerCore(Copyright) 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 the
Doehler-Jarvis entities amounted to $294.5 million for the year ended
September 30, 1997 and a gross margin loss was incurred in excess of $21.0
million, caused primarily by operational inefficiencies offset by curtailment
gains with respect to post-retirement obligations. The Company has
experienced a deficiency of earnings over fixed charges as a result of the
unprofitable operations of the Doehler-Jarvis entities and increased interest
costs. See Note 13 of Notes to Consolidated Financial Statements for
information regarding impairment charges.
The Greeneville plant utilizes a variety of advanced casting processes,
including sand casting, to produce high volume aluminum parts for the North
American automotive industry. The patented DoehlerCore(Registered Trademark)
process developed in 1980 is used to produce front engine covers for several
passenger cars including GM's new premium V-6 engine. Die cast oil pans are
shipped from the Greeneville facility to Toyota's Canadian plant which builds
the Camry. This facility also produces fully machined intake manifolds by the
semi permanent mold process which are ultimately used on GM's light trucks.
The Pottstown plant specializes in medium size aluminum die castings and
complements its casting capabilities with highly efficient machining centers.
It is the largest independent supplier of hypereutectic "390" alloy in North
America supplying heavy duty internal transmission and air compressor
castings. Recently, the plant's new 1600 ton squeeze casting machines began
producing the lower crankcase casting for GM's new premium V-6 engine.
In November 1997, GM notified Toledo that GM was resourcing the production
of V-6 engine blocks to other parties. The Toledo V-6 program was scheduled
to launch in late 1998, and would have constituted approximately 25% of the
operating revenues of Toledo when in full production.
Harman Automotive, Inc.
Harman has conducted business since 1934 and is a full-line producer of
outside rearview mirrors for use as original equipment by the U.S.
Automakers. Harman primarily designs and produces hand-
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controlled mirrors and remote-controlled mirrors, which are either cable or
electric operated, and a variety of door handles. The mirrors are either
molded plastic or die-cast zinc and are painted, fabricated and assembled
according to customer specifications at Harman's integrated facilities.
Harman's customers include GM and Chrysler. The Company's manufacturing
facility is located in Bolivar, Tennessee.
Harman notified GM that due to continuing losses it could not meet its
obligations under existing purchase orders. As a result, GM has notified
Harman that it was in the process of resourcing Harman's mirror business to
an alternative supplier.
Harman sales to Ford amounted to $16.0 million for the fiscal year ended
September 30, 1995 and fell to $3.4 million and $2.0 million in the fiscal
years 1996 and 1997, respectively. See "Strategic Alternatives" regarding the
sale or other disposition of Harman's business by February 1998. See Note 13
of Notes to Consolidated Financial Statements regarding charges for
impairment of Harman's long-lived assets.
Hayes-Albion Corporation
Hayes-Albion has conducted business since 1888 and engages in 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. 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. See Note 13 of Notes
to Consolidated Financial Statements regarding charges for impairment of
certain long-lived assets of the Tiffin plant.
Trim Trends
Trim Trends Division has conducted business since 1948 and 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
commencing in the 1999 Model Year and the other 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.
BACKLOG
The automotive business operates pursuant to purchase orders filled on a
current basis. As a result, the Company's business does not have backlog of
any material significance.
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
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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(Copyright) System expire in November 1998, while the
primary patents relating to the squeeze casting business expire in January
2008. The other patents held by Doehler-Jarvis expire at various times
through October 2017.
COMPETITION
The Company is subject to competition from many companies larger in size
and with greater financial resources and 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: Kingston-Warren: Standard Products, Gencorp
and B.T.R.; Hayes-Albion: Intermet, Grede, Schwitzer, Lunt and Racine; 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.
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 production. Such sales to automotive OEMs are made directly
by the Company's sales, customer service and engineering force. The Company's
sales and engineering personnel 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 through the life cycle of the product for
specific parts and components for a given model for a particular powertrain
or other mechanical component. These components are generally used across
several platforms or models. Purchase orders do not commit customers to
purchase any minimum number of components and are not necessarily dependent
upon model changes. Substantially all of the Company's sales are derived from
United States and Canadian sources.
EMPLOYEES
As of September 30, 1997 the Company employed 6,476 persons, most of whom
are involved in production and maintenance, with the balance engaged in
administration, sales and clerical work. This represents a decline of 517
persons from the 6,993 persons employed at September 30, 1996. Of such
employees, 2,823 or 43.6% are unionized. Many of the Company's production and
maintenance employees are covered by collective bargaining agreements with
various unions, with contracts expiring for 767 employees in 1998, for 1,662
employees in 1999 and for 412 employees in 2000. The Company believes that
its relations with its employees are satisfactory. Although the Company has
experienced some employee turnover since filing its voluntary bankruptcy
petition in May 1997 and expects future turnover as well, management does not
believe that the Company's operations will be materially adversely affected
by these developments.
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 renegotiations 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.
9
<PAGE>
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, 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;
and Trim Trends Division: Inland Steel. These suppliers furnish energy,
steel, glass, rubber, and paint to such subsidiaries. The Doehler-Jarvis
entities are not dependent on any individual supplier. Their principal raw
material is aluminum, which is purchased from multiple suppliers. Captive
aluminum processing operations enable the Doehler-Jarvis entities to purchase
less costly scrap aluminum and non-certified aluminum ingot and to refine the
metal to the required certified specifications. Their purchase orders with
their OEM customers provide for price adjustments related to changes in the
cost of aluminum.
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.
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, pursuant to federal
laws such as the Clean Air and Clean Water Acts, the Resource Conservation
and Recovery Act ("RCRA") and other solid waste management laws. Analogous
state laws also regulate the operations of the Company. During the past
several years, the Company has been named as a potentially responsible party
("PRP") by the United States Environmental 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.
The Doehler-Jarvis entities have 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.
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POST-PETITION LOAN AND SECURITY AGREEMENT
The Company and substantially all of the Company's subsidiaries entered
into a Post-Petition Loan and Security Agreement, dated as of May 8, 1997
(the "DIP Financing Agreement") with a group of lenders (the "DIP Lenders")
and The CIT Group/Business Credit, Inc., as Agent (the "Agent") and a DIP
Lender. The DIP Financing Agreement contemplates that the Company and such
subsidiaries receive financing during the Chapter 11 cases to continue to
operate their businesses as debtors-in-possession under the bankruptcy code.
The Court approved the DIP Financing Agreement in May 1997.
The DIP Financing Agreement provides up to a $175 million line of credit,
consisting of (i) revolving loans ("Revolving Loans") of up to $110 million
(including a letter of credit subfacility of $25 million) (the "Revolving
Credit Line"), subject to availability under a borrowing base formula
discussed below, and (ii) a $65 million term loan facility (the "Term
Loans"), which is allocated among the Company and such subsidiaries as set
forth in the DIP Financing Agreement. The commitments under the Revolving
Credit Line terminate, and all outstanding amounts of Revolving Loans become
due and payable on May 8, 1999, and Term Loans mature and become due and
payable on the earlier of consummation of a plan or plans of reorganization
concerning the Company or May 8, 1999.
The DIP Lenders are comprised of the pre-petition bank lenders under a
Financing Agreement, dated October 4, 1996. All of the pre-petition
indebtedness to the DIP Lenders outstanding at May 8, 1997 (the filing date
of the voluntary petitions in bankruptcy), amounting to $105.044 million, was
repaid to the DIP Lenders from borrowings under the DIP Financing Agreement.
As set forth above the total amount of outstanding Revolving Loans,
together with the stated amount of letters of credit, under the DIP Financing
Agreement is limited to $110 million in the aggregate and shall not exceed as
to the Company and each borrowing subsidiary the sum (less certain reserves)
of (i) 85% of the aggregate outstanding "eligible accounts receivable" of
such company, plus (ii) a specific percentage (which percentage is 60% 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. The standards for eligibility for accounts receivable and inventory
are set forth in the DIP Financing Agreement.
As security for payment of the Revolving Loans, letters of credit and
other obligations, including the Term Loans and applicable guarantees, the
Company and each borrowing subsidiary has granted to the Agent and the DIP
Lenders a first priority lien and security interest (subject to certain
specified superior liens) in and to substantially all of the property and
assets of the Company and such borrowing subsidiaries, and their estates,
real and personal, tangible and intangible, whether now owned or hereafter
acquired or arising and regardless of where located. Each of the Company and
borrowing subsidiaries is jointly and severally liable for the payment of all
obligations under the DIP Financing Agreement.
If the DIP Financing Agreement and the Revolving Credit Line are
terminated by the Company prior to May 8, 1998, an early termination fee must
be paid in an amount equal to 1.0% of the aggregate amount of the aggregate
line of credit.
Revolving Loans under the DIP Financing Agreement bear interest at the
prime rate of The Chase Manhattan Bank (as defined in the DIP Financing
Agreement) plus 1.5% per annum, or at the companies' option, LIBOR (as
defined in the DIP Financing Agreement) plus 3.5% per annum. The Term Loans
have an interest rate equivalent to prime plus 1.75% per annum. The DIP
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 DIP Lenders by the letter of credit issuing bank.
Further, the DIP 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, including a $1.375 million closing fee. The Term Loans are
repayable in quarterly installments of $3.25 million from November 30, 1997
through February 28, 1999, with a final payment of $45.5 million due on May
8, 1999 provided that repayment of the entire unpaid principal amount of the
Term Loans is due on any earlier date the line of credit is terminated.
The DIP Financing Agreement contains, among other things, covenants
restricting the ability of the borrowers, without the DIP Lenders' consent,
to sell or otherwise dispose of assets or merge, incur debt,
11
<PAGE>
pay dividends, repurchase or redeem capital stock and indebtedness, create
liens, make capital expenditures, make certain investments or acquisitions,
enter into transactions with affiliates and otherwise restrict corporate
activities.
The DIP Financing Agreement contained a covenant requiring a fixed charge
coverage ratio requiring the companies from and after October 1, 1997 to
maintain a ratio of EBITDA (defined as consolidated net income 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) to Fixed
Charges (as defined in the DIP Financing Agreement) from and after October 1,
1997, of 1:1 for the period from the beginning of the fiscal year to the end
of the most recently completed calendar month in such fiscal year for which
financial statements are available. The DIP Financing Agreement also
contained a covenant requiring the maintenance of a minimum amount of EBITDA
and restrictions on the amounts expended for capital expenditures. The
Company failed to meet the fixed charge ratio financial covenant during the
months of October and November 1997, and has obtained a waiver of such
default from its lenders. The Company and the lenders have amended the DIP
Financing Agreement to provide for monthly consolidated EBITDA and
consolidated tangible net worth covenants commencing calculations at December
31, 1997. The amended DIP Financing Agreement requires the lenders' consent
for capital expenditures in excess of $30 million for the year ending
September 30, 1998.
The DIP 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 and representations and warranties
and any cessation of the collateral creating a valid lien or suffering a
Material Adverse Change (as defined in the DIP Financing Agreement). Upon the
occurrence and continuance of an event of default under the DIP 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.
As of September 30, 1997, the Company and the borrowing subsidiaries
referred to above borrowed an aggregate amount of $99.8 million, of which
$64.0 million was borrowed as Term Loans and $23.4 million was borrowed as
Revolving Loans. In addition, an aggregate amount of $12.7 million of letters
of credit (principally stand-by) was issued and outstanding under the
Revolving Credit Line.
The Company has been in negotiations with certain of its creditors to
obtain a $25 million subordinated term loan, for a period maturing not later
than the date on which there is consummated a plan of reorganization for the
Company under Chapter 11. The proceeds of the subordinated term loan are
intended to be applied to reduce outstanding indebtedness under the Company's
revolving credit pursuant to the DIP Financing Agreement, thereby permitting
the Company to increase its liquidity under the revolving credit loan.
Although the terms of the subordinated term loan remain subject to
negotiation, and there are no assurances of its consummation, there is an
agreement in principle to pay $2.5 million of facility and funding fees, and
for the loan to bear interest at a rate per annum equal to the greater of 13%
or the highest per annum interest rate for term and revolving credit loans
under the DIP Financing Agreement plus 3%. The new term loan obligation will
be subordinate to the liens under the DIP Financing Agreement and will be
collateralized by all assets previously pledged to the lenders under the DIP
Financing Agreement. It is contemplated that upon consummation of the new
subordinated term loan, the DIP Financing Agreement will be amended to reduce
the required collateral availability reserve thereunder from $22.0 million at
January 1, 1998 to $15.0 million (and to $5.0 million if certain events
materialize). See Note 9 of the Notes to Consolidated Financial Statements.
For information concerning other obligations, including the Company's
indentures, capital leases, and indebtedness, as well as its outstanding
Pay-In-Kind Exchangeable Preferred Stock ("PIK Preferred Stock"), see Note 10
and Note 21 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
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<PAGE>
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 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, 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
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<PAGE>
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.
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.
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<PAGE>
The Company has not determined the impact of the bankruptcy filing upon
the Stockholders Rights Plan.
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 (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., certain affiliated companies and Mr. John Adams,
certain of whom are Company shareholders. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management." 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.
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 contributed $24.0
million through September 30, 1997 to the Company's pension plans. See Note
19 of the Notes to Consolidated Financial Statements.
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, subject to bankruptcy
considerations, the PBGC will have certain rights, including the right to
declare all additional contributions immediately due and payable. Subject to
bankruptcy considerations, 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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<PAGE>
ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased space at 3
Werner Way, Lebanon, New Jersey 08833. The principal properties of the
Company include its production facilities, all of which are owned by the
Company and its subsidiaries except for the real property in Ripley,
Tennessee and, upon consummation of a transaction to sell its St. Louis
facility, the leasing of real property thereat. 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. 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 between 60.0% and
100.0% of capacity 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 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......... Rock Valley, Iowa Manufacturing plant 86,000
Hayes-Albion......... Ripley, Tennessee Manufacturing plant (1) 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, 321,000
and office building (2)
Harvard Interiors ... Arnold, Missouri Assembly plant 31,400
</TABLE>
- ------------
(1) The land underlying this facility is leased through August 30, 1999.
(2) The Company entered into an agreement in November 1997 to sell this
property; a closing is anticipated by early January 1998.
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:
Bankruptcy Proceedings
As a result of the filing of voluntary petitions under Chapter 11 of the
United States Bankruptcy Code by each of the Company and certain of its
subsidiaries, it is anticipated that claims will be asserted
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<PAGE>
in excess of those amounts set forth in the Debtors' books and records, and
that the Company and such subsidiaries will dispute and file objections to
certain of such claims. The Company's management cannot express any opinion
as to the likelihood of an outcome respecting any claims asserted or to be
asserted in the Chapter 11 cases, including claims resulting from the
assumption or rejection of leases and executory contracts and various
reclamation claims. The Court has established February 9, 1998 as a bar date
by which time all proofs of claim must be filed against the Debtors or be
forever barred from assertion.
ESNA -- Specialty Fasteners
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 had
conducted business since 1934 and 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. In 1996 the Company wrote down
the ESNA facility to nominal net realizable value, including continuing costs
of carrying and cleaning up this facility and 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 three 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 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 took 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.
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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. It is
believed that any such civil damages would constitute pre-petition unsecured
claims against the Company.
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 destroyed during retesting,
credits were issued to affected customers' accounts. At September 30, 1997
the accrued costs totaled $4.8 million, which represented 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.
The Company is unable at this time to determine the effect, if any, of the
bankruptcy filing upon the ESNA matter.
Environmental Matters
The Company may incur liability for alleged environmental damage
associated with past off-site waste disposal practices. Generators of
hazardous substances who place the substances in disposal sites at which
environmental problems are alleged to exist, 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, the
EPA has sought compensation and remedial action from waste generators, site
owners and operators, and others under CERCLA, which authorizes such action
by the 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 the 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"), 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 the EPA, although it was named as a PRP in conjunction with settlement
proceedings and consent decree.
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There are currently two phases of administrative proceedings in progress.
The first phase, known as Operable Unit I ("OUI"), involves a Unilateral
Order by the EPA that the named PRPs implement the Vega Alta Site remedy
chosen by the 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, the 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. In June 1995 the parties agreed that
the total amount due from Harman to West and Motorola was $557,297, payable
in twenty equal quarterly installments. Payments were proceeding; however,
due to the current bankruptcy proceedings, payments have been suspended
pending determination by the Court as to the treatment of such obligation. As
of September 30, 1997 Harman's remaining share of costs owed to West and
Motorola was approximately $286,000.
As to Harman's share of all other costs, 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 the 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 the EPA under
OUI, and to conduct any further work required under OUI investigatory and
cleanup requirements concerning further phases of work at the Vega Alta Site.
Harman's settlement payment to General Electric was being made in 20 equal
quarterly installments that commenced in January 1995 with 9% interest per
annum. As a result of Harman's bankruptcy filing in May 1997 such payments at
September 30, 1997 (which amounted to principal and interest of approximately
$560,000) have been suspended pending direction from the Court. 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. Harman has
received oral notice from counsel for the owners, advising that a lawsuit was
being filed for the owners. To date, Harman has not been served with a copy
of a complaint.
On December 8, 1997 the EPA issued an amendment to its cleanup
requirements, together with a supplemental statement of work required at the
Vega Alta site. Harman has notified General Electric that it expects General
Electric to comply with the EPA's further requirements pursuant to the
settlement agreement among the PRPs.
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
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from the manufacturing processes; they were proposed for inclusion on EPA's
National Priorities List in October 1984. The 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 nine
installments have been paid through May 7, 1997. 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. The most recent accounting summary
provided by ARCO indicates that total costs are expected to be in the range
of $20.0 million. Due to the current bankruptcy proceedings, payments to
ARCO, pursuant to the settlement agreement, have been suspended pending
direction from the Bankruptcy Court.
American Littoral Society. By letters dated June 4, 1996 and September
30, 1996 the American Littoral Society, a public interest group operated
through the Environmental Law Clinic of the Widener University School of Law,
sent notices 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. In
February 1997 a lawsuit was filed by the American Littoral Society against
the Company in the U.S. District Court of the Eastern District of
Pennsylvania. 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") was not capable of achieving routine compliance
with certain discharge limitations, including limits for phenol, oil and
grease and total dissolved solids. The Pottstown plant had been attempting to
solve this problem by arranging to convey its effluent to the Pottstown
Publicly Owned Treatment Works. In March 1997, the Pennsylvania Department of
Environmental Protection filed an action against the Company seeking
penalties, and the action was settled by the Company entering into a Consent
Decree in March 1997. Pursuant to the settlement, Doehler-Jarvis is required
to construct a wastewater recycling system by December 31, 1997 that
eliminates discharges to the Schuylkill river and to undertake various other
minor projects addressing potential pollution at the facility. In addition,
the Company agreed to pay civil penalties of $1.125 million, of which
$375,000 may be allocated to the costs of installing the new system and
$50,000 may be allocated to the cost of pollution prevention. The Consent
Decree subjects the Company to penalties if construction milestones for the
wastewater recycling system are not met and if agreed upon discharge limits
are violated. Doehler-Jarvis has met its construction schedule, but the
$1.125 million penalty has not been paid, since it is a pre-bankruptcy
petition liability.
West Jackson Groundwater Contamination Site. The Hayes-Albion facility in
Jackson, Michigan is located within a regional area of groundwater
contamination designated as "West Jackson Groundwater Contamination Site"
("Site"). Hayes-Albion has completed several investigations on its property
since 1989 to assist in defining the nature and source of the chlorinated
solvent contamination at the Site. The Company believes that the results,
which have been submitted to the Michigan Department of Environmental Quality
("MDEQ"), establish that the Hayes-Albion facility is not the source of the
contamination, and that the contaminants are migrating onto the Hayes-Albion
property from another source. On August 25, 1997, however, MDEQ notified the
Company that it is a responsible person as defined in the Michigan natural
Resources and Environmental Protection Act. MDEQ has also orally
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indicated that it will be seeking reimbursement of past costs from
Hayes-Albion, together with a commitment to remediate the contamination. The
future investigation, remediation and oversight costs are unknown at this
time. Hayes-Albion denies that it is responsible for the contamination and
intends to vigorously defend this action.
Other Environmental Matters. As of September 30, 1997 and in addition to
the above matters, 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).
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 $8.7 million
as of September 30, 1997, of which approximately $6.0 million is reflected in
the caption "Liabilities subject to Compromise" in the Consolidated Financial
Statements. See Note 17 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, and proceedings have been stayed since the Company's
bankruptcy filing, nevertheless, 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. The Company believes that any claim arising out of
this matter constitutes a pre-petition unsecured claim against the Debtors.
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, 1997 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 Over-the-Counter Bulletin
Board of NASDAQ since March 17, 1997 under the symbol "HAVAQ." Prior to that
time, the Common Stock was traded on the NASDAQ National Market. The table
below sets forth the high and low bid quotations for the Company's Common
Stock from October 1, 1995 through September 30, 1997. These bid prices,
which were obtained from NASDAQ Trading and Market Services, represent prices
between dealers without adjustment for retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
COMMON STOCK PRICE RANGE
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ------------------ ---------- ---------
<S> <C> <C>
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
1997:
First Quarter ..... $10.875 $ 2.75
Second Quarter(1) $ 4.500 $ 0.6875
Third Quarter ..... $ 1.1875 $ 0.4375
Fourth Quarter ... $ 0.96875 $ 0.28125
</TABLE>
- ------------
(1) Reflects prices on NASDAQ National Market to March 17, 1997, and on the
Over-the-Counter Bulletin Board from that date to March 31, 1997.
On December 15, 1997, the closing bid and asked prices per share for the
Common Stock were $0.65625 and $0.84375, respectively. On December 15, 1997
there were approximately 144 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 DIP Financing Agreement, from paying cash dividends on its
Common Stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/97 9/30/96 9/30/95 (3) 9/30/94 9/30/93
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................................................ $ 810,769 $ 824,837 $ 631,832 $ 614,952 $ 583,063
Cost of sales.................................................... 797,774 776,141 557,340 543,532 553,465
------------ ------------ ----------- ----------- ------------
Gross profit..................................................... 12,995 48,696 74,492 71,420 29,598
Selling, general and administrative expenses .................... 45,822 42,858 33,037 32,217 36,381
Interest expense (4) ............................................ 36,659 47,004 19,579 11,947 15,450
Impairment and restructuring charges (5) ........................ 288,545 -- -- -- 40,711
Amortization of goodwill ........................................ 8,448 15,312 2,986 1,584 2,592
Other (income) expense, net (6) ................................. 5,530 1,538 (1,789) (532) 8,649
------------ ------------ ----------- ----------- ------------
Income (loss) from continuing operations before reorganization
items, income taxes and extraordinary item ..................... (372,009) (58,016) 20,679 26,204 (74,185)
Reorganization items ............................................ 16,216 -- -- -- --
------------ ------------ ----------- ----------- ------------
Income (loss) from continuing operations before income taxes
and, extraordinary item ........................................ (388,225) (58,016) 20,679 26,204 (74,185)
Provision (benefit) for income taxes............................. 1,204 3,196 11,566 9,536 1,955
------------ ------------ ----------- ----------- ------------
Income (loss) from continuing operations before extraordinary
item............................................................ (389,429) (61,212) 9,113 16,668 (76,140)
Loss from discontinued operations, net of tax (2)................ -- (7,500) -- (9,038) (54,409)
------------ ------------ ----------- ----------- ------------
Income (loss) before extraordinary item ......................... (389,429) (68,712) 9,113 7,630 (130,549)
Extraordinary item............................................... -- -- (2,192) -- --
Cumulative effect of change in accounting for postretirement
benefits other than pensions ................................... -- -- -- -- --
------------ ------------ ----------- ----------- ------------
Net income (loss)................................................ $ (389,429) $ (68,712) $ 6,921 $ 7,630 $ (130,549)
PIK preferred dividends and accretion (7)........................ $ 10,142 $ 14,844 $ 14,809 $ 14,767 $ 12,769
------------ ------------ ----------- ----------- ------------
Net loss attributable to common stockholders .................... $ (399,571) $ (83,556) $ (7,888) $ (7,137) $ (143,318)
============ ============ =========== =========== ============
Ratio of earnings to fixed charges (8)........................... n/a n/a 1.17x 1.42x n/a
SHARE DATA:
Earnings (loss) per share of common shares and common equivalent
shares:
PRIMARY
Income (loss) from continuing operations ........................ $ (56.91) $ (10.87) $ (0.82) $ 0.28 $ (13.48)
Loss from discontinued operations ............................... -- (1.07) -- (1.31) (8.26)
Extraordinary item .............................................. -- -- (0.32) -- --
------------ ------------ ----------- ----------- ------------
Net loss......................................................... $ (56.91) $ (11.94) $ (1.14) $ (1.03) $ (21.74)
============ ============ =========== =========== ============
Weighted average number of shares and equivalents................ 7,020,692 6,999,279 6,894,093 6,875,267 6,593,407
============ ============ =========== =========== ============
FULLY DILUTED
Income (loss) from continuing operations ........................ $ (56.91) $ (10.87) $ (0.82) $ 0.27 $ (13.48)
Loss from discontinued operations ............................... (1.07) -- (1.28) (8.26)
Extraordinary item .............................................. -- -- (0.32) -- --
------------ ------------ ----------- ----------- ------------
Net loss......................................................... $ (56.91) $ (11.94) $ (1.14) $ (1.01) $ (21.74)
============ ============ =========== =========== ============
Weighted average number of shares and equivalents ............... 7,020,692 6,999,279 6,894,093 7,041,324 6,593,407
============ ============ =========== =========== ============
FINANCIAL RATIOS AND OTHER DATA:
Depreciation and amortization ................................... $ 60,186 $ 65,658 $ 34,856 $ 29,855 $ 34,280
Cash flows from continuing operations ........................... 12,877 2,090 25,051 87,324 54,749
Capital expenditures ............................................ 36,572 40,578 22,080 10,141 13,918
Cash flows (used) provided by investing activities .............. (35,988) (48,224) (226,769) (12,207) (14,310)
Cash flows (used) provided by financing activities .............. 31,216 27,316 161,283 (30,348) (35,589)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency)(9).................................. $ 2,096 $ (7,158) $ 19,417 $ 30,333 $ (59,138)
Total assets .................................................... 307,494 617,705 662,262 387,942 364,853
Liabilities subject to compromise ............................... 397,319 -- -- -- --
DIP Financing, including current portion ........................ 87,471 -- -- -- --
Long-term debt, including current portion ....................... 14,087 360,603 324,801 113,381 117,494
PIK preferred stock ............................................. 124,637 114,495 99,651 99,841 95,074
Shareholders' (deficiency) ...................................... $ (547,128) $ (145,724) $ (62,206) $ (59,032) $ (60,813)
</TABLE>
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(1) On May 8, 1997, the Company and substantially all of its subsidiaries
filed voluntary petitions for relief under Chapter 11 of the federal
bankruptcy laws. See Note 1 to the Consolidated Financial Statements.
(2) The Company, in the first quarter of fiscal 1994, decided to
discontinue its then specialty fastener segment (ESNA) and therefore
applied the accounting guidelines for discontinued operations.
Accordingly, all prior period financial statements were 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. In 1996, the Company recorded a $7,500
charge to discontinued operations representing the write-down of the
ESNA facility and continuing carrying costs. See Note 4 to the
Consolidated Financial Statements.
(3) Includes the results of operations of the Doehler-Jarvis entities from
July 28, 1995, the effective date of acquisition.
(4) Interest expense does not include interest after May 7, 1997 amounting
to $13,605 on the 12% and 11 1/8% Senior Notes. See Note 1 to the
Consolidated Financial Statements.
(5) During 1997, the Company recorded charges for impairment of long-lived
assets of the Doehler-Jarvis entities and at two other plants. The
Company also recorded restructuring charges related to two operations
scheduled for closing. See Note 13 to the Consolidated Financial
Statements. Additionally, the Company recorded restructuring and other
charges in the fourth quarter of fiscal 1993 aggregating $40,711. No
tax benefit is currently available for all of these charges.
(6) Other (income) expense, net includes approximately $2,200 related to
joint venture losses in 1997. 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) PIK Preferred dividends after May 7, 1997 do not include $6,749 of
accrued dividends.
(8) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations before
provision for income taxes and extraordinary item 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,
1997, 1996 and 1993 by $398,367, $53,062, and $86,954, respectively.
Earnings were sufficient to cover fixed charges for the years ended
September 30, 1995 and 1994 by $5,870 and $11,437, respectively.
(9) 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Sales. Consolidated sales decreased $14,068 from $824,837 to $810,769, or
1.7%. Aggregate sales for Harman Automotive, the furniture production line of
Harvard Interiors, Toledo and the Material Handling Division of
Kingston-Warren, each of which has been designated for sale ("Operations
designated for sale or wind-down"), decreased approximately $35,574 from
$251,442 to $215,868 (including $5,700 due to a decline in average aluminum
prices, the benefit of which was passed on to customers). The remaining
operations sales increased $21,506 from $573,395 to $594,901 due to a higher
demand for its products.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales (the "gross profit margin") decreased from 5.9% to 1.6%, after
recording curtailment gains with respect to post-retirement obligations of
$8,249 in 1997. The decrease was due primarily to operational inefficiences
at most of the Company's operating units, price reductions and from
unfavorable comparisons relative to tooling margins and long-term contract
recoveries. The gross profit (loss) for Operations designated for sale or
wind-down amounted to $(14,952) and $12,312 in 1997 and 1996, respectively,
and the change represents 76% of the consolidated decrease in gross profits.
The remaining operations gross profit decreased from $36,384 to $27,947.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2,964, due principally to charges in
excess of $3,000 in the second quarter, primarily related to the Termination,
Consulting and Release Agreement dated February 12, 1997 with Mr. Vincent J.
Naimoli, the former Chairman of the Board, President and Chief Executive
Officer of the Company.
24
<PAGE>
Interest Expense. Interest expense decreased from $47,004 to $36,659.
However, but for giving effect to the discontinuance of accruing interest on
the senior notes of $13,605 after May 7, 1997 interest expense increased by
$3,260. This increase resulted from increased borrowings under financing
agreements.
Amortization of Goodwill. The decrease of $6,864 in goodwill amortization
occurred because goodwill amortization related to Doehler-Jarvis ceased March
31, 1997, when such goodwill was written-off as impaired.
Other (Income) Expense, Net. The increase of $3,992 was mainly due to an
increase in loss on disposal of machinery and equipment and losses from a
joint venture.
Impairment of Long-Lived Assets and Restructuring Costs. As a result of
continuing losses and projections of future operations and cash flows, the
Company recorded charges in 1997 of $288,545 reflecting the permanent
impairment of long-lived assets at its Doehler-Jarvis and Harman Automotive
subsidiaries and one plant. The goodwill portion of this charge is $114,385.
See Note 13 to the Consolidated Financial Statements. Operations designated
for sale accounted for approximately $101,000 of the impairment charge.
Reorganization items. As a result of the bankruptcy, the Company adjusted
the senior notes to the amount of its allowed claim with a charge to
operations of $10,408. In addition, the Company incurred professional fees in
the amount of $5,828.
Provision for Income Taxes. The decrease in the provision for income taxes
resulted from a decrease in operating profit in Canada.
Net Loss. The net loss increased from $68,712 to $389,429 for the reasons
described above.
1996 COMPARED TO 1995
Sales. Excluding the 1996 and 1995 Doehler-Jarvis sales, consolidated
sales decreased $57,388, primarily 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 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 certain products 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 significant 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 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.
25
<PAGE>
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, continuing 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.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended September 30, 1997 and 1996, the Company had cash
flows from continuing operations of $12,877 and $2,090, respectively. The
1997 cash flows were enhanced by the Court stay relating to the payment of
pre-petition liabilities and by more rapid payment terms by a major customer,
but were negatively affected by payments of reorganization items and advance
and accelerated payments to post-petition suppliers. The cash flow from
operations in 1997 was used primarily to fund working capital needs and to
fund a portion of the capital expenditures. Net borrowings under financing
agreements during 1997 were used to fund the balance of the investing
activities, to fund pension payments of $6,000 pursuant to the PBGC settlement
agreement and EPA payments of $1,570, and to fund $7,682 of long-term debt
payments.
The Company has been in negotiations with certain of its creditors to
obtain a $25,000 subordinated term loan, and there is no assurance that such
loan will be successfully consummated. Projected cash flows for 1998
contemplate reorganization items of $15,000 to be paid, resulting in a
negative cash flow from continuing operations. Since capital expenditures of
$38,000 are contemplated for 1998 (although lenders' consent is required for
such expenditures in excess of $30.0 million), it is necessary for the
Company to borrow under the DIP Financing Agreement and proposed $25,000
subordinated term loan for this purpose. However, giving effect to proceeds
from asset sales and other dispositions, as well as the increased borrowing
availability under the DIP Financing Agreement provided by the proposed
$25,000 subordinated term loan, management anticipates having sufficient
liquidity to conduct its activities during the Chapter 11 period.
The Company is required to make principal payments of an aggregate of
$13.0 million in quarterly installments under the DIP Financing Agreement.
See Note 28 of Notes to Consolidated Financial Statements for satisfaction of
the first three quarterly payments, commencing November 30, 1997 as a result
of asset sales. The Company had a deficiency of earnings over fixed charges
and dividends on preferred stock of $398,367 and $53,062 in 1997 and 1996,
respectively.
CAPITAL EXPENDITURES
Capital Expenditures. Company expenditures for property, plant and
equipment during 1997 and 1996 were $36,572 and $40,578, respectively,
principally for machinery and equipment required in the
26
<PAGE>
ordinary course of operating the Company's business. The Company is currently
projecting to spend approximately $38,000 principally for machinery and
equipment in 1998. The projected capital expenditures are required for new
business and 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, as well as the need to obtain
lenders' consent to capital expenditures in excess of $30.0 million for the
year ending September 30, 1998.
Tax Loss Carryforwards. At September 30, 1997, the Company had available
net operating loss carryforwards and general business tax credits of
approximately $246,000 and $1,300, respectively, for federal income tax
purposes. Carryforwards expire in the years 2002 through 2012 and
approximately $67,000 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, 1997 is approximately $37,000 and $13,000 which
may be carried forward and utilized in subsequent years. The reorganization
of the Company may have a significant impact on the income tax liability of
the Company in future years. The Internal Revenue Code requires certain
reductions and/or limitations in the amount of net operating loss deduction
and general business credits available for utilization if a substantial
change in ownership or forgiveness of debt occurs. Due to the complexity of
the tax laws involved and uncertainties relating to a final plan of
reorganization, the actual tax effects will not be known until such a final
plan of reorganization is approved.
ESNA. The Company believes that the 1998 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
and costs associated with the Company's ongoing participation in the
Department 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. The Company is unable to determine the effect, if any, of the
bankruptcy filing on the ESNA matter.
Year 2000 Compliance. Certain of the Company's information systems are not
presently compliant with the requirements of the year 2000. The Company has
committed the resources necessary to ensure that its critical information
systems and technology infrastructure are "Year 2000 Compliant" before
transactions for the year 2000 are expected. Certain of the Company's systems
will be replaced with an "Enterprise Resource Planning" (ERP) solution, which
the Company intends to implement shortly and will be Year 2000 compliant and
provide the Company with significantly enhanced manufacturing and business
systems capability.
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.
27
<PAGE>
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, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ----- --------------------------------------------------
<S> <C> <C>
John W. Adams 54 Chairman of the Board and Chief Executive Officer
Michael Hoffman 47 Director
Craig Scott Bartlett, Jr. 64 Director
General Joseph P. Hoar 62 Director
Bruce D. Broussard 35 Director
Roger G. Pollazzi 60 Chief Operating Officer
Roger L. Burtraw 57 President
Joseph J. Gagliardi 58 Senior Vice President, Finance and Chief Financial
Officer
Richard T. Dawson 52 Senior Vice President--Law and Administration and
General Counsel
Brian D. Benninger 50 Senior Vice President
David L. Kuta 53 Senior Vice President
David C. Stegemoller 56 Senior Vice President
William J. Warren 60 Vice President and Chief Accounting Officer
Arnold M. Sheidlower 63 Vice President, Associate General Counsel and
Secretary
Marston J. Fortress 54 Vice President and Controller
Douglas D. Rossman 47 Vice President--Purchasing
</TABLE>
Mr. John W. Adams was elected a Director in October 1994, and was elected
as Chairman of the Board and Chief Executive Officer of the Company in
February 1997. He was Chairman of the Board of Regency Health Services, Inc.,
a national chain of nursing homes and provider of long-term health services,
from January 1996 to October 1997. He has been President of Smith Management
Company, an investment firm, since 1984. 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. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management."
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 & 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 NVR Inc., a home builder, MTB
Bank, Janus, Inc., (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
28
<PAGE>
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. Bruce D. Broussard has been a director of the Company since April
1997. He has been a Chief Executive Officer of Harbor Dental Company, a
dental practice management company, since December 1997. He was Executive
Vice President and Chief Financial Officer of Regency Health Services, Inc.,
a national chain of nursing homes and provider of long-term health services,
from January 1996 to October 1997. For the period from 1993 to 1996 he was
Chief Financial Officer and director of Sun Health Care Group, a health care
provider, and prior thereto be served as Vice President and Treasurer of
Continental Medical Systems, a health care provider, and in various positions
with the national accounting firms of Arthur Andersen & Co. and Price
Waterhouse & Co.
Mr. Roger G. Pollazzi was elected Chief Operating Officer of the Company
in November 1997. He was associated with Concord Investment Partners, an
investment firm headquartered in Concord, Massachusetts, from 1996 to October
1997. From 1992 to 1996, Mr. Pollazzi was Chief Executive Officer and
Chairman of The Pullman Company, an automotive parts manufacturer.
Mr. Roger L. Burtraw has been President of the Company since February
1997. From August 1995 to February 1997 he had been an Executive Vice
President of the Company. 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.
Mr. Joseph J. Gagliardi, prior to his election as Senior Vice President,
Finance and Chief Financial Officer in February 1993, has been Vice
President, Finance and Chief Financial Officer since 1980.
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. 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. 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. 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.
Mr. Arnold M. Sheidlower has been an officer of the Company since August
1992. He has been 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, prior to which he has been controller. He has been an 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.
29
<PAGE>
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. Broussard, Bartlett and Hoffman 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,
1997 were held on November 14, 1996, April 28, 1997 and August 7, 1997. The
Audit Committee is responsible for meeting with the Company's auditors and
reviewing recommendations. A meeting of the Compensation Committee during the
fiscal year ended September 30, 1997 was held on November 14, 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.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Shown below is information concerning the cash and noncash compensation
for the fiscal years ended September 30, 1997, 1996 and 1995 awarded to or
earned by the current and former Chief Executive Officers 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>
John W. Adams 1997 $ 250,000(2) -- -- --
Chairman of the Board 1996 -- -- -- --
and Chief Executive Officer 1995 -- -- -- --
Vincent J. Naimoli 1997 519,879(3) -- -- --
Former Chairman of the Board, 1996 1,202,807(3) -- -- --
President and Chief 1995 1,286,778(3) 1,100,000(3) -- --
Executive Officer
Roger L. Burtraw 1997 350,000 35,000 8,000(4) 3,177
President 1996 350,000(4) -- 8,000(4) 3,167
1995 244,616 205,425 -- 3,122
Joseph J. Gagliardi 1997 236,250 -- 5,000(5) 3,177
Senior Vice President 1996 220,000 -- -- 3,300
Finance and Chief 1995 220,000 198,500 -- 3,088
Financial Oficer
David L. Kuta 1997 185,004 -- 5,000(5) 925
Senior Vice President 1996 92,502 54,000 -- --
1995 -- -- -- --
David C. Stegemoller 1997 174,092 -- 5,000(6) 3,439
Senior Vice President 1996 164,300 -- 2,000(6) 3,286
1995 158,303 95,886 -- 3,174
</TABLE>
- ------------
(1) All Other Compensation represents amounts contributed or accrued for
fiscal 1997, 1996, and 1995 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
(3).
(2) Mr. Adams was elected Chairman of the Board and Chief Executive Officer
in February 1997. Reflects compensation from February 16, 1997 through
September 30, 1997 at the rate of $400,000 per annum.
(3) Compensation for the fiscal year ended September 30, 1997 and 1996,
includes (i) $136,140 and $172,280, respectively, 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) $8,739 and $30,527, respectively, in
connection with the maintenance of a separate office. Included in the
above compensation for the fiscal year ended September 30, 1995 is the
amount of $250,000 paid to Anchor Industries International Inc.
("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 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 "Termination, Consulting and
Release Agreement" below for additional information.
31
<PAGE>
(4) During the periods presented, Mr. Burtraw served as President and
Senior Vice President of the Company. Of the reflected options, options
for 8,000 shares were granted in October 1995, pursuant to the
Company's Employee Stock Option Plan at an exercise price of $28.00 per
share and options for 8,000 shares were granted in November, 1996 at an
exercise price of $8.00 per share. See "Severance Agreements and
Retention Bonuses" for additional compensation information.
(5) Each of the reflected options was granted in November, 1996 at an
exercise price of $8.00 per share.
(6) The 1997 stock options were granted in November 1996 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.
Mr. Roger G. Pollazzi is being compensated at the annual rate of $600,000
since November 1997 in his capacity as Chief Operating Officer of the
Company.
OPTIONS
The following table presents information concerning grants of stock
options, net of options cancelled during the fiscal year ended September 30,
1997, to each of the Company's Named Officers. No stock appreciation rights
were granted during the fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLEVALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- -----------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS/SARS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR (1) ($/SH) DATE 5% ($) 10% ($)
- -------------------- -------------- -------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger L. Burtraw. ... 8,000 13.1% $8.00 11/14/06 $40,248 $102,000
Joseph J. Gagliardi . 5,000 8.2 8.00 11/14/06 25,155 63,750
David C.
Stegemoller......... 5,000 8.2 8.00 11/14/06 25,155 63,750
</TABLE>
- ------------
(1) Based on a total of 61,000 options granted, net of options cancelled in
the fiscal year to all employees.
(2) Options are exercisable to the extent of 33 1/3% on October 16, 1997
and 33 1/3% on each anniversary thereof.
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR
AND FY END OPTION/SAR VALUES
No options were exercised by the Named Officers during the fiscal year
ended September 30, 1997. No SAR's are currently outstanding. The following
table presents information concerning such exercise of options during such
fiscal year as well as the value of unexercised options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR END (#) AT FISCAL YEAR END ($)
------------------------------ ------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ------------- ------------ ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Roger L. Burtraw .... 26,300 22,100 None None
Joseph J. Gagliardi . 14,925 9,975 None None
David L. Kuta........ None 5,000 None None
David C.
Stegemoller......... 15,425 11,475 None None
</TABLE>
TERMINATION, CONSULTING AND RELEASE AGREEMENT
Pursuant to a Termination, Consulting and Release Agreement, dated as of
February 12, 1997, among the Company, Vincent J. Naimoli and his affiliated
corporation, the parties agreed to terminate
32
<PAGE>
Mr. Naimoli's management services relationship with the Company, and cancel
the prior Management and Option Agreement, as amended, under which Mr.
Naimoli's services had been performed as the Company's then Chairman of the
Board and Chief Executive Officer, except for certain provisions of the
Management and Option Agreement relating to options, registration rights and
certain indemnification.
The Termination, Consulting and Release Agreement provides for Mr. Naimoli
to receive vested benefits which accrued prior to termination, and Mr.
Naimoli agreed to act as a consultant to the Company for three years after
termination at a rate of $41,666 per month for the first 12 months of the
consulting period and $104,166.67 per month for the remaining 24 months of
such period.
On June 19, 1997, the Company applied to the Court for an Order
authorizing the rejection of the Termination, Consulting and Release
Agreement, and on July 16, 1997, Mr. Naimoli filed an objection to the
Company's motion. The matter is currently pending in the Court.
The following table shows estimated annual benefits payable under the
Company's 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:
PENSION AND RETIREMENT BENEFITS
PENSION PLAN TABLE
<TABLE>
<CAPTION>
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 1997 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. Kuta: 12; and
Mr. Stegemoller: 16.
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
33
<PAGE>
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.
The Company adopted a Nonqualified ERISA Excess Benefit Plan, effective
January 1, 1995, 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
The Company has applied to the Court to obtain authority to implement a
severance plan for full-time salaried employees in order to ensure the
retention of qualified key employees and executives.
The severance plan, which will cover approximately 1,200 employees,
provides for severance benefits to employees based upon length of service and
continues the pre-petition practice of paying severance equal to one week's
pay per year or partial year of service, with a maximum of 26 weeks' pay.
Corporate officers not covered by an employment agreement are to receive a
severance benefit equal to three months' pay or equal to one week's pay per
year of service, whichever is greater. In addition, corporate officers may
apply for and receive up to three additional months of severance on a monthly
basis, with the approval of certain senior officers, unless such officers
have secured other employment. The total severance benefit to any officer is
limited to 26 weeks' pay.
The anticipated annual cost of the severance plan, assuming Court approval
is obtained, but of which there is no assurance, would be less than $1
million at the present time.
The Company is also seeking Court approval of Modified Executive Severance
Agreements with each of Roger W. Burtraw, President of the Company, Joseph J.
Gagliardi, Senior Vice President of Finance and Chief Financial Officer of
the Company, as well as one other Senior Vice President, to replace existing
Pre-petition Executive Severance Agreements, as an inducement for them to
remain with the Company through the bankruptcy proceedings. The Pre-petition
Executive Severance Agreements, which provided for two years of salary and
annual target bonuses to be paid out in a lump sum, two years of continued
welfare benefits, a lump sum payment of the actuarial value of two years of
additional pension accrual and outplacement benefits, are to be modified to
continue the terms of the previous severance agreements, except to increase
the severance for Mr. Gagliardi from two years to three years and to no
longer require that there be a change in control as a precondition to
receiving severance payments. To receive payment, however, the executives
would have to continue employment until consummation of the Company's plan of
reorganization and up to 60 days beyond, if so requested by the Company's
Board of Directors. The estimated costs to the Company to carry out the
Modified Executive Severance Agreements (inclusive of pension and other
benefits), assuming all executives are terminated 60 days after consummation
of the plan of reorganization and assuming no bonus arrangements are in
effect for the executive officers during the fiscal year in which the
termination occurs, are $2.925 million, of which $1.446 million is
attributable to Mr. Burtraw and $1.069 million is attributable to Mr.
Gagliardi.
The Company has also applied to the Bankruptcy Court for authorization and
approval of a Retention Incentive Plan geared towards retaining certain key
executives and employees. The Retention Incentive Plan would cover
approximately 75 employees. Management has recommended to the Company's Board
of Directors that bonus compensation be paid to retention employess covered
by the Plan out of a fund of approximately $2.2 million, and up to $250,000
is proposed to be awarded as
34
<PAGE>
incentives to retention employees, who will include members of the corporate
staff at the Company's Tampa, Florida office, various plant managers and
divisional staff members at the Company's manufacturing facilities. The
retention employees include three Senior Vice Presidents, of whom Messrs.
David L. Kuta and David C. Stegemoller will each receive a bonus of $185,000.
The Plan contemplates that the retention bonuses be paid the earlier of (i)
as soon as practicable after termination of the employee without cause, and
(ii) within 10 days following consummation of the Company's plan of
reorganization. There is no assurance that Court approval of the Retention
Incentive Plan will be approved.
DIRECTORS' REMUNERATION
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, $500 for
telephonic meetings, and $1,000 for each meeting of the Audit Committee and
Compensation Committee of which they are members.
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 were 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 and January 19, 1997, Messrs.
Bartlett and Hoffman were each granted options thereunder for 2,000 shares of
Common Stock at exercise prices of $26.625 and $3.375 per share,
respectively.
Under the Company's Non-Employee Director Stock Option Plan, Directors who
become such after June 7, 1994 were 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. Mr. Bruce D. Broussard,
who was elected a Director of the Company in April 1997, was granted options
to purchase 4,000 shares of Common Stock at an exercise price of $0.8125 per
share.
The Board of Directors terminated the Non-Employee Director Stock Option
Plan in November 1997.
35
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists all shares of the Company Common Stock as of
December 15, 1997 (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. 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, 1997, there were
7,026,437 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) 617,900 8.79%
885 Third Avenue, 34th Floor
New York, New York 10022
John W. Adams 650,287(1) 9.25%
885 Third Avenue, 34th Floor
New York, New York 10022
Vincent J. Naimoli 788,946(2) 11.23%
2502 North Rocky Point Drive
Suite 960
Tampa, Florida 33607
Michael Hoffman 14,000(3) *
Craig Scott Bartlett, Jr. 14,000(3) *
Joseph P. Hoar 6,000(3) *
Bruce D. Broussard 15,743(4) *
Roger L. Burtraw 42,067(5) *
Joseph J. Gagliardi 21,567(6) *
David L. Kuta 1,667(6) *
David C. Stegemoller 24,067(7) *
All executive officers and directors as a group
(16 persons)(8) 840,883 13.53%
</TABLE>
- ------------
* Less than one percent
(1) Mr. John W. Adams, Chairman of the Board and Chief Executive Officer of
the Company, is President of Pengo Securities Corp. See "Item 10.
Directors and Executive Officers of the Registrant." The foregoing
information is based upon a Schedule 13D filed under date of January
10, 1995, as amended. Includes options covering 6,000 shares of Common
Stock which are exercisable as of December 15, 1997. The shares of
Common Stock subject to such options are deemed outstanding for
purposes of calculating the percent of class owned by Mr. Adams and by
all officers and directors as a group.
(2) These amounts reflect 5,700 shares owned of record by 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 an affiliated
corporation. In addition 369,096 shares of Common Stock are
attributable to Mr. Naimoli, of which options for 96,278 shares are
exercisable at an exercise price of $6.00 per share, options for
172,818 shares are exercisable at $13.75 per share, and options for
100,000 shares are exercisable at $14.00 per share. Mr. Naimoli's
affiliated corporation was granted stock options on August 4, 1994 to
purchase 300,000 shares of Common Stock at an exercise price of $14.00
per share, of which options for 100,000 shares became exercisable on
August 16, 1995 and the remaining options become exercisable on August
16, 2001 only if such affiliated corporation is then providing services
to the Company. Neither Mr. Naimoli nor the affiliated corporation is
deemed the beneficial owner in respect of the options for such latter
200,000 shares since such options are not exercisable within 60 days.
No options became exercisable during 1997.
(3) Represent options which are exercisable at December 15, 1997 covering
the shares indicated.
(4) Mr. Broussard beneficially owns 11,743 shares of Common Stock, and has
options which are exercisable at December 15, 1997 covering 4,000
shares of Common Stock.
(5) Mr. Burtraw owns beneficially 3,000 shares of Common Stock and has
options which are exercisable at December 15, 1997 covering 39,067
shares of Common Stock.
(6) Represents options which are exercisable at December 15, 1997 covering
the shares indicated.
(7) Mr. Stegemoller owns beneficially 1,500 shares of Common Stock, and has
options which are exercisable at December 15, 1997 covering 22,567
shares of Common Stock.
(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, 1997 or within 60
days thereafter.
As of December 15, 1997, 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.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11. Executive Compensation -- Termination, Consulting and
Release Agreement" for information concerning settlement arrangements with
Mr. Vincent J. Naimoli, formerly Chief Executive Officer of the Company, and
various payment issues, including pension and retirement matters thereunder,
presently pending before the Bankruptcy Court.
Mr. Naimoli is a 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
since December 1994. During the year ended September 30, 1997, Nice and Easy
billed the Company approximately $2.1 million for travel services and rebated
$28,000 (3% of the annual billings) to the Company. Additionally, Nice and
Easy has not paid approximately $30,000 in rebates to the Company for 1997.
Under the Termination, Consulting and Release Agreement, Nice and Easy is
entitled to occupy a portion of the premises on a rent free basis.
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 the
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 which is to be returned at the end of the
lease term. An additional $25,000 payment was made in June 1996. 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. 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 paid $129,000 to The Blackstone Group L.P. as fees for
financial advice during the year ended September 30, 1997. The services
related to 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."
37
<PAGE>
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 14, 1997, except for Note 9 as to which the
date is December 29, 1997, appearing on page F-2 of this Form 10-K.
Price Waterhouse LLP
Tampa, Florida
December 29, 1997
38
<PAGE>
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 29, 1997
By: /s/John W. Adams
-------------------------------
John W. Adams
Chairman of the Board,
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>
<CAPTION>
<S> <C>
Date: December 29, 1997 By:/s/ Joseph J. Gagliardi
--------------------------------
Joseph J. Gagliardi
Sr. Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: December 29, 1997 By:/s/ William J. Warren
--------------------------------
William J. Warren
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date: December 29, 1997 By:/s/ C. Scott Bartlett, Jr.
--------------------------------
C. Scott Bartlett, Jr.
Director
Date: December 29, 1997 By:/s/ Michael Hoffman
--------------------------------
Michael Hoffman
Director
Date: December 29, 1997 By:/s/ Joseph P. Hoar
--------------------------------
Joseph P. Hoar
Director
Date: December 29, 1997 By:/s/ Bruce D. Broussard
--------------------------------
Bruce D. Broussard
Director
</TABLE>
39
<PAGE>
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>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
<S> <C>
Report of Independent Accountants ..................................... F-2
Consolidated Balance Sheets............................................ F-3
September 30, 1997 and 1996
Consolidated Statements of Operations.................................. F-4
Years Ended September 30, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Deficiency.................... F-5
Years Ended September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows.................................. F-6
Years Ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements............................. F-7
</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>
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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years ended September 30,
1997, 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
statements presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1
to the financial statements, on May 8, 1997, Harvard Industries, Inc. and
substantially all of its subsidiaries each filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code, thereby
raising substantial doubt about their ability to continue as a going concern.
The Company has not filed a plan of reorganization with the Bankruptcy Court.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of the petitions for
reorganization.
Price Waterhouse LLP
Tampa, Florida
November 14, 1997, except for Note 9
as to which the date is December 29, 1997
F-2
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,212 $ 1,107
Accounts receivable, net of allowance of $ 2,589 in 1997
and $744 in 1996 ........................................ 76,190 99,581
Inventories ............................................... 54,218 53,901
Prepaid expenses and other current assets ................. 7,602 1,637
--------- ---------
Total current assets .................................... 147,222 156,226
Property, plant and equipment, net .......................... 132,266 300,673
Intangible assets, net ...................................... 4,417 127,250
Other assets, net ........................................... 23,589 33,556
--------- ---------
$ 307,494 $ 617,705
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Current portion of debtor-in-possession (DIP) loans ....... $ 36,436 $ --
Current portion of long term debt ......................... 1,748 1,487
Accounts payable .......................................... 32,267 89,073
Accrued expenses .......................................... 72,235 66,949
Income taxes payable ...................................... 2,440 5,875
--------- ---------
Total current liabilities ............................... 145,126 163,384
Liabilities subject to compromise ........................... 397,319 --
DIP loans ................................................... 51,035 --
Long-term debt .............................................. 12,339 359,116
Postretirement benefits other than pensions ................. 96,929 100,464
Other ....................................................... 27,237 25,970
--------- ---------
Total liabilities ....................................... 729,985 648,934
--------- ---------
14 1/4% Pay-In-Kind Exchangeable Preferred Stock,
(At September 30, 1997 - includes
$10,142 of undeclared accrued dividends) ................. 124,637 114,495
--------- ---------
Shareholders' deficiency:
Common Stock, $.01 par value; 15,000,000 shares authorized;
shares issued and outstanding: 7,026,437 at September 30,
1997 and 7,014,357 at September 30, 1996 ................ 70 70
Additional paid-in capital ................................ 32,134 42,245
Additional minimum pension liability ..................... (3,665) (1,767)
Foreign currency translation adjustment ................... (1,930) (1,964)
Accumulated deficit ....................................... (573,737) (184,308)
--------- ---------
Total shareholders' (deficiency)......................... (547,128) (145,724)
Commitments and contingent liabilities ......................
--------- ---------
$ 307,494 $ 617,705
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Sales........................................................... $ 810,769 $ 824,837 $ 631,832
---------- ---------- ----------
Costs and expenses:
Cost of sales................................................. 797,774 776,141 557,340
Selling, general and administrative........................... 45,822 42,858 33,037
Interest expense (contractual interest of $50,264 in 1997).... 36,659 47,004 19,579
Amortization of goodwill...................................... 8,448 15,312 2,986
Impairment of long-lived assets and restructuring costs....... 288,545 -- --
Other (income) expense, net................................... 5,530 1,538 (1,789)
---------- ---------- ----------
Total costs and expenses............. 1,182,778 882,853 611,153
---------- ---------- ----------
Income (loss) from continuing operations before reorganization
items, income taxes and extraordinary item.................... (372,009) (58,016) 20,679
Reorganization items............................................ 16,216 -- --
--------- ---------- ----------
Income (loss) from continuing operations before income
taxes and extraordinary item.................................. (388,225) (58,016) 20,679
Provision for income taxes...................................... 1,204 3,196 11,566
--------- ---------- ----------
Income (loss) from continuing operations before
extraordinary item............................................ (389,429) (61,212) 9,113
Loss from discontinued operations............................... -- (7,500) --
--------- ---------- ----------
Income (loss) before extraordinary item......................... (389,429) (68,712) 9,113
Extraordinary item- early extinguishment of debt (net of
income tax benefit of $1,200)................................. -- -- (2,192)
--------- ---------- ----------
Net income (loss)............................................... $(389,429) $ (68,712) $ 6,921
========= ========== ==========
PIK preferred dividends and accretion (contractual amount of
$16,891 in 1997).............................................. $ 10,142 $ 14,844 $ 14,809
========= ========== ==========
Net loss attributable to common shareholders.................... $(399,571) $ (83,556) $ (7,888)
========= ========== ==========
Primary per common and common equivalent share:
Loss from continuing operations before extraordinary item..... $ (56.91) $ (10.87) $ (0.83)
Loss from discontinued operations............................. -- (1.07) --
Extraordinary item............................................ -- -- (0.32)
--------- ---------- ----------
Loss per common and common equivalent share................... $ (56.91) $ (11.94) $ (1.14)
========= ========== ==========
Weighted average number of common and common equivalent
shares outstanding.......................................... 7,020,692 6,999,279 6,894,093
========= ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(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, 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)
Net loss -- 1997................. -- -- -- -- -- (389,429) (389,429)
PIK preferred stock dividend..... -- -- (9,854) -- -- -- (9,854)
Accretion of discount on PIK
preferred stock................ -- -- (288) -- -- -- (288)
Sale of stock.................... 12,080 -- 31 -- -- -- 31
Minimum pension liability........ -- -- -- -- (1,898) -- (1,898)
Foreign currency adjustment...... -- -- -- 34 -- -- 34
--------- ----- --------- -------- --------- ---------- ----------
Balance, September 30, 1997...... 7,026,437 $ 70 $ 32,134 $ (1,930) $ (3,665) $ (573,737) $ (547,128)
========= ===== ========= ======== ========= ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows related to operating activities:
Loss from continuing operations before reorganization items........ $(373,213) $ (61,212) $ 9,113
Add back (deduct) items not affecting cash and cash equivalents:
Income tax allocation related to reorganization value, exercise
of stock options and discontinued operations................... -- -- 6,251
Depreciation and amortization.................................... 60,186 65,658 34,856
Impairment of long-lived assets and restructuring charges........ 288,545 -- --
Loss on disposition of property, plant and equipment
and property held for sale..................................... 1,931 2,053 461
Postretirement benefits.......................................... (4,138) 5,822 4,373
Write-off of deferred debt expense............................... 1,792 -- --
Senior notes interest accrued not paid........................... 9,728 -- --
Changes in operating assets and liabilities of continuing operations,
net of effects from acquisitions and reorganization items:
Accounts receivable.............................................. 22,798 3,133 (9,865)
Inventories...................................................... (7,225) 7,112 880
Other current assets............................................. (5,965) (222) 1,712
Accounts payable................................................. (56,806) 9,371 1,696
Accounts payable prepetition..................................... 81,429 -- --
Accrued expenses and income taxes payable........................ (10,254) (30,444) (21,954)
Other noncurrent liabilities..................................... 6,933 819 (2,472)
--------- --------- ---------
Net cash provided by continuing operations before reorganization
items............................................................ 15,741 2,090 25,051
Net cash used in reorganization items.............................. (2,864) -- --
--------- --------- ---------
Net cash provided by continuing operations......................... 12,877 2,090 25,051
--------- --------- ---------
Cash flows related to investing activities:
Acquisition of property, plant and equipment....................... (36,572) (40,578) (22,080)
Cash flows related to discontinued operations...................... 713 (3,332) 5,029
Proceeds from disposition of property, plant and equipment......... 1,703 909 1,259
Acquisition of Doehler-Jarvis, including debt refinancing, net of
cash acquired..................................................... -- -- (210,231)
Net change in other noncurrent accounts............................ (1,832) (5,223) (746)
--------- --------- ---------
Net cash used in investing activities.............................. (35,988) (48,224) (226,769)
--------- --------- ---------
Cash flows related to financing activities:
Proceeds from Senior Notes Offering ............................... -- -- 200,000
Issuance costs of Senior Notes and financing agreements............ (2,200) -- (11,804)
Net borrowings and (repayments) under credit agreement............. (38,834) 38,834 --
Net borrowings under DIP financing agreement....................... 87,471 -- --
Redemption of PIK preferred stock.................................. -- -- (15,000)
Proceeds from sale of stock and exercise of stock options.......... 31 190 2,419
Repayments of long-term debt....................................... (7,682) (3,032) (5,820)
Pension fund payments pursuant to PBGC settlement agreement........ (6,000) (6,000) (6,000)
Payment of EPA settlements......................................... (1,570) (2,676) (2,512)
--------- --------- ---------
Net cash provided by financing activities.......................... 31,216 27,316 161,283
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............... 8,105 (18,818) (40,435)
Beginning of period................................................ 1,107 19,925 60,360
--------- --------- ---------
End of period...................................................... $ 9,212 $ 1,107 $ 19,925
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid..................................................... $ 37,328 $ 41,868 $ 16,042
========= ========= =========
Income taxes paid................................................. $ 2,244 $ 5,092 $ 4,782
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(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.
The Company operates in the automotive accessories business.
The Company 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. General Motors, Ford and Chrysler
accounted for 43%, 33%, and 7%, respectively, of the consolidated sales in
1997, and 43%, 31%, and 8%, respectively, in 1996 and 35%, 27% and 11%,
respectively, in 1995.
On May 8, 1997, Harvard Industries, Inc. and its domestic subsidiaries
(all of whom are hereinafter sometimes designated the "Debtors") filed
voluntary petitions for relief under Chapter 11 of the Federal bankruptcy laws
in the United States Bankruptcy Court for the District of Delaware (the
"Court"). Under Chapter 11, holders of most claims arising prior to the filing
of the petitions for relief under the Federal bankruptcy laws are stayed from
collecting on such claims while the Debtors continue business operations as
debtors-in-possession ("DIP"). Additional claims may arise subsequent to the
filing date resulting from rejection of executory contracts, including leases.
Holders of pre-petition claims secured by liens against the Debtors' assets
("secured claims") also are stayed from enforcing their rights as secured
creditors without leave of the Court.
The Debtors have received approval from the Court to pay or otherwise
honor certain pre-petition obligations including certain employee wages,
salaries and other compensation, employee benefits, reimbursable employee
expenses and certain workers' compensation claims, as well as to continue
pre-petition customer practices with respect to warranties, refunds and return
policies. The Court has established February 9, 1998 as a bar date by which
time all proofs of claim must be filed against the Debtors or be forever
barred from assertion.
The Debtors have not yet filed with the Court any plans of
reorganization. Under the Bankruptcy Code, a Debtor is given an exclusive
period of 120 days to file a plan of reorganization and 180 days to solicit
acceptances to such plan. These periods afforded to the Debtors under the
Bankruptcy Code initially expired on September 5, 1997 and November 4, 1997
respectively, and have been extended by the Court from time to time. The Court
has given the Debtors until June 2, 1998 to formulate and file their plans of
reorganization, and until August 1, 1998 to solicit plan acceptances thereto.
In the event such plans are formulated and approved by the creditors and the
Court, continuation of the Debtors' business after reorganization is dependent
upon the success of future operations and the ability to meet obligations as
they become due. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of
F-7
<PAGE>
operations and the realization of assets and liquidation of liabilities in the
ordinary course of business. However, as a result of the Chapter 11
proceedings and circumstances related to this event, including the Company's
highly leveraged financial structure and recurring losses from operations as
reflected in the consolidated statements of operations, such realization of
assets and liquidation of liabilities is subject to substantial doubt.
Management is unable to predict how and when the Chapter 11 proceedings will
be concluded or the expense associated therewith, which could be substantial.
There can be no assurances that the liabilities of the Company will not be
found in the Chapter 11 proceedings to exceed the fair value of its assets.
This could result in claims being provided for in the Chapter 11 proceedings
at less than 100% of their face value. It is impossible at this time to predict
with certainty the actual recovery the creditors and shareholders will
realize.
Liabilities subject to Chapter 11 proceedings consist of the following
at the filing date:
Accounts Payable $ 79,060
Senior notes 309,728 (a)
Taxes 3,269
Other 5,262
-----------
$ 397,319
===========
(a) Includes accrued interest to the date of bankruptcy of $9,728.
Reorganization expenses included in the consolidated statement of
operations and retained earnings for the year ended September 30, 1997 are
comprised of the following:
Adjustment to record senior notes to
amount of allowed claims $ 10,408
Professional fees 5,828
Interest income on cash resulting from
Chapter 11 proceedings (20)
--------------
$ 16,216
==============
The Company previously had a Plan of Reorganization confirmed by the
Court on August 10, 1992, and such Plan became effective on August 30, 1992.
In connection with its emergence from its earlier Chapter 11 bankruptcy
proceedings, the Company implemented "Fresh Start Reporting" as of August 23,
1992. Accordingly, all assets and liabilities were restated to reflect
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."
F-8
<PAGE>
(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. In accordance with the DIP financing agreement, substantially all the
Company's cash receipts from trade receivables must be applied against the
revolving line of credit. Accordingly, the Company offset approximately
$12,160 against the revolving line of credit for cash held in lockboxes at
September 30, 1997.
Trade Receivables. A substantial portion of the Company's trade
receivables are mainly concentrated with the three largest U.S. automotive
companies. The Company does not require collateral or other security to
support credit sales. General Motors, Ford and Chrysler accounted for 42%, 12%
and 11%, respectively, of consolidated trade receivables at September 30, 1997.
Inventories. Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) method.
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 life 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. See Note 13 for impairment of
certain property, plant and equipment.
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
F-9
<PAGE>
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.
See Note 13 for impairment of goodwill.
Long-Lived Assets. The Company assesses the recoverability of its
long-lived assets by determining whether the amortization of each such asset
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. See Note 13.
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 the
expected future tax consequences of temporary differences between tax basis
and financial reporting basis of 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, additional information becomes available and
these accruals are reviewed periodically and adjusted, if necessary. 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 required 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.
F-10
<PAGE>
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS 128"). In February 1997, the Financial Accounting Standards
Board issued SFAS 128, which is effective for financial statements issued for
periods ending after December 15, 1997. SFAS 128 simplifies the previous
standards for computing earnings per share and requires the disclosure of
basic and diluted earnings per share. For the year ended September 30, 1997,
the amount reported as net loss per common share is not different than that
which would have been reported for basic and diluted loss per share in
accordance with SFAS 128.
(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.
Pro forma unaudited results of operations for the year ended September
30, 1995, assuming the acquisition had occurred on October 1, 1994, are as
follows:
(In thousands of dollars
except per share data)
Sales $ 855,446
Income (loss) from continuing operations before
extraordinary item (8,466)
Net loss (10,658)
Net loss attributable to common shareholders (25,467)
Net loss per share
Loss from continuing operations (3.38)
Net loss $ (3.69)
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 date 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 Elastic Stop-Nut Corporation of America ("ESNA")
division were not manufactured and/or tested in accordance with required
specifications at its Union, New Jersey and/or Pocohontas, Arkansas facility.
These fastener products were sold to the United States Government and other
F-11
<PAGE>
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 "ESNA matter"). At September 30, 1997, the remaining accrued costs of
discontinued operations, including the ESNA matter, are primarily related to
legal costs, fines and penalties. The ultimate cost of disposition of the
ESNA 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
the Racketeer Influenced and Corrupt Organization Act ("RICO" ), as well as
administrative sanctions, such as debarment from future government
contracting. The Company is unable to determine the effect, if any, of the
bankruptcy filing on the ESNA matter.
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 Environmental
Protection Agency ("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 ESNA facility to the Company at a
nominal net realizable value including clean up costs. As a result, the
Company recorded a $7,500 charge to discontinued operations in the fourth
quarter of 1996 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.
Net assets of discontinued operations of $1,051 at September 30, 1997
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>
1997 1996
---- ----
<S> <C> <C>
Finished goods $ 3,530 $ 3,735
Work-in-process 16,805 19,051
Tooling 19,934 20,689
Raw materials 13,949 10,426
--------- ---------
$ 54,218 $ 53,901
========= =========
</TABLE>
F-12
<PAGE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 4,537 $ 7,730
Buildings and improvements 57,367 72,954
Machinery and equipment 177,127 312,650
Furniture and fixtures 2,011 1,961
Construction in progress 14,799 28,139
--------- ---------
255,841 423,434
Less accumulated depreciation 123,575 122,761
--------- ---------
$ 132,266 $ 300,673
========= =========
</TABLE>
Depreciation expense amounted to $46,377, $42,632 and $28,955 in 1997,
1996 and 1995, respectively. See Note 13 regarding the impairment of property,
plant and equipment.
(7) INTANGIBLE ASSETS
Intangible assets at September 30 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Goodwill in connection with the
acquisition of Doehler-Jarvis (See Note 13) $ -- $ 136,379
Reorganization value (See Note 2) 12,339 12,339
--------- ----------
12,339 148,718
Less accumulated amortization 7,922 21,468
--------- ----------
$ 4,417 $ 127,250
========= ==========
</TABLE>
Amortization expense related to goodwill and reorganization value
amounted to $8,448, $15,312 and $2,986 in 1997, 1996 and 1995, 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. See Note 13 regarding the impairment of
Doehler-Jarvis goodwill.
(8) OTHER ASSETS
Other assets at September 30 consist of the following:
<TABLE>
<CAPTION>
Amortization
Period 1997 1996
-------- ---- ----
<S> <C> <C> <C>
Deferred financing costs life of agreement $ 2,200 $ 15,506
Deferred tooling units produced 10,291 14,339
Pension asset N/A 16,094 9,546
Net assets of discontinued
operations N/A 1,057 1,800
Other N/A 3,241 3,525
---------- ----------
32,883 44,716
Less accumulated amortization 9,294 11,160
---------- ----------
$ 23,589 $ 33,556
========== ==========
</TABLE>
F-13
<PAGE>
Amortization expense related to deferred financing costs amounted to
$1,627, $5,136, and $1,707 in 1997, 1996 and 1995, respectively. Amortization
expense related to deferred tooling amounted to $3,743, $2,578, and $1,354 in
1997, 1996 and 1995, respectively. In addition, in 1997 the Company wrote-off
deferred financing costs of $10,408 related to the senior notes as
reorganization costs and $1,792 relating to the financing agreement as
interest expense upon the refinancing of such debt with DIP financing
described in Note 9.
(9) DIP FINANCING
On May 8, 1997, the Company and certain of the Company's subsidiaries
obtained a two-year Post-Petition Loan and Security Agreement ("DIP
financing") to enable it to continue operations during the chapter 11
proceedings. The DIP financing provides for $65,000 of Term Loans and $110,000
of Revolving Credit Loans which includes a $25,000 sub-limit of credit
facility principally for standby letters of credit. As collateral, the Debtors
have pledged substantially all of the assets of the Debtors.
All of the prepetition indebtedness outstanding at May 8, 1997 under
the financing agreement described in Note 10 amounting to $105,044 was repaid
from borrowing under the DIP financing. At September 30, 1997, the amount
outstanding under the Revolving Credit Loans was $23,436 and outstanding
letters of credit amounted to $12,670 (principally standby).
The Revolving Credit Loans bear interest at the rate of 1.50% in excess
of the Base Rate (Prime) and the Term Loans bear interest at the rate of 1.75%
in excess of the Base Rate. The prime rate was 8.50% at September 30, 1997. The
DIP Lenders also earn a fee of 2% per annum of the face amount of each standby
letter of credit in addition to passing along to the borrowers all bank charges
imposed on the DIP Lenders by the letter of credit issuing bank. Further, the
DIP 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,
including a $1.375 million closing fee. The Term Loans provide for quarterly
payments of $3,250 beginning November 30, 1997 through February 28, 1999, with
a final installment of $45,500 due on May 8, 1999. The lenders also require
availability reserves of (i) $12,000 through November 30, 1997, (ii) $17,000
from and after December 1, 1997 through December 31, 1997 and (iii) $22,000
after December 31, 1997, plus, in each case, such additional amount as the
Agent, in the exercise of its sole discretion, may from time to time establish.
See Note 28.
The DIP financing provides that the net proceeds from asset sales, if
any, are to be utilized to prepay principal in respect of the Revolving Credit
Loans to the extent such collateral was sold, and any excess proceeds shall
be applied to the Term Loans. The DIP financing also provides, among other
things, monthly covenants beginning May 8, 1997, with respect to EBITDA,
capital expenditures and a monthly fixed charge ratio beginning October 1,
1997.
If the DIP financing is terminated by the Company prior to May 8, 1998,
an early termination fee must be paid equal to 1.0% of the aggregate amount of
the DIP financing.
The Company failed to meet the fixed charge ratio financial covenant
during the months of October and November 1997 and on December 29, 1997
obtained a waiver of such default from its lenders. On December 29, 1997 the
Company entered into Amendment No. 1, Waiver and Consent (the "Amendment")
to Post-Petition Loan and Security Agreement with its lenders whereby the
lenders from December 29, 1997 waived all defaults or events of default which
have occurred prior to such date from the Companies' failure to comply with
the above financial covenants. The lenders also entered into the Amendment
to replace the fixed charge ratio covenant with monthly consolidated EBITDA
and consolidated tangible net worth covenants commencing calculations at
December 31, 1997. The Amendment requires the lenders' consent for capital
expenditures in excess of $30 million for the year ending September 30, 1998.
F-14
<PAGE>
(10) LONG TERM DEBT AND CREDIT AGREEMENTS
Long term debt at September 30 consists of the following:
1997 1996
---- ----
12% Senior Notes Due 2004................ $ -- $ 100,000
11 1/8% Senior Notes Due 2005............ -- 200,000
Revolving Credit Agreement............... -- 38,834
Industrial revenue bonds................. -- 6,200
Capital lease obligations................ 14,087 15,569
-------- -----------
14,087 360,603
Less current portion..................... 1,748 1,487
-------- -----------
Long-term portion........................ $ 12,339 $ 359,116
======== ===========
On July 26, 1994, the Company consummated a public offering relating to
$100,000 aggregate principal amount of the Company's 12% Senior Notes Due 2004
("12% Notes") and on July 28, 1995, the Company consummated a private placement
offering of $200,000 principal amount of 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 26 for information concerning the Guarantors and Note 1 for the
classification of such debt which is in default.
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. The
Note Indentures 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 Company discontinued
accruing interest on both Notes from the date of bankruptcy.
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 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.
F-15
<PAGE>
Contemporaneously with the sale of the 11 1/8% Notes, the Company and
Guarantors (see Note 26) 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. 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.
The Company and certain of its subsidiaries entered into a financing
agreement dated October 4, 1996 with the CIT Group/Business Credit, Inc. as a
lender and as agent for a group of lenders. On October 4, 1996, the Company
borrowed $38,273, under such financing agreement of which $30,000 was borrowed
as term loans and $8,273 as revolving loans. Contemporaneously with entering
such financing agreement, the Company terminated the Chemical Agreement, dated
as of July 28, 1995. Proceeds from this new financing agreement were used to
repay all outstanding loans under the Chemical Agreement. (See Note 9 for
subsequent refinancing of this Agreement.)
The Industrial Revenue Bonds in the amount of $6,200 plus accrued
interest were paid pursuant to demand by the holder against a bank letter
of credit during September 1997.
Machinery and equipment at September 30, 1996 includes equipment held
under capital leases with an acquisition cost of approximately $16,727, 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.
Substantially all such equipment was written-off as impaired (see Note 13).
F-16
<PAGE>
Approximate maturities of long-term debt under capital leases are as
follows:
Year ending September 30:
1998.......................................................... $ 2,949
1999.......................................................... 3,381
2000.......................................................... 3,443
2001.......................................................... 3,442
2002.......................................................... 3,443
Thereafter.................................................... 1,363
--------
Total......................................................... $ 18,021
Less amounts representing interest............................ 3,934
--------
Present value of future minimum lease payments................ $ 14,087
========
(11) ACCRUED EXPENSES
Accrued expenses at September 30 are summarized as follows:
1997 1996
---- ----
Interest...................................... $ 713 $ 6,353
Salaries and wages............................ 13,207 12,252
Pension liabilities........................... 2,000 3,891
Workers' compensation and medical............. 13,521 11,152
Costs related to discontinued operations...... 4,822 6,830
Tooling and maintenance costs................. 5,366 4,841
Environmental................................. 2,397 6,075
Post-retirement benefits...................... 2,300 3,300
Reorganization costs ......................... 2,944 --
Restructuring costs (see Note 13) ............ 10,000 --
Other......................................... 14,965 12,255
---------- ----------
$ 72,235 $ 66,949
========== ==========
(12) OTHER LIABILITIES
Other liabilities at September 30 are summarized as follows:
1997 1996
---- ----
Pension liabilities (see Note 19)............. $ 3,495 $ 3,887
Workers' compensation......................... 10,462 7,361
Environmental................................. 78 3,362
Deferred taxes................................ 1,262 1,352
Tool and die replacement...................... 8,027 10,008
Other......................................... 3,913 --
-------- ----------
$ 27,237 $ 25,970
========= ==========
F-17
<PAGE>
(13) IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES
In 1997, the Company recorded the following charges:
Impairment of Doehler-Jarvis long-lived assets $ 266,545
Impairment of long-lived assets at two plants 12,000
Severance payments related to two facilities scheduled for closing 3,285
Restructuring charges 6,715
---------
$ 288,545
=========
In March 1997, the Company wrote off $114,385 unamortized goodwill
related to its 1995 acquisition of Doehler-Jarvis, and in July 1997 the
Company announced its intention to sell this subsidiary. Based on the absence
of acceptable offers to date and the projected future cash flows, in September
1997 the Company recorded an impairment charge of $152,160 related to all other
long-lived Doehler-Jarvis assets.
In February 1997, the Company announced its plans to sell its Harman
Automotive subsidiary and in March 1997 recorded a charge for the impairment
of Harman's long-lived assets, and certain long-lived assets of the Tiffin
plant.
While the Company is continuing its efforts to sell Harman and the
major portion of its Harvard Interiors division, it presently plans to close
these facilities in the second quarter of fiscal 1998 absent a sale. In
September 1997, the Company reflected a restructuring charge for employee
severance and plant closing costs for the Harman and Harvard Interiors
facilities.
(14) OTHER (INCOME) EXPENSE, NET
Other (income) expense, net includes the following:
1997 1996 1995
---- ---- ----
Write-down and disposal of assets no
longer required in operations........ $ 1,931 $ 2,053 $ 461
Loss on joint venture.................. 2,221 -- --
Interest income........................ (106) (220) (2,453)
Other, net............................. 1,484 (295) 203
------- ------- --------
$ 5,530 $ 1,538 $ (1,789)
======= ======= ========
F-18
<PAGE>
(15) INCOME TAXES
Provision for income tax expense for continuing operations consists of
the following:
1997 1996 1995
---- ---- ----
Federal................................ $ -- $ -- $ 6,650 (a)
Puerto Rico............................ -- -- 440
Foreign and other...................... 1,204 3,196 4,476
------- ------- -------
$ 1,204 $ 3,196 $11,566
======= ======= =======
- --------
(a) Includes a tax allocation aggregating $6,185 for goodwill, exercise of
stock options, and extraordinary item.
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, 1997 and 1996 are as
follows:
Deferred tax assets:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net operating loss carry forwards............................ $ 98,533 $ 72,160
Pension and postretirement benefits obligations.............. 33,732 37,676
Reorganization items capitalizable for tax purposes.......... 4,100 4,100
Reserves and accruals not yet recognized for tax purposes.... 115,193 36,078
---------- ---------
Total........................................................ 251,558 150,014
Less valuation allowance..................................... 200,780 95,956
---------- ---------
Total deferred tax assets.................................... $ 50,778 $ 54,058
========== =========
</TABLE>
The Company believes it will more likely than not be able to realize
its net deferred tax assets of $50,778 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 1997 and 1996 primarily
represents recognition of the deferred tax asset related to reserves and
accruals not yet recognized for tax purposes.
Deferred tax liabilities:
1997 1996
---- ----
Depreciation................................. $ 50,322 $ 54,794
Other........................................ 1,718 616
-------- ---------
Total deferred tax liabilities............... $ 52,040 $ 55,410
======== =========
F-19
<PAGE>
The net deferred tax liabilities of $1,262, and $1,352 are included in
other liabilities in the consolidated balance sheets at September 30, 1997 and
1996, 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax (benefit) expense at statutory rate .................. $ (135,879) $ (20,305) $ 7,238
State income taxes, net of federal benefit................ 549 736 298
Benefit of Puerto Rico tax exemption...................... -- -- (226)
Permanent differences arising in connection
with businesses acquired or reorganization............... 42,991 3,737 1,039
Other permanent differences............................... 114 115 467
Amount for which no tax benefit is
recognized............................................... 93,320 17,837 ---
Foreign taxes in excess of U.S. rates..................... 109 318 2,353
Other..................................................... -- 758 397
---------- --------- ---------
Actual tax expense from continuing operations............. $ 1,204 $ 3,196 $ 11,566
========== ========= =========
</TABLE>
At September 30, 1997, the Company had available net operating loss
carry forwards and general business tax credits of approximately $246,000, and
$1,300, respectively, for Federal income tax purposes. These carry forwards
expire in the years 2002 through 2012. Carryforwards of approximately $67,000
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 carry forwards 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, 1997 is approximately $37,000 and $13,000 which
may be carried forward and utilized in subsequent years.
The reorganization of the Company may have a significant impact on the
income tax liability of the Company in future years. The Internal Revenue Code
requires certain reductions and/or limitations in the amount of net operating
loss deduction and general business credits available for utilization if a
substantial change in ownership or forgiveness of debt occurs. Due to the
complexity of the tax laws involved and uncertainties relating to a final
plan of reorganization, the actual tax effects will not be known until such
a final plan of reorganization is approved.
(16) RELATED PARTY TRANSACTIONS
Pursuant to a Termination, Consulting and Release Agreement, dated as
of February 12, 1997 (the "Agreement"), among the Company, Vincent J. Naimoli
and his affiliated corporation, the parties agreed to terminate Mr. Naimoli's
management services relationship with the Company, and cancel the prior
Management and Option Agreement, as
F-20
<PAGE>
amended, under which Mr. Naimoli's services had been performed as the
Company's then Chairman of the Board and Chief Executive Officer, except for
certain provisions of the Management and Option Agreement relating to options,
registration rights and certain indemnification.
The Agreement provides for Mr. Naimoli to receive vested benefits which
had accrued prior to termination, and Mr. Naimoli agreed to act as a
consultant to the Company for three years after termination. In the second
quarter of 1997, the Company charged selling, general and administrative
expense in excess of $3,000 for all of the fees and benefits related to the
Agreement.
On June 19, 1997, the Company applied to the Court for an Order to
authorize the rejection of the Agreement, and on July 16, 1997, Mr. Naimoli
filed an objection to the Company's motion. The matter is currently pending in
the Court.
Under the Agreement, existing stock options and certain other
retirement benefits would continue to be available.
F-21
<PAGE>
Mr. Naimoli, beneficially owned, through Anchor Industries International,
Inc., an affiliated corporation of Mr. Namoli, 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. Anchor
then 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.
As of September 30, 1997, 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 July 15, 2004 and $50 principal
amount of the Company's 11 1/8% Notes due August 1, 2005.
Mr. Naimoli is a 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 office space on a
rent-free basis. The Agreement provides that the Company is to utilize the
services of Nice and Easy for one year following termination, and thereafter so
long as Nice and Easy is competitive. 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, 1997, 1996 and 1995, Nice and Easy billed the
Company, $2,100, $1,130, and $994, respectively, for travel services and rebated
$28, $34 and $31 to the Company in 1997, 1996 and 1995, respectively.
Additionally, Nice and Easy has not paid approximately $30 in rebates for 1997.
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 premium. In addition, a license
fee of $25 was paid representing a security deposit of $20, and the balance as
an
F-22
<PAGE>
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 Company paid in 1997 to The Blackstone Group, L.P., an investment
banking firm of which Mr. Hoffman, a Director of the Company, is a partner,
$54 for expenses and $75 as an upfront fee for additional advice rendered in
structuring alternatives to enhance shareholder value and agreed to pay
designated success fees in the event such alternatives are effected and
consummated successfully. The Company also paid $1,941 in 1995 for
financial advice rendered in developing the Company's bid for Doehler-Jarvis.
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. During 1997, 25% or more of such
amounts was paid in common stock of the Company. The issuance of common stock
for director's services ceased in September 1997. Officers are not separately
compensated for serving as Directors of the Company.
(17) 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 Principal Responsible Party ("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). Al71). 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. Such 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
January 16, 1995, the Company and ARCO entered into a settlement agreement
which calls for the Company to pay
F-23
<PAGE>
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.
However, due to the current bankruptcy proceedings, payments have been
suspended pending direction from the Court. 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.
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, 1997,
Harman's remaining share of costs incurred by the other two PRPs pursuant to
this cost-sharing arrangement is approximately $280, including reimbursement
of the other two PRPs for the construction cost of the treatment system. Due
to the current bankruptcy proceedings payments have been suspended pending
direction from the Court.
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 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 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, to construct, operate and maintain any
other proposed system that may be required by EPA, and to conduct any further
work required concerning further phases
F-24
<PAGE>
of work at the Vega Alta Site. Harman's settlement payment to General Electric
was being made in 20 equal quarterly installments, which commenced in January
1995, with 9% interest per annum. However, due to the current bankruptcy
proceedings, payments have been suspended pending direction from the Court.
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.
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.
On August 25, 1997, the Company was notified by the Michigan Department
of Environmental Quality ("MDEQ") that it is a responsible person as defined
in the Michigan Natural Resources and Environmental Protection Act. MDEQ has
orally indicated that it will be seeking reimbursement from Hayes-Albion with
regard to its facility in Jackson, Michigan. The future investigation,
remediation and oversight costs are unknown at this time.
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"). In March
1997, the Company entered into a consent decree with ALS whereby the Pottstown
plant is required to construct a wastewater recycling system by December 31,
1997. In addition, the Company agreed to pay a civil penalty of $1,000 and
$125 penalty from a parallel consent decree. The Company has met its
construction schedule but the $1,125 in penalties has not been paid but are
prepetition liabilities.
F-25
<PAGE>
As of September 30, 1997, 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. In accordance with the Company's policies and based on consultation
with legal counsel, the Company has provided environmental related accruals of
$8,700 as of September 30, 1997, of which approximately $6,000 is reflected in
the caption "Liabilities subject to compromise." 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 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.
F-26
<PAGE>
(18) LEASES
Rent expense under operating leases, consists of the following:
1997 1996 1995
---- ---- ----
Rent expense ................. $ 5,624 $ 3,340 $ 2,033
The following is a schedule of future annual minimum rental payments,
principally for machinery and equipment required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year as
of September 30, 1996.
YEARS ENDING SEPTEMBER 30
- -------------------------
1998.................................................... $ 6,807
1999.................................................... 5,312
2000.................................................... 2,176
2001.................................................... 1,846
2002.................................................... 1,299
Thereafter.............................................. 215
(19) 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 $3,619 in 1997, $4,355 in 1996, and $4,255 in 1995.
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 $459 in 1997, $500 in 1996, and $588 in 1995. 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.
F-27
<PAGE>
Pension expense for all of the Company's defined benefit pension plans
consists of the following:
1997 1996 1995
---- ---- ----
Benefits earned.............................. $ 2,823 $ 2,865 $ 2,315
Interest on projected benefit obligations.... 8,790 8,445 7,068
Actual return on assets...................... (17,378) (8,315) (9,025)
Net amortization and deferral................ 8,318 557 3,186
-------- -------- --------
$ 2,553 $ 3,552 $ 3,544
======== ======== ========
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>
1997 1996
--------------------------------- ------------------------------------
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................................... $ 92,835 $ 15,902 $ 74,873 $ 22,061
Non-vested............................... 4,525 2,257 3,482 3,301
------------- ------------ ------------- -------------
Accumulated benefit obligations.......... 97,360 18,159 78,355 25,362
Effects of salary progression............ 3,949 86 3,113 104
------------- ------------ ------------- -------------
Projected benefit obligations............ 101,309 18,245 81,468 25,466
------------- ------------ ------------- -------------
Plan assets:
Stocks................................... 59,075 5,649 36,284 8,189
Bonds.................................... 39,195 2,784 34,694 5,743
Other.................................... 11,185 4,054 12,242 3,860
------------- ------------ ------------- -------------
109,455 12,487 83,220 17,792
------------- ------------ ------------- -------------
Plan assets over (under) projected
benefit obligations........................ 8,146 (5,758) 1,752 (7,674)
Minimum liability recognized................ -- (3,684) -- (1,933)
Net loss not recognized..................... 7,566 3,715 7,456 1,575
Prior service cost.......................... 362 55 338 254
------------- ------------ ------------- -------------
Pension assets (liability) recognized....... $ 16,074 $ (5,672) $ 9,546 $ (7,778)
============= ============ ============= =============
Assumptions used:
Discount rate........................... 8.0% 8.0% 8.5% 8.5%
Rate of return on assets................ 9.5% 9.5% 9.5% 8.5 - 9.5%
Salary progression rate................. 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
contributions to certain of its underfunded pension plans. These contributions
were 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, 1997.
The Settlement Agreement, among other things,
F-28
<PAGE>
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 1/8% 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).
(20) 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, 1997 and 1996 was
determined by utilizing a discount rate of 8.0% and 8.5%, respectively, and a
graded medical trend rate projected at annual rates ranging ratably from 7%
and 10% in 1997 to 4.5% through the year 2000.
Since the Company does not fund postretirement benefit plans, there are
no plan assets. Net periodic postretirement benefit cost (benefit) at
September 30 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost.......................................... $ 1,593 $ 1,595 $ 1,009
Interest on accumulated postretirement benefit
obligation........................................... 6,955 7,196 5,724
Net amortization and deferral......................... (959) (493) --
Curtailment gains..................................... (8,249) -- --
--------- ---------- ---------
$ (660) $ 8,298 $ 6,733
========= ========== =========
</TABLE>
During the fourth quarter of 1997, the Company recorded curtailment
gains to reflect the curtailment of medical benefits at one plant and for all
active salaried employees of Doehler-Jarvis, which was recorded as a reduction
in cost of sales.
The accumulated postretirement benefit obligation at September 30, 1997
and 1996 consisted of the following:
1997 1996
---- ----
Retirees................................................ $ 44,153 $ 38,547
Fully eligible active plan participants................. 17,056 21,305
Other active plan participants.......................... 17,224 30,745
-------- --------
Accumulated postretirement benefit obligation........... 78,433 90,597
Unrecognized net gain................................... 20,796 13,167
-------- --------
Accrued postretirement benefit cost..................... 99,229 103,764
Included in accrued expenses............................ 2,300 3,300
-------- --------
Non-current postretirement benefit obligations.......... $ 96,929 $100,464
======== ========
The effect of a 1% annual increase in the assumed cost trend rates
discussed above would increase the accumulated postretirement obligation at
September 30, 1997 by approximately $10,172, and would increase the aggregate
of the service and interest cost components by approximately $1,246.
F-29
<PAGE>
(21) 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 shares issued and
outstanding in both 1997 and 1996, 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.
The Company did not pay the annual dividend on PIK Preferred Stock in
1997 and ceased accruing such dividend effective May 8, 1997 (see Note 1). On
September 30, 1996, the Company paid the annual dividend on PIK Preferred
Stock by issuing 574,987 additional shares of PIK Preferred Stock. The Company
recorded an increase of $14,844 in 1996 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. During 1997, the Company
also recorded $10,142 for unpaid dividends and related accretion.
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.
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 $151,000. 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 status of the PIK Preferred Stock and any
redemption requirements under the Company's Chapter 11 filing is presently
unknown.
F-30
<PAGE>
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 for all of its
issued and outstanding shares of PIK Preferred Stock, the Company's 14 1/4%
Subordinated Notes due November 16, 1998, if such securities are issued by the
Company. 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.
(22) 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.
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 21 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 (the "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.
F-31
<PAGE>
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.
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.
(23) 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
F-32
<PAGE>
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.
(24) 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 1/3%
per year after a one-year waiting period.
In addition, pursuant to the prior 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, 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 and 1997. 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.
F-33
<PAGE>
A summary of the Company's stock option activity is as follows:
OPTION SHARES
<TABLE>
<CAPTION>
Key Exercise Price
Employees Directors Anchor Total Range-Per Share
--------- --------- ------ ----- ---------------
<S> <C> <C> <C> <C> <C>
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 8,000 --- 83,800 $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 36,000 569,096 791,446 $6.00 to $28.00
Granted 1997................ 68,500 8,000 --- 76,500 $.8125 to $8.00
Exercised................... --- --- --- ---
Cancelled................... 31,375 --- --- 31,375 $8.00 to $28.00
----------- -------------- ------------- -------------
Balance 9/30/97............. 223,475 44,000 569,096 836,571 $.8125 to $28.00
Exercisable at
September 30:
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
1997..................... 108,200 44,000 369,096 519,296 $6.00 to $28.00
</TABLE>
The Company has elected to continue to measure compensation cost for
its stock option plans using the intrinsic value based method of accounting.
No pro forma disclosure of net loss is presented since it is immaterial.
(25) 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.
F-34
<PAGE>
The estimated fair value of the Company's financial instruments at
September 30, 1997 are as follows:
Carrying Fair
Amount Value
------ -----
Cash and cash equivalents $ 9,212 $ 9,212
Accounts receivable 76,190 76,190
Accounts payable 32,267 32,267
DIP financing (including current portion) 87,471 87,471
Senior notes 309,728 114,000
Long-term debt (including current portion) 14,087 14,087
PIK preferred stock 124,637 6,339
(26) 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.
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, 1997 and 1996 and
condensed statements of operations and cash flows for the years ended
September 30, 1997, 1996 and 1995.
F-35
<PAGE>
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 $14,377, $14,078, and $5,679 for the years ended
September 30, 1997, 1996 and 1995, 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-36
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(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......... $ 3,324 $ 5,376 $ 512 $ -- $ 9,212
Accounts receivable, net.......... 2,795 71,355 2,040 -- 76,190
Inventories....................... 2,475 50,662 1,081 -- 54,218
Prepaid expenses and other current
assets........................... 1,698 5,904 -- -- 7,602
--------- ---------- ---------- --------- ----------
Total current assets............. 10,292 133,297 3,633 -- 147,222
Investment in Subsidiaries......... (48,751) 12,138 -- 36,613 --
Property, plant and equipment, net. 3,878 119,164 9,224 -- 132,266
Intangible assets, net............. -- 4,417 -- -- 4,417
Intercompany receivables........... 240,542 276,424 9,483 (526,449) --
Other assets....................... 20,164 3,425 -- -- 23,589
--------- ---------- ---------- --------- ----------
$ 226,125 $ 548,865 $ 22,340 $(489,836) $ 307,494
========= ========== ========== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Current portion of DIP loans...... $ 867 $ 35,569 $ -- $ -- $ 36,436
Current portion of long-term debt. -- 1,748 -- -- 1,748
Accounts payable.................. 228 30,214 1,825 -- 32,267
Accrued expenses.................. 16,088 55,959 188 -- 72,235
Income taxes payable.............. (1,751) 1,246 2,945 -- 2,440
--------- ---------- ---------- --------- ----------
Total current liabilities....... 15,432 124,736 4,958 -- 145,126
Liabilities subject to compromise(a) 317,508 79,742 69 -- 397,319
DIP loans.......................... 705 50,330 -- -- 51,035
Long-term debt..................... 12,339 -- -- 12,339
Postretirement benefits other than
pensions.......................... -- 96,929 -- -- 96,929
Intercompany payables.............. 311,955 210,284 4,210 (526,449) --
Other.............................. 3,016 23,256 965 -- 27,237
--------- ---------- ---------- --------- ----------
Total liabilities............... 648,616 597,616 10,202 (526,449) 729,985
--------- ---------- ---------- --------- ----------
PIK Preferred...................... 124,637 -- -- -- 124,637
--------- ---------- ---------- --------- ----------
Shareholders' equity (deficiency):
Common stock and additional
paid-in-capital.................. 32,204 73,054 10 (73,064) 32,204
Additional minimum pension
liability........................ (3,665) (3,659) -- 3,659 (3,665)
Foreign currency translation
adjustment....................... (1,930) (1,930) (1,930) 3,860 (1,930)
Retained earnings (deficiency).... (573,737) (116,216) 14,058 102,158 (573,737)
--------- ---------- ---------- --------- ----------
Total shareholders' equity
(deficiency).................... (547,128) (48,751) 12,138 36,613 (547,128)
--------- ---------- ---------- --------- ----------
$ 226,125 $ 548,865 $ 22,340 $(489,836) $ 307,494
========= ========== ========== ========= ==========
</TABLE>
(a) Includes $309,728 senior notes payable and accrued interest which are
subject to the guaranty of the combined guarantor subsidiaries.
F-37
<PAGE>
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' EQUITY
(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' equity (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)
Retained earnings (deficiency)...... (184,308) 227,487 43,694 (271,181) (184,308)
--------- ---------- ----------- --------- ----------
Total shareholders' equity
(deficiency)................... (145,724) 296,822 41,877 (338,699) (145,724)
--------- ---------- ----------- --------- ----------
$ 731,683 $ 826,348 $ 31,981 $(972,307) $ 617,705
========= ========== =========== ========= ==========
</TABLE>
F-38
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING INCOME STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales................................ $ 19,733 $ 763,459 $ 27,577 $ -- $ 810,769
--------- ---------- ----------- --------- ----------
Costs and expenses:
Cost of sales....................... 20,380 751,489 25,905 -- 797,774
Selling, general and administrative. 13,921 31,901 -- -- 45,822
Interest expense.................... 24,093 12,378 188 -- 36,659
Amortization of goodwill............ -- 8,448 -- -- 8,448
Other (income) expense, net......... 853 4,656 21 -- 5,530
Impairment of long-lived assets and
restructuring costs................ 1,000 287,545 -- -- 288,545
Equity in (income) loss of
subsidiaries....................... 354,293 337 -- (354,630) --
Allocated expenses.................. (21,600) 20,160 1,440 -- --
--------- ---------- ----------- --------- ----------
Total costs and expenses......... 392,940 1,116,914 27,554 (354,630) 1,182,778
--------- ---------- ----------- --------- ----------
Income (loss) before income taxes and
reorganization items............... (373,207) (353,455) 23 354,630 (372,009)
Reorganization items................. 16,222 (6) -- -- 16,216
--------- ---------- ----------- --------- ----------
Income (loss) before income taxes.... (389,429) (353,449) 23 354,630 (388,225)
Provision for income taxes........... -- 844 360 -- 1,204
--------- ---------- ----------- --------- ----------
Net loss........................... $(389,429) $ (354,293) $ (337) $ 354,630 $ (389,429)
========= ========== =========== ========= ==========
</TABLE>
F-39
<PAGE>
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) 78 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-40
<PAGE>
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-41
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997
(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:
Loss from continuing operations before
reorganization items............................ $(373,207) $ (354,299) $ (337) $ 354,630 $ (373,213)
Add back (deduct) items not affecting
cash and cash equivalents:
Equity in (income) loss of subsidiaries......... 354,293 337 -- (354,630) --
Depreciation and amortization................... 2,595 56,144 1,447 -- 60,186
Impairment of long-lived assets and restructuring
costs.......................................... 1,000 287,545 -- -- 288,545
Loss on disposition of property, plant and
equipment and property held for sale........... 48 1,883 -- -- 1,931
Postretirement benefits......................... -- (4,138) -- -- (4,138)
Write-off of deferred debt expense.............. 1,792 -- -- -- 1,792
Senior notes interest accrued prior to chapter 11,
not paid....................................... 9,728 -- -- -- 9,728
Changes in operating assets and liabilities:
Accounts receivable............................. 3,130 16,176 3,492 -- 22,798
Inventories..................................... 2,581 (11,258) 1,452 -- (7,225)
Other current assets............................ (1,326) (4,639) -- -- (5,965)
Accounts payable................................ (3,483) (51,761) (1,562) -- (56,806)
Accounts payable prepetition.................... 1,618 79,742 69 -- 81,429
Accrued expenses and income taxes payable....... (6,229) (2,457) (1,568) -- (10,254)
Other noncurrent liabilities.................... 3,775 3,158 -- -- 6,933
--------- ---------- ----------- ----------- ----------
Net cash provided by (used in) continuing operations
before reorganization items...................... (3,685) 16,433 2,993 -- 15,741
Net cash used by reorganization items............... (2,870) 6 -- -- (2,864)
--------- ---------- ----------- ----------- ----------
Net cash provided by (used in) continuing operations (6,555) 16,439 2,993 -- 12,877
--------- ---------- ----------- ----------- ----------
Cash flows related to investing activities:
Acquisition of property, plant and equipment...... (147) (35,116) (1,309) -- (36,572)
Cash flows related to net assets of discountinued
operations....................................... 713 -- -- -- 713
Proceeds from disposition of property,
plant and equipment.............................. -- 1,703 -- -- 1,703
Net change in other noncurrent accounts........... (1,716) (159) 43 -- (1,832)
--------- ---------- ----------- ----------- ----------
Net cash used in investing activities............... (1,150) (33,572) (1,266) -- (35,988)
--------- ---------- ----------- ----------- ----------
Cash flows related to financing activities:
Deferred DIP financing costs...................... (2,200) -- -- -- (2,200)
Net payments under financing / credit agreement... (445) (38,389) -- -- (38,834)
Net borrowings under DIP financing agreement...... 1,572 85,899 -- -- 87,471
Proceeds from sale of stock / exercise of stock
options.......................................... 31 -- -- -- 31
Repayments of long-term debt...................... -- (7,682) -- -- (7,682)
Pension fund payment pursuant to PBGC settlement
agreement........................................ (6,000) -- -- -- (6,000)
Payment of EPA settlements........................ (1,053) (517) -- -- (1,570)
Net changes in intercompany balances.............. 20,779 (21,169) 390 -- --
--------- ---------- ----------- ----------- ----------
Net cash provided by financing activities........... 12,684 18,142 390 -- 31,216
--------- ---------- ----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 4,979 1,009 2,117 -- 8,105
Cash and cash equivalents:
Beginning of period............................... (1,655) 4,367 (1,605) -- 1,107
--------- ---------- ----------- ----------- ----------
End of period..................................... $ 3,324 $ 5,376 $ 512 $ -- $ 9,212
========= ========== =========== =========== ==========
</TABLE>
F-42
<PAGE>
HARVARD INDUSTRIES, INC.
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-43
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
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>
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, including
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 -- 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-44
<PAGE>
(27) QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal 1997
Quarters ended Dec. 31 Mar. 31 June 30 Sept. 30
- -------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales.............................................. $ 187,261 $ 209,226 $ 217,914 $ 196,368
Gross (loss) profit ............................... (3,201) (746) 6,305 10,637
---------- ---------- --------- ----------
Net loss.................................... $ (30,168) $ (168,154) $ (28,291) $ (162,816) (b)
========== ========== ========= ==========
Primary per common and common
equivalent share (c)
Net Loss.................................... $ (4.90) $ (24.57) (d) $ (4.27) $ (23.17) (e)
========== ========== ========= ==========
Cash dividends paid................................ $ -- $ -- $ -- $ --
========== ========== ========= ==========
Fiscal 1996
Quarters ended
- --------------
Sales.............................................. $ 210,536 $ 200,821 $ 222,300 $ 191,180
Gross profit....................................... 22,186 4,395 14,025 8,090
(Loss) income
Continuing operations............................ (1,724) (20,962) (11,097) (27,429) (g)
Discontinued operations.......................... --- -- -- (7,500)
---------- ---------- ----------- ----------
Net (loss) income ........................... $ (1,724) $ (20,962) $ (11,097) $ (34,929)
========== ========== =========== ==========
Primary per common and common
equivalent share (a)
(Loss) income from continuing operations........... $ (0.78) $ ( 3.53) $ (2.12) $ (4.45)
(Loss) income from discontinued
operations....................................... -- -- -- (1.07)
---------- ---------- ----------- ----------
Net (loss) income ........................... $ (0.78) $ (3.53) $ (2.12) $ (5.52)
========== ========== =========== ==========
Cash dividends paid................................ $ -- $ -- $ -- $ --
========== ========== =========== ==========
</TABLE>
- ------------
(a) Year-to-date earnings per share do not equal the sum of the quarterly
earnings per share.
(b) Includes curtailment gains of $8,249.
(c) Fully diluted earnings per share are the same as primary earnings per
share.
(d) Includes an impairment charge of $134,987. See Note 13.
(e) Includes an impairment and restructuring charge of $153,558. See
Note 13.
(f) Includes a charge of $4,636 of additional amortization of goodwill
related to Doehler-Jarvis. See Note 2.
F-45
<PAGE>
(28) SUBSEQUENT EVENTS (UNAUDITED)
In November 1997, the Company sold the Material Handling division of
its Kingston-Warren subsidiary for approximately $18,000 of gross proceeds.
Proceeds of $7,840 were applied to the scheduled quarterly payments of $3,250
(November 30, 1997 and February 28, 1998 and $1,340 was applied to the May 31,
1998 payment), and $7,840 was applied to the final installment due May 1999.
The balance of the proceeds were used for working capital purposes. The
transaction resulted in a gain on sale of approximately $11,400 in the first
quarter of 1998.
In November 1997, the Company entered into an agreement to sell its
land and building related to the Harvard Interiors Furniture Division located
in St. Louis, Missouri, for $2,700. A closing is anticipated by early
January 1998. Of the proceeds, $1,910 will be applied to the May 31, 1998
quarterly term principal payment and the balance to the August 1998 quarterly
term loan payment.
Subsequent to September 30, 1997, management plans to wind down existing
operations at its Doehler-Jarvis Toledo, Inc. subsidiary or otherwise sell or
dispose of that facility and to maintain the operations of its remaining
Doehler-Jarvis facilities located at Greeneville, Tennessee and Pottstown,
Pennsylvania. Both Ford and General Motors are negotiating with the Company to
defray certain expenses and assume certain obligations in connection with the
wind down of the Toledo facility. The Company is unable to estimate its costs
associated with this wind down.
Condensed operating data of Harman, Interiors, Material Handling and
Toledo being wound down or disposed of are as follows:
1997 1996
---- ----
Sales $215,868 $251,442
Gross profit (loss) (14,952) 12,312
Impairment of long-lived assets 101,025 --
The Company has been in negotiations with certain of its creditors to
obtain a $25,000 subordinated term loan, for a period maturing not later
than the date on which there is consummated a plan of reorganization for the
Company under Chapter 11. The proceeds of the term loan are intended to be
applied to reduce outstanding indebtedness under the Company's revolving credit
loan pursuant to the DIP Financing Agreement, thereby permitting the Company to
increase its liquidity under the revolving credit loan. Although the term loan
plan remains in negotiations, there has been an agreement in principle to pay
$2,500 of facility and funding fees, and for the loan to bear interest at a rate
per annum equal to the greater of 13% or the highest per annum interest rate
for term and revolving credit loans under the DIP Financing Agreement plus 3%.
The new term loan obligation will be subordinate to the liens under the DIP
Financing Agreement and will be collateralized by all assets previously pledged
to the lender under the DIP Financing Agreement. Also see Note 9.
In December 1997, the Company announced the appointment of Roger Pollazzi
as Chief Operating Officer and the relocation of its corporate headquarters
from Tampa, Florida to Lebanon, New Jersey. The Company currently estimates
that relocation costs will approximate $1,500, related primarily to severance
and lease termination fees. Such costs will be reflected in the first quarter
of fiscal 1998.
F-46
<PAGE>
AMENDMENT NO. 1, WAIVER AND CONSENT
TO
POST-PETITION LOAN AND SECURITY 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
FOOTHILL CAPITAL CORPORATION
AND
BANKBOSTON, N.A.
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 COMPANIES)
DATED: DECEMBER 29, 1997
<PAGE>
AMENDMENT NO. 1, WAIVER AND CONSENT (the "Amendment") dated
December 29, 1997, by and among HARVARD INDUSTRIES, INC., a Florida corporation
and a debtor and debtor in possession under chapter 11 of the Bankruptcy Code
(herein "Harvard"), DOEHLER-JARVIS, INC., a Delaware corporation and a debtor
and debtor in possession under chapter 11 of the Bankruptcy Code ("DJ Inc."),
THE KINGSTON-WARREN CORPORATION, a New Hampshire corporation and a debtor and
debtor in possession under chapter 11 of the Bankruptcy Code ("Kingston
Warren"), HARMAN AUTOMOTIVE, INC., a Michigan corporation and a debtor and
debtor in possession under chapter 11 of the Bankruptcy Code ("Harman
Automotive"), HAYES-ALBION CORPORATION, a Michigan corporation and a debtor and
debtor in possession under chapter 11 of the Bankruptcy Code ("Hayes-Albion"),
DOEHLER-JARVIS GREENEVILLE, INC., a Delaware corporation and a debtor and
debtor in possession under chapter 11 of the Bankruptcy Code, DOEHLER-JARVIS
POTTSTOWN, INC., a Delaware corporation and a debtor and debtor in possession
under chapter 11 of the Bankruptcy Code ("DJ Pottstown"), DOEHLER-JARVIS
TECHNOLOGIES. INC., a Delaware corporation and a debtor and debtor in
possession under chapter 11 of the Bankruptcy Code ("DJ Technologies"), and
DOEHLER-JARVIS TOLEDO, INC., a Delaware corporation and a debtor and debtor in
possession under chapter 11 of the Bankruptcy Code ("DJ Toledo"), THE CIT
GROUP/BUSINESS CREDIT, INC. ("CITBC") as agent for the Lenders whose names are
set forth on the signature pages hereto (each a "Lender" and collectively the
"Lenders" and CITBC as such agent being the "Agent") and the Lenders. Harvard
and each of the entities subsequently identified above (other than the Agent
and the Lenders) are referred to herein individually as a "Company" and
collectively as the "Companies").
W I T N E S S E T H
WHEREAS, each Company has filed a separate petition for
relief under chapter 11 of title 11 of the United States Code (the "Chapter 11
Cases") with the United States Bankruptcy Court for the District of Delaware
(the "Court") and continues to operate its business as a debtor-in-possession;
and
WHEREAS, the Companies, the Lenders and CITBC, as Agent, are
parties to that certain Post-Petition Loan and Security Agreement, dated as of
May 8, 1997 (as amended by this Amendment and as further amended, extended,
supplemented or otherwise modified from time to time, the "DIP Financing
Agreement" and capitalized terms defined in the DIP Financing Agreement and not
otherwise defined herein having the meanings provided therein), providing for,
inter alia, Term Loans and Revolving Credit Loans to the Companies in the
aggregate
<PAGE>
principal amounts of $65,000,000 for the Term Loans and up to $110,000,000 for
the Revolving Credit Loans; and
WHEREAS, pursuant to the Final Order dated June 12, 1997 (the
"Final Order") the Court, inter alia, approved the DIP Financing Agreement and
all transactions contemplated by the DIP Financing Agreement; and
WHEREAS, pursuant to the Final Order and the DIP Financing
Agreement, the Post-Petition Obligations (as defined in the Final Order) (i)
are secured by fully perfected and subsisting first priority liens on and
security interests in all assets and properties of the Companies (subject only
to the Carve-Out, Superior Existing Liens and Permitted Purchase Money Liens
(each as defined in the Final Order)) and (ii) constitute in accordance with
section 364(c)(1) of the Bankruptcy Code, claims against each of the Companies
which are administrative expense claims having priority over any and all
administrative expenses of the kind specified in sections 503(b) or 507(b) of
the Bankruptcy Code, subject only to the Carve-Out; and
WHEREAS, the Companies are in discussions with certain
members of the Official Committee of Unsecured Creditors or their affiliates
(in this capacity, the "Junior Lenders") pursuant to which the Junior Lenders
will lend an additional $25,000,000 to the Companies, on a subordinated basis,
to be used by the Companies, inter alia, to repay Revolving Credit Loans; and
WHEREAS, the Companies have requested the Agent and the
Lenders to enter into this Amendment, inter alia, (i) to waive certain Events
of Default which have arisen prior to the date of this Amendment, and (ii) to
amend certain financial covenants contained in the DIP Financing Agreement; and
WHEREAS, it is a condition precedent to the Agent and the
Lenders agreeing to amend the DIP Financing Agreement as requested by the
Companies that the parties hereto enter into the Amendment; and
WHEREAS, as consideration for the Lenders agreeing to amend
the DIP Financing Agreement as so requested by the Companies, the Companies
have agreed to pay an amendment fee of $250,000 (the "Amendment Fee") to the
Agent for the ratable benefit of the Lenders, payable at the time set forth
herein; and
WHEREAS, the Lenders have agreed with the Companies to enter
into this Amendment upon the terms and subject to the conditions contained
herein;
NOW, THEREFORE, the parties hereto agree as follows:
2
<PAGE>
SECTION 1. Amendments to the DIP Financing Agreement. Upon
the satisfaction of the conditions in Section 3 of this Amendment relating to
the effectiveness of this Section 1, the DIP Financing Agreement is hereby
amended as follows:
(i) Section 1 is hereby amended by:
(a) Adding the following new definitions in appropriate
alphabetical order:
"Adjusted Net Worth" shall mean, at any time, the excess of
the Total Assets of the Companies at such time over the Total
Liabilities of the Companies at such time, adjusted so as to add back
(i) any amounts shown on the consolidated balance sheet of the
Companies as liabilities subject to compromise, (ii) Harvard's 14 1/4%
Pay-in-Kind Exchangeable Preferred Stock, and (iii) any Indebtedness
incurred subsequent to January 1, 1998 which is subordinated to the
Obligations.
"Tangible Net Worth" shall mean, at any time, the Adjusted
Net Worth of the Companies at such time, excluding, however, from the
determination of the Total Assets at such time, (i) all goodwill,
organizational expenses, research and development expenses,
trademarks, trade names, copyrights, patents, patent applications,
licenses and rights in any thereof, and other similar intangibles,
(ii) treasury stock and capital stock, obligations or other securities
of, or capital contributions to, or investments in, any Subsidiary,
(iii) securities which are not readily marketable, (iv) cash held in a
sinking or other analogous fund established for the purpose of
redemption, retirement, defeasance or prepayment of any stock or
Indebtedness, and (v) any items not included in clauses (i) through
(iv) above which are treated as intangibles in conformity with GAAP.
"Total Assets" shall mean, at any time, the total assets of
the Companies at such time determined on a consolidated basis in
accordance with GAAP.
"Total Liabilities" shall mean, at any time, all obligations
which in conformity with GAAP would be included in determining total
liabilities as shown on the liabilities side of the consolidated
balance sheet of the Companies at such time, and in any event
includes, without limitation, all
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Indebtedness of the Companies at such time whether or not the same
would be so shown.
(ii) Section 8 is hereby amended by deleting Sections 8.8,
8.9 and 8.10 and replacing them in their entirety with the following:
8.8A EBITDA. The Companies shall maintain cumulative EBITDA
(deficiencies shown in parentheses) of not less than:
(a) $(7,500,000) for the three months ended December 31, 1997;
(b) $(10,000,000) for the four months ended January 31, 1997;
(c) $(10,000,000) for the five months ended February 28, 1998;
(d) $(7,500,000) for the six months ended March 31, 1998;
(e) $(5,000,000) for the seven months ended April 30, 1998;
(f) $(2,500,000) for the eight months ended May 31, 1998;
(g) $0 for the nine months ended June 30, 1998;
(h) $(1,000,000) for the ten months ended July 31, 1998;
(i) $1,000,000 for the eleven months ended August 31, 1998; and
(j) $4,000,000 for the year ended September 30, 1998.
8.8B Tangible Net Worth. The Companies shall maintain during
each month set forth below a consolidated Tangible Net Worth
(deficiencies shown in parentheses) of not less than the minimum
amount set forth below for such month:
(a) $(48,822,000) for the month ended December 31, 1997;
(b) $(56,289,000) for the month ended January 31, 1997;
(c) $(33,417,000) for the month ended February 28, 1998;
(d) $(34,769,000) for the month ended March 31, 1998;
(e) $(34,592,000) for the month ended April 30, 1998;
(f) $(37,751,000) for the month ended May 31, 1998;
(g) $(38,861,000) for the month ended June 30, 1998;
(h) $(45,898,000) for the month ended July 31, 1998;
(i) $(47,179,000) for the month ended August 31, 1998; and
(j) $(45,405,000) for the month ended September 30, 1998.
8.9 Capital Expenditures. The Companies shall not make
payments in respect of Capital Expenditures excluding payments on
Capital Lease Obligations in existence on the Petition Date in excess
of $30,000,000 in the aggregate for all Companies during the fiscal
year ending September 30, 1998,
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without the prior written consent of the Agent (acting on the
instructions of the Required Lenders).
8.10 Fixed Charge Coverage Ratio. From and after October 1,
1998, the Companies shall maintain a ratio of (a) EBITDA to (b) Fixed
Charges of at least 1:1 for the period from the beginning of the
Fiscal Year to the end of the most recently completed calendar month
in such Fiscal Year for which financial statements are available.
SECTION 2. Waiver. The Agent and the Lenders hereby waive
with effect from the Effective Date (as defined below) all Defaults and Events
of Default which have occurred prior to the date hereof which result solely
from the Companies' failure to comply with Section 8.8 of the DIP Financing
Agreement.
SECTION 3. 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, (b) except as
disclosed in writing to the Agent and the Lenders or as waived hereby, no event
has occurred and is continuing on the date hereof that constitutes a Default or
Event of Default or would constitute a Default or Event of Default after giving
effect to this Amendment, and (c) the representations and warranties of such
Company contained in Section 6 of the DIP Financing Agreement are true and
correct both before and after giving effect to this Amendment, except to the
extent such representations and warranties are stated to be true only as of a
particular date, in which case such representations and warranties were correct
on and as of such date.
SECTION 4. Conditions to Effectiveness. The amendments,
waiver and consent in Sections 1, 2 and 6 of this Amendment shall become
effective on the date (the "Effective Date") when counterparts hereof shall
have been executed by the Required Lenders, the Agent and the Companies, and
the Agent shall have received the following:
(i) 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 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; and
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<PAGE>
(ii) The Amendment Fee, for the ratable benefit of the
Lenders.
SECTION 5. Amendment Fee. To induce the Agent and the Lenders
to enter into this Amendment and to continue to extend to the Companies the
Revolving Loans, the Companies shall jointly and severally pay to the Agent for
the ratable benefit of the Lenders an Amendment Fee of $250,000.
SECTION 6. Consent. The Lenders hereby consent, to the extent
required under the DIP Financing Agreement, to the sale of certain properties
located in St. Louis, Missouri to DMD Group, Inc. for $2,700,000 (the "Sale"),
subject to (i) the entry of an order of the Bankruptcy Court approving the
Sale, and (ii) the Asset Sale Proceeds being applied to prepay the Revolving
Credit Loans and the Term Loans as required by Sections 2.4 and 8.7 of the DIP
Financing Agreement.
SECTION 7. Effect on the DIP Financing Agreement. Except as
amended or waived hereby, the DIP Financing Agreement and the other
Post-Petition Loan Documents shall remain in full force and effect. Nothing in
this Amendment shall be deemed to (i) constitute, except as expressly provided
herein, a waiver of compliance by any of the Companies of any term, provision
or condition of the DIP Financing Agreement or any other instrument or
agreement referred to therein or under the Post-Petition Loan Documents or (ii)
prejudice any right or remedy that the Agent or any Lender may now have or may
have in the future under or in connection with the DIP Financing Agreement or
any other Post-Petition Loan Document.
SECTION 8. 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 9. Governing Law. The validity, interpretation and
enforcement of this Amendment shall be governed by the law of the State of New
York.
SECTION 10. 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 11. References. References herein and in the
Post-Petition Loan Documents and the Final Order to the "DIP Financing
Agreement", the "Post-Petition Loan and Security Agreement", the "Postpetition
Loan Agreement", "this Agreement", "hereunder", "hereof", or words of like
import referring to the DIP
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<PAGE>
Financing Agreement, shall mean and be a reference to the DIP Financing
Agreement as amended hereby.
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<PAGE>
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 Harvard a fully
executed original for its files.
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.
DOEHLER-JARVIS TOLEDO, INC.
By: /s/ Joseph J. Gagliardi
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
THE CIT GROUP/BUSINESS CREDIT, INC.,
AS AGENT AND LENDER
By: /s/ Frank Grimaldi
----------------------------------
Title: Vice President
CONGRESS FINANCIAL CORPORATION, AS
LENDER
By: /s/ Mark Fagnani
----------------------------------
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION, AS LENDER
By: /s/ Martin S. Greenberg
----------------------------------
Title: Duly Authorized Signatory
<PAGE>
HELLER FINANCIAL, INC., AS LENDER
By: /s/ Tara Hopkins
----------------------------------
Title: Vice President
FINOVA CAPITAL CORPORATION, AS
LENDER
By: /s/ Brian Rujawitz
----------------------------------
Title: Assistant Vice President
FOOTHILL CAPITAL CORPORATION, AS
LENDER
By: /s/ Matthew Simoneau
----------------------------------
Title: Vice President
BANKBOSTON, N.A. AS LENDER
By: /s/ Garrett Quinn
----------------------------------
Title: Vice President
9
<PAGE>
SEVERANCE AGREEMENT
THIS AGREEMENT, dated , 1997, is made by and between Harvard
Industries, Inc., a Florida corporation (the "Company"), and Richard Dawson
(the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders and creditors to foster the continued employment
of key management personnel;
WHEREAS, the Executive is currently the senior legal officer
of the Company and serves as its Senior Vice President/ Law and Administration,
with such duties as are customarily assigned by the chief executive officer of
a company to individuals serving in the position of General Counsel, and such
other senior level duties and responsibilities as may be specified by the Chief
Executive Officer of the Company from time to time; and
WHEREAS, the Board has determined that appropriate steps
should be taken to encourage the retention of key members of the Company's
management, including the Executive;
NOW, THEREFORE, subject to approval by the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court Approval"),
and 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 of
Bankruptcy Court Approval and shall continue in effect through December 31,
2000; provided, however, that commencing on December 1, 1998 and each December
1 thereafter, the Term shall automatically be extended for one additional year
unless, not later than June 30 immediately preceding each such December 1, the
Company or the Executive shall have given notice to the other not to extend the
Term.
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 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 a termination of the Executive's employment with the
Company during the Term.
<PAGE>
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, the Executive will
remain in the employ of the Company until the earliest of (i) the date of the
consummation of the Plan of Reorganization, plus, if requested by the Board, up
to an additional 60 days beyond such date, (ii) the date of termination by the
Executive of the Executive's employment for Good Reason or by reason of death,
Disability or Retirement, or (iii) the termination by the Company of the
Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1. 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 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, and the Executive shall become fully vested in all
benefits provided under the Pension Plans, 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.
6. Severance Payments.
6.1. Subject to Section 6.2 hereof, if the Executive's
employment is terminated 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
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<PAGE>
Payments"), in addition to any payments and benefits to which the Executive is
entitled under Section 5 hereof.
(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.
(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
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<PAGE>
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 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 the Pension Plans under
Section 5.2 hereof, 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 the Pension Plans, 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 hereunder and had been credited under each Pension Plan
during such period with compensation equal to the Executive's
compensation (as defined in the Pension Plans) during the twelve (12)
months immediately preceding the 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
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<PAGE>
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 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 portion of any payment or benefit received or
to be received by the Executive in connection with his employment hereunder
(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 for purposes of Section 280G of the Code 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 in 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 year for
which the determination was made, the Company's independent auditor (the
"Auditor"), does not constitute a "parachute payment" within the meaning of
Section
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<PAGE>
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 nay 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 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 Payment's 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 later 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
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<PAGE>
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 are 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 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. 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), which
resolution reflects the written concurrence of both the Chief Executive Officer
of the Company and of the Chief Operating Officer of the Company (provided that
if the Chief Executive Officer of the Company is not then John Adams, the
required concurrence shall be that of the Chairman of the Board and the Chief
Executive Officer of the Company), 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
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<PAGE>
employment 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 he 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(30) days (except in the case of a
termination for Cause) and, 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) days, 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 appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that 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 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 6.1(B) hereof) shall
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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 the 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, except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination.
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 due while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminates 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:
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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. Upon Bankruptcy
Court Approval, this Agreement supersedes any and all other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party. 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 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.
12.2. 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
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<PAGE>
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 shall 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
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the 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) "Bankruptcy Court Approval" shall have the meaning set
forth on the first page of this Agreement.
(D) "Base Amount" shall have the meaning set forth in
Section 280G(b)(3) of the Code.
(E) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
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<PAGE>
(F) "Board" shall mean the Board of Directors of the
Company.
(G) "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 Executive's 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 (a) specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties, and (b) contains the written
concurrence of both the Chief Executive Officer of the Company and of the Chief
Operating Officer of the Company with the conclusions of the Board; provided,
however, that if the Chief Executive Officer of the Company is not then John
Adams, the required concurrence shall be that of the Chairman of the Board and
the Chief Executive Officer of the Company, 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
Executive's 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.
(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 constitute the Compensation Committee of 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 individuals 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., shall
include any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
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<PAGE>
(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.
(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 either (x) the occurrence during the Term of
the consummation of a Plan of Reorganization and if requested by the Board, the
performance of services by the Executive for up to 60 days following the
consummation of the Plan of Reorganization, or (y) the occurrence (without the
Executive's express written consent) after November 15, 1997 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) 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
materially inconsistent with the Executive's position as the
Senior Vice President/Law and Administration of the Company
with the duties and responsibilities set forth in the second
recital to this Agreement, or a substantial adverse
alteration in the nature of the Executive's responsibilities
from those in effect immediately prior to November 15, 1997,
provided that the appointment of Roger Pollazzi and the
substitution of Roger Pollazzi as the person to whom the
Executive shall report may not, in and of itself, be a basis
for an assertion by the Executive that the provisions of this
paragraph (I) have been triggered;
(II) a reduction by the Company in the Executive's
annual base salary as in effect on November 15, 1997, 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;
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(III) the relocation of the Executive's principal
place of employment to a location more than 35 miles from the
Executive's principal place of employment on November 15,
1997 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, after November 15,
1997, to pay to the Executive any portion of the Executive's
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 on
November 15, 1997 which is material to the Executive's total
compensation, 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 November 15, 1997;
(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 on which the Executive was
participating immediately prior to November 15, 1997 (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 on the date of Bankruptcy Court Approval, 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
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<PAGE>
with the Company in accordance with the Company's normal
vacation policy in effect on the date of Bankruptcy Court
Approval; 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 Executive's 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.
(Q) "Pension Plans" shall mean the Harvard Retirement Plan,
the Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan, effective
January 1, 1995, in the form annexed as Exhibit A hereto, and the Harvard
Industries, Inc. Nonqualified Additional Credited Service Plan, effective
January 1, 1995, in the form annexed as Exhibit B hereto (the "Additional
Credited Service Plan") in each of which the Executive shall be treated as
participating throughout the Term (with no alterations to the determination of
"Adjusted Retirement Income" to be permitted under Section 3.1(4) of the
Additional Credited Service Plan, notwithstanding the discretion afforded under
such Section 3.1(4), with no amendments to such plans which are adverse to the
Executive being taken into account without his written consent, and without
regard to Section 3.1(5) of the Additional Credited Service Plan) regardless of
whether such plans are continued during the Term or after the Plan of
Reorganization, and regardless of whether any action which is required to have
been, or to be, taken in order for the Executive to be designated as a
participant has in fact been, or is hereafter taken.
(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 terms 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,
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<PAGE>
by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company.
(S) "Plan of Reorganization" shall mean the final Joint Plan
of Reorganization as proposed by the Company and approved by the United States
Bankruptcy Court for the District of Delaware, as the same may be amended from
time to time.
(T) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such employment
is terminated on or after his normal retirement date in accordance with the
Company's retirement policy 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.
(W) "Term" shall mean the period of time described in Section
2 hereof (taking into account any extension, continuation or termination
described herein).
(X) "Total Payments" shall mean those payments se described
in Section 6.2 hereof.
HARVARD INDUSTRIES, INC.
By:
-----------------------------
Name:
Title:
-----------------------------
Richard Dawson
Address:
719 South Willow Avenue
Tampa, FL 33606
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<PAGE>
SEVERANCE AGREEMENT
THIS AGREEMENT, dated , 1997, is made by and
between Harvard Industries, Inc., a Florida corporation (the "Company"), and
Joseph J. Gagliardi (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders and creditors to foster the continued employment
of key management personnel;
WHEREAS, the Executive is currently the Chief Financial
Officer of the Company with such duties as are customarily assigned by the
chief executive officer of a company to individuals serving in such position,
and such other senior level duties and responsibilities as may be specified by
the Chief Executive Officer of the Company from time to time; and
WHEREAS, the Board has determined that appropriate steps
should be taken to encourage the retention of key members of the Company's
management, including the Executive;
NOW, THEREFORE, subject to approval by the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court Approval"),
and 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 of
Bankruptcy Court Approval and shall continue in effect through December 31,
2000; provided, however, that commencing on December 1, 1998 and each December
1 thereafter, the Term shall automatically be extended for one additional year
unless, not later than June 30 immediately preceding each such December 1, the
Company or the Executive shall have given notice to the other not to extend the
Term.
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 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 a termination of the Executive's employment with the
Company during the Term. This Agreement shall not be construed as creating an
express or implied contract of employment and, except as otherwise agreed in
<PAGE>
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, the Executive will
remain in the employ of the Company until the earliest of (i) the date of the
consummation of the Plan of Reorganization, plus, if requested by the Board, up
to an additional 60 days beyond such date, (ii) the date of termination by the
Executive of the Executive's employment for Good Reason or by reason of death,
Disability or Retirement, or (iii) the termination by the Company of the
Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1. 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 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, and the Executive shall become fully vested in all
benefits provided under the Pension Plans, 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.
6. Severance Payments.
6.1. Subject to Section 6.2 hereof, if the Executive's
employment is terminated 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.
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(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 three 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.
(B) For the thirty-six (36) 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 thirty-six (36) 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
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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 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 the Pension Plans under
Section 5.2 hereof, 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
third 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 the Pension Plans, determined as
if the Executive were fully vested thereunder and had accumulated
(after the Date of Termination) thirty-six (36) additional months of
service credit hereunder and had been credited under each Pension Plan
during such period with compensation equal to the Executive's
compensation (as defined in the Pension Plans) during the twelve (12)
months immediately preceding the 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
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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 three 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 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 portion of any payment or benefit received or
to be received by the Executive in connection with his employment hereunder
(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 for purposes of Section 280G of the Code 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 in 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 year for
which the determination was made, 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
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(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 nay
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 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 Payment's 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 later 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
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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 are 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 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. 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), which
resolution reflects the written concurrence of both the Chief Executive Officer
of the Company and of the Chief Operating Officer of the Company (provided that
if the Chief Executive Officer of the Company is not then John Adams, the
required concurrence shall be that of the Chairman of the Board and the Chief
Executive Officer of the Company), 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 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 he Executive shall
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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(30) days (except in the case of a termination for Cause) and,
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) days, 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 appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that 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 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 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,
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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 the 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, except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination.
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 due while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminates 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:
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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. Upon Bankruptcy
Court Approval, this Agreement supersedes any and all other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party. 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 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.
12.2. 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
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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 shall 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
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the 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) "Bankruptcy Court Approval" shall have the meaning set
forth on the first page of this Agreement.
(D) "Base Amount" shall have the meaning set forth in Section
280G(b)(3) of the Code.
(E) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
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(F) "Board" shall mean the Board of Directors of the Company.
(G) "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 Executive's 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 (a) specifically identifies the manner
in which the Board believes that the Executive has not substantially performed
the Executive's duties, and (b) contains the written concurrence of both the
Chief Executive Officer of the Company and of the Chief Operating Officer of
the Company with the conclusions of the Board; provided, however, that if the
Chief Executive Officer of the Company is not then John Adams, the required
concurrence shall be that of the Chairman of the Board and the Chief Executive
Officer of the Company, 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 Executive's 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.
(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 constitute the Compensation Committee of 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 individuals 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., shall
include any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
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(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.
(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 either (x) the occurrence during the Term of
the consummation of a Plan of Reorganization and if requested by the Board, the
performance of services by the Executive for up to 60 days following the
consummation of the Plan of Reorganization, or (y) the occurrence (without the
Executive's express written consent) after November 15, 1997 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) 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
materially inconsistent with the Executive's position as the
Chief Financial Officer of the Company with the duties and
responsibilities set forth in the second recital to this
Agreement, or a substantial adverse alteration in the nature
of the Executive's responsibilities from those in effect
immediately prior to November 15, 1997, provided that the
appointment of Roger Pollazzi and the substitution of Roger
Pollazzi as the person to whom the Executive shall report may
not, in and of itself, be a basis for an assertion by the
Executive that the provisions of this paragraph (I) have been
triggered;
(II) a reduction by the Company in the Executive's
annual base salary as in effect on November 15, 1997, 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;
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(III) the relocation of the Executive's principal
place of employment to a location more than 35 miles from the
Executive's principal place of employment on November 15,
1997 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,
provided that no relocation of the Executive's principal
place of employment shall be a basis for an assertion by the
Executive that an event of Good Reason has occurred if
mutually agreeable relocation benefits have been provided;
(IV) the failure by the Company, after November 15,
1997, to pay to the Executive any portion of the Executive's
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 on
November 15, 1997 which is material to the Executive's total
compensation, 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 November 15, 1997;
(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 on which the Executive was
participating immediately prior to November 15, 1997 (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
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Executive on the date of Bankruptcy Court Approval, 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 on the date of Bankruptcy Court Approval; 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 Executive's 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.
(Q) "Pension Plans" shall mean the Harvard Retirement Plan,
the Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan, effective
January 1, 1995, in the form annexed as Exhibit A hereto, and the Harvard
Industries, Inc. Nonqualified Additional Credited Service Plan, effective
January 1, 1995, in the form annexed as Exhibit B hereto (the "Additional
Credited Service Plan") in each of which the Executive shall be treated as
participating throughout the Term (with no alterations to the determination of
"Adjusted Retirement Income" to be permitted under Section 3.1(4) of the
Additional Credited Service Plan, notwithstanding the discretion afforded under
such Section 3.1(4), with no amendments to such plans which are adverse to the
Executive being taken into account without his written consent, and without
regard to Section 3.1(5) of the Additional Credited Service Plan) regardless of
whether such plans are continued during the Term or after the Plan of
Reorganization, and regardless of whether any action which is required to have
been, or to be, taken in order for the Executive to be designated as a
participant has in fact been, or is hereafter taken.
(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 terms shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or
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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) "Plan of Reorganization" shall mean the final Joint Plan
of Reorganization as proposed by the Company and approved by the United States
Bankruptcy Court for the District of Delaware, as the same may be amended from
time to time.
(T) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such employment
is terminated on or after his normal retirement date in accordance with the
Company's retirement policy 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.
(W) "Term" shall mean the period of time described in Section
2 hereof (taking into account any extension, continuation or termination
described herein).
(X) "Total Payments" shall mean those payments se described
in Section 6.2 hereof.
HARVARD INDUSTRIES, INC.
By:
---------------------------
Name:
Title:
---------------------------
Joseph J. Gagliardi
Address:
1560 Gulf Boulevard #503
Clearwater, FL 34630
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SEVERANCE AGREEMENT
THIS AGREEMENT, dated , 1997, is made by and
between Harvard Industries, Inc., a Florida corporation (the "Company"), and
Roger L. Burtraw (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders and creditors to foster the continued employment
of key management personnel;
WHEREAS, the Executive is currently the President of the
Company reporting to the Chief Executive Officer of the Company with such
duties as are customarily assigned by the chief executive officer of a company
to individuals serving in such position, and such other senior level duties and
responsibilities as may be specified by the Chief Executive Officer of the
Company from time to time; and
WHEREAS, the Board has determined that appropriate steps
should be taken to encourage the retention of key members of the Company's
management, including the Executive;
NOW, THEREFORE, subject to approval by the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court Approval"),
and 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 of
Bankruptcy Court Approval and shall continue in effect through December 31,
2000; provided, however, that commencing on December 1, 1998 and each December
1 thereafter, the Term shall automatically be extended for one additional year
unless, not later than June 30 immediately preceding each such December 1, the
Company or the Executive shall have given notice to the other not to extend the
Term.
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 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 a termination of the Executive's employment with the
Company during the Term. This Agreement shall not be construed as creating an
express or
<PAGE>
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, the Executive will
remain in the employ of the Company until the earliest of (i) the date of the
consummation of the Plan of Reorganization, plus, if requested by the Board, up
to an additional 60 days beyond such date, (ii) the date of termination by the
Executive of the Executive's employment for Good Reason or by reason of death,
Disability or Retirement, or (iii) the termination by the Company of the
Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1. 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 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, and the Executive shall become fully vested in all
benefits provided under the Pension Plans, 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.
6. Severance Payments.
6.1. Subject to Section 6.2 hereof, if the Executive's
employment is terminated 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
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Payments"), in addition to any payments and benefits to which the Executive is
entitled under Section 5 hereof.
(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 three 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.
(B) For the thirty-six (36) 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 thirty-six (36) 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
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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 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 the Pension Plans under
Section 5.2 hereof, 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
third 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 the Pension Plans, determined as
if the Executive were fully vested thereunder and had accumulated
(after the Date of Termination) thirty-six (36) additional months of
service credit hereunder and had been credited under each Pension Plan
during such period with compensation equal to the Executive's
compensation (as defined in the Pension Plans) during the twelve (12)
months immediately preceding the 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
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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 three 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 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 portion of any payment or benefit received or
to be received by the Executive in connection with his employment hereunder
(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 for purposes of Section 280G of the Code 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 in 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 year for
which the determination was made, the Company's independent auditor (the
"Auditor"), does not constitute a "parachute payment" within the meaning of
Section
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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 nay 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 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 Payment's 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 later 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
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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 are 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 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. 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), which
resolution reflects the written concurrence of both the Chief Executive Officer
of the Company and of the Chief Operating Officer of the Company (provided that
if the Chief Executive Officer of the Company is not then John Adams, the
required concurrence shall be that of the Chairman of the Board and the Chief
Executive Officer of the Company), 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
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employment 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 he 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(30) days (except in the case of a
termination for Cause) and, 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) days, 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 appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that 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 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 6.1(B) hereof) shall
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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 the 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, except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination.
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 due while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminates 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:
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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. Upon Bankruptcy
Court Approval, this Agreement supersedes any and all other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party. 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 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.
12.2. 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
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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 shall 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
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the 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) "Bankruptcy Court Approval" shall have the meaning set
forth on the first page of this Agreement.
(D) "Base Amount" shall have the meaning set forth in Section
280G(b)(3) of the Code.
(E) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
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(F) "Board" shall mean the Board of Directors of the Company.
(G) "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 Executive's 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 (a) specifically identifies the manner
in which the Board believes that the Executive has not substantially performed
the Executive's duties, and (b) contains the written concurrence of both the
Chief Executive Officer of the Company and of the Chief Operating Officer of
the Company with the conclusions of the Board; provided, however, that if the
Chief Executive Officer of the Company is not then John Adams, the required
concurrence shall be that of the Chairman of the Board and the Chief Executive
Officer of the Company, 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 Executive's 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.
(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 constitute the Compensation Committee of 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 individuals 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., shall
include any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
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(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.
(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 either (x) the occurrence during the Term of
the consummation of a Plan of Reorganization and if requested by the Board, the
performance of services by the Executive for up to 60 days following the
consummation of the Plan of Reorganization, or (y) the occurrence (without the
Executive's express written consent) during the Term and after November 15,
1997 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) 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
materially inconsistent with the Executive's position as the
President of the Company with the duties and responsibilities
set forth in the second recital to this Agreement, or a
substantial adverse alteration in the nature of the
Executive's responsibilities from those in effect immediately
prior to November 15, 1997, provided that (a) the appointment
of Roger Pollazzi and the substitution of Roger Pollazzi as
the person to whom the Executive shall report may not, in and
of itself, be a basis for an assertion by the Executive that
the provisions of this paragraph (I) have been triggered and
(b) no diminution after November 15, 1997 in the Executive's
responsibilities with regard to the management of the
Company's various Doehler-Jarvis affiliates shall be a basis
for an assertion by the Executive that the provisions of this
paragraph (I) have been triggered;
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(II) a reduction by the Company in the Executive's
annual base salary as in effect on November 15, 1997, 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's principal place of employment on November 15,
1997 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, after November 15,
1997, to pay to the Executive any portion of the Executive's
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 on
November 15, 1997 which is material to the Executive's total
compensation, 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 November 15, 1997;
(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 on which the Executive was
participating immediately prior to November 15, 1997 (except
for across-the-board changes similarly affecting all senior
executives of the Company and all senior executives of any
Person in
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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 on the date
of Bankruptcy Court Approval, 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 on the date of Bankruptcy
Court Approval; 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 Executive's 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.
(Q) "Pension Plans" shall mean the Harvard Retirement Plan,
the Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan, effective
January 1, 1995, in the form annexed as Exhibit A hereto, and the Harvard
Industries, Inc. Nonqualified Additional Credited Service Plan, effective
January 1, 1995, in the form annexed as Exhibit B hereto (the "Additional
Credited Service Plan") in each of which the Executive shall be treated as
participating throughout the Term (with no alterations to the determination of
"Adjusted Retirement Income" to be permitted under Section 3.1(4) of the
Additional Credited Service Plan, notwithstanding the discretion afforded under
such Section 3.1(4), with no amendments to such plans which are adverse to the
Executive being taken into account without his written consent, and without
regard to Section 3.1(5) of the Additional Credited Service Plan) regardless of
whether such plans are continued during the Term or after the Plan of
Reorganization, and regardless of whether any action which is required to have
been, or to be, taken in order for the Executive to be designated as a
participant has in fact been, or is hereafter taken.
-15-
<PAGE>
(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 terms 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) "Plan of Reorganization" shall mean the final Joint Plan
of Reorganization as proposed by the Company and approved by the United States
Bankruptcy Court for the District of Delaware, as the same may be amended from
time to time.
(T) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such employment
is terminated on or after his normal retirement date in accordance with the
Company's retirement policy 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.
(W) "Term" shall mean the period of time described in Section
2 hereof (taking into account any extension, continuation or termination
described herein).
(X) "Total Payments" shall mean those payments se described
in Section 6.2 hereof.
HARVARD INDUSTRIES, INC.
By:
----------------------------
Name:
Title:
----------------------------
Roger L. Burtraw
Address:
43481 Serenity Drive
Northville, MI 48167
-16-
<PAGE>
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
-------- ---------- --------
1997 1996 1995
-------- ---------- --------
<S> <C> <C> <C>
Pre-tax income from continuing operations.......... $ (388,225) $ (58,016) $ 20,679
Add: Fixed charges................................. 38,477 48,117 20,257
-------- ---------- --------
Income as adjusted................................. $ (349,748) $ (9,899) $ 40,936
======== ========== ========
Fixed charges:
Interest on indebtedness......................... $ 36,659 $ 47,004 $ 19,579
Portion of rents representative of the
interest factor................................. 1,818 1,113 678
-------- ---------- --------
Fixed charges.................................... 38,477 48,117 20,257
Dividends on preferred stock and accretion......... 10,142 14,844 14,809
-------- ---------- --------
Fixed charges and dividends on preferred stock..... $ 48,619 $ 62,961 $ 35,066
======== ========== ========
Ratio of earnings over fixed charges and
dividends on preferred stock...................... 1.17x
========
Deficiency of earnings over fixed charges and
dividends on preferred stock...................... $ (398,367) $ (53,062)
======== ==========
</TABLE>
<PAGE>
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:
JURISDICTION OF PERCENTAGE OF
NAME INCORPORATION OWNERSHIP
---- ------------- ---------
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
- --------------------------
* Subsidiary of Harman Automotive, Inc.
** Subsidiary of Hayes-Albion Corporation
*** Subsidiary of Doehler-Jarvis, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 9,212
<SECURITIES> 0
<RECEIVABLES> 78,779
<ALLOWANCES> 2,589
<INVENTORY> 54,218
<CURRENT-ASSETS> 147,222
<PP&E> 255,841
<DEPRECIATION> 123,575
<TOTAL-ASSETS> 307,494
<CURRENT-LIABILITIES> 145,125
<BONDS> 0
124,637
0
<COMMON> 70
<OTHER-SE> (547,198)
<TOTAL-LIABILITY-AND-EQUITY> 307,494
<SALES> 810,769
<TOTAL-REVENUES> 810,769
<CGS> 797,774
<TOTAL-COSTS> 797,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,659
<INCOME-PRETAX> (388,225)
<INCOME-TAX> 1,204
<INCOME-CONTINUING> (389,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (389,429)
<EPS-PRIMARY> (56.91)
<EPS-DILUTED> (56.91)
</TABLE>
